The future is here -Software as a Service (SaaS) report May 2010

Following on from our Cloud computing report in the March edition, Manufacturing & Logistics IT spoke with a number of leading industry spokespeople about Software as a Service; a software deployment model that is stimulating accelerating interest within the business-to-business software solutions space.

According to a recent Gartner survey, more than 95 per cent of organisations expect to maintain or grow their use of software as a service (SaaS). Survey respondents cited significant integration requirements and a change in sourcing strategy as the top two reasons for adoption followed by high total cost of ownership (TCO). Sharon Mertz, research director at Gartner, makes the point that SaaS applications are clearly no longer seen as a new deployment model by the survey base, with almost half of those surveyed affirming use of SaaS applications in their business for more than three years. The varying levels of maturity within the user base suggest growing opportunities for service providers along the adoption curve, as organisations seek assistance with initiatives ranging from process redesign to implementation to integration services, she said.


But what exactly is SaaS; can it be clearly defined as a concept? Gavin Clark, commercial manager at Synergy Logistics, believes that, with all terminology, the interpretation of SaaS is different across users and vendors. He makes the point that many business users are confused by the different offerings made under the banner of SaaS. However, by way of clarification, he offers the following basic definition: In simple terms Software as a Service allows businesses and individuals to access the software applications their business needs on an on-demand basis, normally via the web. He adds, however, that this is very different to the traditional software offerings, normally client server-based, that reside off-site and are delivered to a business via Terminal Services or products such as Citrix. True SaaS solutions are specifically designed to operate on the web, utilising the latest in Web Native technologies to take advantage of all the benefits, without the inherent issues associated with legacy solutions deployed via the web, said Clark. The more forward-thinking software vendors will also have aligned their commercial offering with the principles of SaaS and would typically be charged on a monthly basis with short term contracts available.

ForClark, the clue is in the name: Consider the last word in the acronym SaaS Service. Software has traditionally been offered as a capital purchase, involving software licensing, protracted project timescales, significant hardware and implementation costs and on-going support contracts. True SaaS revolutionises this, in the same way that contract hire revolutionised the motor industry or temporary staff changed the way that busy companies sourced human resources. Good SaaS offerings should avoid all of these traditional pitfalls and problems.

Steve Farr, product manager at Microsoft Dynamics, also points to the definition being in the name. Its about the service paradigm that we are told that we are moving to. That is, intellectual property for intellectual propertys sake is not worth as much as it used to be and this is true for music right the way through to software. The overriding commercial relationship on intellectual property therefore should be around providing it as a service. Do I think this is correct? I dont because the whole of the intellectual property behind a solution as opposed to a piece of software is not purely owned by the vendor of the software; it is also owned by the customer. The customer, and indeed other business partners, will configure, re-align, add coding and add a huge amount of value value-added resellers and so forth. Customer have a huge amount of value to add to these solutions in terms of what they want to do to them and how they want to make them work for their organisations. Therefore, the whole of the IP cannot be wrapped up in a service. So what we see is much more of a mixed paradigm where there will be what Microsoft calls Microsoft Plus services, and there will be certain standardised services that you can boil down to a Cloud application and that you can use at will. But there will also be software, because the intellectual property cannot be encapsulated purely within a Cloud application; it will also have to be at the customer end. If you look at a simple Cloud application, iTunes, its not really a Cloud application at all; its a download. It has to be a download, you have to run music tracks on your computer because youre not always going to be connected. And you want to add as the consumer of those tracks your own information. You want to rate the tracks, you want to organise them into different playlists and so on. So you can add your own intellectual property in order to come up with the solutions to your listening needs. So if its true in that microcosm way for iTunes its very very true when youre talking about business applications.

For Dave Carmichael, senior product marketing manager at Sterling Commerce, SaaS is in essence multi-tenant, involving the shared use of one software instance, together with the capability for frequent software updates. When we talk about on-premise software we refer to the ability to customise and the benefits that that brings; when we talk about SaaS we refer to configurations you cannot customise our multi-tenant instance, because you're providing the software to everybody, he said. The definition provided by Fabrice Maquignon, CEO of Transwide, also references the fact that SaaS is a single-instance, multi-tenant application that is modular, and which is available on a pay-as-you-go model.

