SaaS (Software as a Service): True Innovation or an IT-Fad?
What small and medium-sized businesses can expect from the current trend in
the software industry
Author: Rene Meister, Managing Director of myfactory
International GmbH in Frankfurt am Main, Germany
Software as a Service (SaaS) is all the rage these days. Although it was mainly driven by the
software industry at first, corporate software users in small and medium-sized businesses
are starting to find an interest in this innovative approach. In times of crisis, the promise of
cost advantages is sure to arouse attention and is worth taking a closer look at. But the
propagated technological advantages are also creating a stir: no need for constant
investments in an own IT-infrastructure, updates and upgrades are available to the entire
company at no extra charge, server capacities are no longer necessary to operate the
company’s software. And all that is needed is a browser on your desktop PC. That’s the word
on the street - and these are subjects that medium-sized businesses have been waiting for
quite some time now. But can SaaS really fulfil these promises? Are the solutions secure
enough? And which software systems are currently already available to companies?
What exactly is SaaS?
SaaS, ASP (Application Service Providing), on-demand or Outsourcing. Companies
interested in these topics are confronted with a multitude of terms and definitions and they
are not always consistent. Even the term SaaS itself is used in many different ways. Often,
the term is understood to mean “hosted solutions”. But this understanding ignores the actual
advantages of SaaS. It is therefore absolutely necessary to take a deeper look into the
meaning of the term.
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Wikipedia offers quite a good definition:
“Software as a Service, abbreviated as SaaS and typically pronounced “sass”, is a model of
software deployment whereby a provider licenses software based on internet technologies to
customers as an on demand service.“
According to this definition, SaaS is
What’s Driving SaaS Viability?
initially a new distribution channel.
• Increasing broadband penetration
The end user is given access to his
• Improvements in remote access technologies
or her software in a new way. This is • Virtualization technologies
why SaaS is often also referred to • Improvements in technologies for development of web-
as software on-demand, i.e. based applications
software, which is only implemented • Need to support multiple locations
when needed. This does, in fact, • Need to accommodate a variable environment -manage
both rapid growth or downsizing the organization
explain the key characteristic of the
• A drive to reduce or redeploy IT resources
SaaS approach. The plan is for
customers of SaaS solutions to
merely purchase a subscription to their software and then use it as needed. This means that
the traditional purchase of licenses becomes obsolete. The \"rented\" software is made
available to the client in exchange for a monthly fee. However, the client not only rents the
software, but also receives an entire infrastructure with according services. Therefore, the
client’s company no longer needs its own computer centre or server. This makes a big
difference in terms of costs.
The ASP-approach is based on other factors. In the ASP-world, each client receives his or
her own application or application entity, which is operated and hosted on a dedicated
hardware platform. SaaS products, on the other hand, are made available to all customers
on a joint platform as a multi-client solution.
This procedure requires a powerful infrastructure as the access rate, security and availability
has to meet high demands. SaaS providers must take the necessary security and
authorization precautions to ensure that customer data is kept separate.
The SaaS mode has great advantages over the old ASP model. The joint hardware
infrastructure can be used cost-effectively and lowers development and maintenance costs
at the same time. The manufacturer only has to develop and maintain one system instead of
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offering numerous customized installations. This results in cost-advantages for the user as
well.
Another term that often comes up is “outsourcing services”. These work differently;
outsourcing services are usually involved on a project basis and develop tailored solutions
for each customer. They follow the so-called “one-to-one” approach: a solution for exactly
one client. In the SaaS world, on the other hand, a “one-to-many” approach is pursued. In
this case, one-to-many means that a standardized solution is offered to several users and/or
companies at the same time.
When the requirements of a company grow, such standard software will no longer suffice.
Yet this is likely to be a merely hypothetical scenario for small and medium-sized businesses
as modern SaaS-solutions offer a lot in terms of functionality. However, this point should still
be taken into account. Industry solutions, for example, are often developed to suit the needs
of a company and are adapted accordingly. Therefore, it is necessary to ensure that the
transition from SaaS software to internally maintained and individually adapted software is
feasible without incurring too much expense and effort. Many companies should start with a
SaaS product that comes with the option of changing to another software solution at a later
date.
One-to-One and One-to-Many: Different requirements demand different solutions
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Which requirements must be met?
There is only one basic requirement for the implementation of SaaS software: an effective
internet connection. As small and medium-sized businesses across the country already meet
this requirement, there are no technological reasons against the use of SaaS products.
