SaaS won't work for all software

Software-as-a-service increasingly prevalent in enterprise software but its model is not a perfect one-size-fits-all for any software, analysts caution.
Written by Jamie Yap, Contributor

The buzz over software-as-a-service (SaaS) in the enterprise software space may be getting higher, but analysts say the hype surrounding it needs to be checked as this delivery model is not a universal fit for each and every kind of software category.

While SaaS was beneficial in enabling new ways for IT shops to solve problems, Matt Healey, program director of software and services at IDC Asia-Pacific, said stressed that there was a lot of hype around it which companies should "take with a pinch of salt".

"People read about SaaS, that it is perfect and the greatest thing out there, so it must be applicable to every single software market. It's not [and] I am skeptical of any solution [which claims to be] one-size-fits-all," he said.

While SaaS was a "great invention and delivery model", Healey noted that only certain software types were a "natural fit" for SaaS such as customer relationship management (CRM).

Companies should take the hype over SaaS "with a pinch of salt."
-- Matt Healey
Program Director,
Software and Services
IDC Asia-Pacific

"CRM is perfect for SaaS [because] it is mainly used by salespeople who tend to be mobile and companies hire and fire salespeople often, so it needs a solution that is mobile-friendly and can be easily scaled up or down and add new users."

Human capital management (HCM) is similarly attractive for SaaS for the same reasons of easy and fast scalability, he added.

In contrast, software such as enterprise resource planning (ERP) and product lifecycle management (PLM), are not a good fit with SaaS, because its end-users were not necessarily mobile and the level of scalability was not as fast, Healey explained.

Somak Roy, lead analyst for enterprise solutions at Ovum, similarly noted that in Asia and worldwide, CRM, HCM, and collaboration are the few software "blockbuster success stories" that see high SaaS demand.

Both analysts' comments come in light of an announcement from SaaS vendor Salesforce which last month reported record billings for its CRM products, and acquisitions of cloud-based HCM vendors by IT giants including SAP and Oracle in recent months.

Weighing cost and other considerations
But rather than dismiss other categories as simply unsuitable, Roy emphasized it had more to do with the fact that the benefits brought by SaaS were not as advantageous or compelling when considering the functionality and total cost of ownership (TCO) for these kinds of software.

For instance, business process management (BPM) software has "absolutely nothing to do with" where an application is delivered from, and everything to do with organizational complexity. In terms of total ownership costs, the software acquisition, integration, customization, process reengineering, and training are high, whereas the hardware and software infrastructure are low.

Hence under these circumstances, the cost advantages of SaaS "cease to be a big deal", Roy explained.

He pointed out that the competitive pricing of SaaS remains a main driver for adoption, so unless a SaaS vendor can offer a cost advantage regarding a particular software type, that market will not see it become on-par with non-SaaS offerings. "That is why SaaS is a peripheral low in so many markets such as BPM, supply chain management (SCM) and business intelligence (BI)," he said.

Analysts nonetheless acknowledged that while SaaS was not applicable across all software categories, the market for SaaS was indubitably expanding.

Healey, for one, noted SaaS will only continue to get more developed alongside cloud maturity, which opens up opportunities for business continuity and disaster recovery. For instance, SaaS would be useful for companies to quickly return to operations and recover their data after losing their data centers in a natural disaster, he said.

In addition, as emerging markets such as those in Asia-Pacific mature and broadband penetration grows, companies will start having more advanced needs and seek different ways of consuming IT to meet these needs, which might lead to SaaS adoption, he said.

Right SaaS approach
Healey pointed out that "organizations think that SaaS will solve all of their IT problems are wrong".

"The better approach is to go into SaaS with your eyes open--that it can help some of my problems, but not applicable for every single thing that I do," said the analyst.

Healey suggested that three pointers for companies to consider when determining if a SaaS offering is appropriate.

Firstly, companies should look at the distribution of the targeted end-user base. The analyst pointed out that it is the case for many organizations that users are desk-bound with little overseas travel, and a traditional on-premise hosted IT function is "entirely reasonable".

Secondly, companies should also think about how quickly their software solution needs to be scaled.

Thirdly, how important the security of the data is. For instance, organizations with highly confidential and sensitive data will find SaaS less of an attraction, he noted.

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