Solid integration platform

Maquignon adds that a key benefit of a reliable SaaS solution is the way it can connect to other information systems. This is really a solid integration platform that allows you to be very versatile in the way you interface with your clients this is a critical point he remarked. Maquignon also pointed out that in the SaaS marketplace there is normally no up-front capital expenditure involved, so from a cost-perspective this helps to advance the SaaS models appeal to end users, he said. Maquignon adds that the technology and agility of SaaS solutions is very compelling. He explains that every authorised person within a business community can have access to the softwares functionality, while upgrades can be easily managed in a hosted environment by the solutions provider and made available to everybody instantly due to the single-instance, multi-tenant nature of the application.

InClarks view, the main benefits of SaaS over traditional software offerings are significant and numerous. He suggests the following key highlights:

  • Tier 1 solutions delivered simply to your desktop.
  • Rapid deployment with minimal client IT resource requirements, both in terms of personnel and hardware.
  • Dedicated off site resources to manage the environment and databases that support your business critical application.
  • Often No Capex Short term contracts matching your business need.
  • Faster ROI, often self funding.
  • Significant resiliency and redundancy built into the solution architecture.

Raghavan Subramanian, associate VP, Cloud Computing at Infosys sees the key benefits of SaaS applications as offering users the ability to access software via a Cloud platform on a pay-as-you-go or, say, monthly basis, as an alternative deployment model to installing the software application on-premise. He adds that, in some circumstances, traditional applications can pose a number of challenges. For example, he points out that in the B2B space applications may be developed for use by organisations such as manufacturers, resellers and OEMs within a particular partner ecosystem. If copies of the software application are distributed to each of these partner companies software customisation can become difficult to manage, sometime resulting in silos of separate customisation can take place, which can compromise the overall efficient use of the application. SaaS offers a means of bringing this type of situation under control, said Raghavan. He adds that individual companies within the business ecosystem may not have the level of freedom of customisation they had with traditional applications; but nevertheless SaaS can offer a single instance of the software that, if suitably configured, can accommodate the needs of all partner organisations within a business ecosystem. Although the level of possible customisation would be less than it would be for an application used by a single user organisation, the overall benefits can be greater, says Raghavan. It can bring a lot more discipline in controlling the software that is used by an organisation and its partners, he said.

Raghavan also makes the point that it is the SaaS applications that are designed to work in an off-line capacity that can be particularly attractive for end users. His view is that users should be able to use many applications, such as email, in an off-line capacity without having to do any crazy workouts. If providers are able to offer this advantage then end users will be a lot more likely to use these types of SaaS-based applications, he said.

Kay Van De Loo, senior VP of technology strategy at SAP, believes the time to value is a very convincing argument for a SaaS solution. This, he points out, is because it can be up and running quickly with a short configuration time. Another advantage cited by Van De Loo is that users can pay as they go. Interestingly, he adds that these subscription models really have nothing to do with where the software is located. In fact, were now beginning to launch subscription-type licences for our on-premise applications, he said. So, as it happens, the two models fit together well. If you have a subscription-based licensing model and an infrastructure that scales up easily when new people subscribe and can scale down when you lose subscribers then that just happens to go well together. So the subscription model can also be used for traditional on-premise applications, and you can sell on-demand applications using traditional on-premise licence models. Jimmy Harris, MD of Cloud computing at Accenture, doesnt distinguish between SaaS and, quote, the Cloud. His definition of the Cloud is a convergence and evolution of a set of technologies related to IT and virtualisation that have created the opportunity to lower the total cost of ownership for technology and enabled services. I think SaaS is a variant of what is commonly known as the Cloud; which by the way in two years time will probably be called something else, he said.

Integration and customisation issues

Are there any notable barriers to wider adoption of the SaaS model by end users? Despite the continuous adoption of SaaS across regions, more than one-third of the respondents of Gartners recent SaaS survey noted concerns on their recent SaaS deployments. Most respondents with these issues are located outside North America, specifically in Asia/Pacific where high-speed high-availability networks are not as readily available as inNorth America. Issues with integration and customisation were some of the primary issues cited by respondents overall. These issues aside, organisations are becoming more savvy when it comes to renegotiating their SaaS contracts, Mertz said. A key survey finding was that more enterprises are renegotiating contracts for greater functionality, additional users and improved financial terms. Thirty per cent of respondents said that they had renegotiated their SaaS contracts before the end of the initial term.

Maquignon sees less and less stumbling blocks for SaaS adoption. In our own market space Transportation Management Solutions we see the SaaS model gaining ground all the time, he said. Whereas three to five years ago some IT managers had more concerns about SaaS they now know that, in our case, we can give them the ability to deliver faster to their internal customers. Our model can also deliver a quick return on investment. I would say the ROI on a Transwide implementation can be less than a year, and in some cases as little as a few months.