Accordingly, analysts are making positive forecasts. The “Experton Group” has recently
published a paper containing the following words: “small businesses, independent
contractors and start-ups often have very limited resources, if any at all, that are available for
the implementation, maintenance and care of information technology.” It goes on to say that:
“the use of IT-supported features (business solutions, office applications, IT-security, internet
applications, etc.) and their operation, maintenance and update as a service-based external
offer relieves small businesses in terms of organization as well as staff. This leaves them
free to concentrate on their core business.” The analysts conclude their paper with: “The
Experton Group recommends that small businesses should look into SaaS as an option for
their business operations”.
The Cost Aspect
As SaaS comes with the promise of
cost advantages, it is a model that Benefits to SaaS Customers
arouses a great deal of interest • Faster deployment and time-to-value
during these economically difficult • Ease of Use of SaaS Applications
• No upfront capital or additional IT infrastructure costs
times. The software industry
• More Efficient Utilization of Human and Capital Resources
emphasizes that “the implementation
• Seamless Product Enhancements and Upgrades
of SaaS lowers necessary
• Reduced System/Network Downtime
investments. The operating costs
• Increased Focus on Core Business
become more transparent, making it
easier to plan accordingly.”
And, in fact, the SaaS approach is convincing in this regard. As no software needs to be
installed for the user, no costs are incurred. The users only require a browser for their access
to the Internet. Maintenance is handled by the software provider. This has further benefits in
addition to the cost advantages. Software updates are centralized and made available to all
users immediately without using any internal resources.
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A SaaS project for a medium-sized business can therefore usually be finalized within a few
days. Furthermore, the monthly rental charges are fully transparent and do not hold any
unpleasant surprises. Financially speaking, users have to tie up less capital and also profit
from a low initial investment. At the same time, the company’s internal IT has less stress and
the introductory period for the software is lowered dramatically.
Trials on the Internet are an attractive option for interested companies. The trial accounts
usually allow extensive testing of the software in question and are offered by the software
industry without obligation. Last but not least: security matters are now also no longer a
burden.
What are the risks?
So what are the risks and downsides to this model? What about data-security, for example?
Small and medium-sized businesses often do not like the idea of saving critical business
data externally. Are these concerns justified? In a word: no! There are hardly any medium-
sized businesses that are in a position to implement the same high security standards
offered by the software industry’s high-security data storage centres. Quite the contrary is
true; servers with a local internet connection in normal office buildings often have a
significantly higher risk potential.
Other than that, risks are more likely to lie with providers in the traditional software industry.
For some of these software companies, SaaS is not an attractive solution at all. Particularly
providers whose main business is
selling software licenses are not Advantages for small and medium-sized businesses
likely to be impressed as licenses
are no longer necessary in the • Deployment & Management Handled by ISV
SaaS world. • Function immediately
• Flexibility - Sharing information to whomever they are
Furthermore, many of the existing working: Own Employees, Contractors, Consultants,
Customers and Suppliers
solutions on the market –
• Clear, calculable Costs -- Costs as Opex
particularly those aimed at small
• Gain immediate access to the latest innovations
and medium-sized businesses -
are not technically suitable for use
as web applications because SaaS solutions require web-based technologies. These must
be extremely scalable, secure and ergonomic. They must allow a centralized input of
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updates and offer scope for expandability. This technological basis is by no means offered by
all ERP, CRM or accounting software.
The user demands regarding availability and support are also justifiably high. A SaaS
solution must be available 24 hours a day, seven days a week. Only software companies that
offer solutions with a solid foundation and the according services will thrive and profit from
the SaaS market trend.
What are the scenarios that are compatible with SaaS applications?
The topic SaaS is often reduced to CRM solutions. This viewpoint is, however, outdated.
Meanwhile, modern SaaS solutions deliver the same features as traditionally installed
systems. The business software Myfactory Business World, for example, is suitable for ERP
(Enterprise Resource Planning), CRM (Customer Relationship Management), Production
Planning and Control, Financial Accounting, MIS (Management Information System), HRM
(Human Resource Management) and B2B (Business to Business).The generally limited view
can be traced to the fact that CRM solutions were the first SaaS product on the market and
therefore have the most users. But nowadays, SaaS no longer has any restrictions regarding
functionality.
Conclusion: Concentrate on your core business
Small and medium-sized businesses are often highly-specialized in their area of business.
They are usually not IT experts, which is why rented applications and outsourced IT
processes are of great interest. This possibility allows companies to concentrate on their core
business while modern software solutions are implemented and taken care of by the experts.
However, this does require a new outlook on IT as this “rental model” significantly changes
the role of corporate IT.
The software industry still has to make it clear that there are no objective reasons against the
implementation of SaaS solutions for small and medium-sized businesses. This may still take
some time.
However, analysts agree on one point: the SaaS market will continue to enjoy significant
growth. In a few years, SaaS software and internally installed systems will coexist as a
matter of course. Therefore, SaaS is much more than just this season’s latest fad.
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