Clark suggests that true SaaS application development relies on embracing new technologies and designing software specifically for web deployment. His view is that while many may adopt an approach of applying a new front end to an old solution, the real benefits are only derived when starting from scratch. This will take time for those who are not already there and will delay their ability to meet the undoubted increase in demand for these solutions, saidClark. Beyond that the limitation is as simple as can I get connectivity to the internet.

Will SaaS applications becoming an increasing threat to 'on premise'-type software applications over the next 18 months or so? Harris believes that, first, you have to put a timeframe around it. In the case of large enterprises, they have a significant investment in their installed base and migration costs are also very significant, so making an economic argument is still difficult therefore that's going to take time to sort itself out, said Harris. There are also the issues about data privacy and security levels, but part of the way these issues will be solved is through the help of the service providers themselves.

There are specific types of business process applications that remain largely untouched by the SaaS zeitgeist. One of many areas is production scheduling software. However, Mike Novels, managing director at Preactor International, comments that if there is more of a demand for SaaS-based scheduling applications then Preactor will certainly be able to respond to it. But quite frankly we havent had a demand for SaaS-type applications, he said. Im not sure of the business model yet, because how do you charge for it would it be based on, for example, the amount of time the user is logged on to the system, or the number of orders that are scheduled? Where you have an ERP system thats transaction-based you can charge per transaction, but you dont do that in a scheduling system. Its not really a technology issue in terms of the application; its more a case of working out how the business model can work in a scheduling environment. We can offer a rental model of our software if a company requires it, but the company still actually implements it on its local PC. However, Im sure SaaS will become more important within our market as time goes on.

In terms of the dynamic between companies possibly requiring some software capability on premise and some in the Cloud as a SaaS offering, Michael Klemen, discrete manufacturing & automotiveWestern Europeat Cisco, makes the point that there are certainly things that organisations will still want to own, keep and have on their hard drive and maybe even carry along with them from time to time in a physical form. If you look at large global companies many are extremely proud that they have their own data centres that are totally secure and have their SAP and Oracle applications totally secured. Interestingly, the companies which do the auditing for these large organisations get access to everything and maybe even from time to time copy data onto PCs and laptops, disks or USB sticks and carry this data around so are these organisations as secure as they think they are? Klemen adds that this scenario provides a case for SaaS applications where information can be accessed remotely and isnt at risk of, for example, being lost in transit on a USB stick. He also references the flexibility advantages of SaaS-based applications. Lets take a car analogy do I want to own the car or do I want to drive it? And my pattern for driving might change. For example, in the Summer I may want to drive a sports car, and in the Winter maybe I want an SUV to go skiing or whatever.


Effective response

Ron E Brown, consulting and systems integration UK technical director at CSC, believes the market is already beginning to see this process taking place. His view is that many of the software and hardware vendors in the enterprise space are confused as to what is really occurring in the Cloud/SaaS space, with their revenue streams potentially completely disrupted. One current view, which Brown is not yet sure if he subscribes to or not, argues that, in Cloud terms, hardware will no longer be sold, it will only be able to be deployed in Cloud-based data centres and hardware vendors will take a slice of the generated revenue they wont actually sell the assets. Now if that turns out to be true software could follow suit, with all software conforming to a rental model deployed in the Cloud, he said. If you look at some of the big software vendors, they definitely need to address the Cloud issue because if theyre faced with a low-cost-point and secure Cloud-service ERP system, the traditional vendors maybe wont survive for too long without finding an effective response.

Clarkcomments that SaaS deployment is at the top of most IT departments selection criteria, according to leading industry research articles. Our experience over the past twelve months answers the question; we are currently deploying a new SaaS WMS solution every 6 weeks or so, in what is an extremely difficult business environment. The numerous advantages made available by SaaS applications make the on-premise software solutions increasingly hard to defend.Clarksees key advantages as including:

  • Faster implementation times, allowing businesses to benefit from the software solution much quicker than ever before.
  • Minimal IT resources needed for many SaaS applications, true SaaS applications only require a browser, so already over-stretched IT departments are not required to implement or support to these key business systems.
  • Shorter term contracts, made possible through SaaS deployment, reduce the risks associated with traditional software acquisition.
  • Resiliency and Redundancy in the hosting environments are often far greater in a professionally hosted SaaS solution, than is financially viable for an On Premise solution.

SaaS vendors are highly motivated to ensure that the particular solution continues to provide an excellent service for their clients, as the barriers to change are significantly less due to the low initial capital investment,Clarksaid. Once a traditional software vendor has received all of the money for an on-premise solution, are they always that motivated to serve their clients?

Just a different deployment model

Will the B2B SaaS solutions market place become largely commoditised within the next few years, in the same way many of the more traditional applications have in recent times? James Norwood, global VP of product marketing at Epicor, argues that, to some extent, this is already happening. SaaS is just a different form, a different deployment model; at the end of the day its still a software application that has been written and offered to the customer, he said. Clarkreflects that the software industry has gone through significant changes over the past 10 years with many of the traditional smoke and mirrors being removed. These have been replaced by pragmatic, customer-focused and commercially driven vendors, he said. As we have said before, the clue is in the name Software as a Service and the increasing expectation of businesses to be able to benefit from Day 1. In the longer termClark also expects to see much greater and simpler integration between the SaaS vendors in different verticals, leading to a plug and play SaaS world.

In the current market climate, are more end users moving towards the use of SaaS solutions, or are they keeping their current on premise-based IT regime in place in order to save money in the short term during a challenging economic period? ForClarkit is clear that the recession has certainly engendered in companies, large and small, a less constrained view on the many benefits of SaaS solutions. Its a common misconception that the sole reason for selecting a SaaS solution is a lack of capital budget; this is simply not the case, he remarked. Many SaaS clients are successful businesses going through significant expansion. Their choice in selecting a SaaS model acknowledges the core shift in the provision of business critical software, to be about acquiring sophisticated solutions to business requirements, but in the manner of an essential service. Forward-thinking companies realise that retaining an IT regime that is not meeting their business requirements and those of their customers is far from a money-saving exercise it can indeed be the very definition of a false economy. SaaS solutions offer them the best of both worlds; the ability to meet their operational needs, without affecting the financial constraints faced by many businesses today.

Knowledge insight

What will likely be the upcoming developments to look out for in the world of B2B SaaS applications over the next 18 months to two years? Colin Bannister, VP technical sales for UKI at Computer Associates, reflects that the number of available SaaS solutions will continue to grow apace. With this in mind, he explains that Computer Associates is looking to build a knowledge system containing insight into what solutions are available in the Cloud, what benefits they can offer and whether they are a suitable option for a particular organisation. As an example, a company may be running its email service in-house on Outlook, but obviously there is a potential solution out there called Google mail. So we will help companies to assess the cost of performance of their servers versus what, for example, Google mail can provide them with, as well as helping them to decide whether to go to the Cloud or stay in-house?, explained Bannister. We are looking at building what you could call Cloud insight. It will involve building a catalogue of trusted SaaS solutions currently available, with a view to helping users to make informed decisions about whether or not to move to a commodity-type service as opposed to doing it themselves because there is a cost-performance risk element involved.

Farr believes that the B2B world would like to re-examine the whole area of e-commerce. We had a big crash in the year 2000. Lots of vendors providing e-commerce software on the web went fell by the wayside because there wasnt enough value there. That was largely driven by a national model of licensing, which didnt work and which customers werent willing to wear paying a penny for every transaction. It was also about content. On the web you couldnt buy all the stuff you wanted to buy, you couldnt sell all the stuff you wanted to sell, and it was very difficult to catalogue anything. Interestingly, the cataloguing industry was the biggest B2B e-commerce industry by the time it all came crashing down. So were left with the storefront-type technology, which works pretty well; where we have a single seller and where were left with traditional B2B connections through EDI, which have always been there and have always worked particularly well. I think there is now an opportunity to re-examine that and come back to trading platforms. Our fingers were burned once, but we know what the mistakes were, and we do have to go back there one day because the advantages in terms of opening up markets to organisations will still be as compelling as they were in 1998/9.


Hybrid on-demand, on-premise solutions

Van de Loo believes the trend is going to be for hybrid on-demand, on-premise solutions that will use the on-demand aspect for what he refers to as Cloud-native capabilities basically things you couldn't have without the Internet or whatever network you are on. Its about collaboration with people outside your company and is something that we need that belongs on the Internet and involves something you cannot do on your own network. And this can be linked to your on-premise systems. Your material requirements planning doesn't necessarily belong in the Cloud; there's nothing wrong with having it on premise. But you can tie-in collaboration with your suppliers together with your material requirements planning so whenever you have exceptions in your ERP system your supplier can be informed about this on line and collaborate with you on how to solve this issue. So, we see more of these types of hybrid deployments where we extend existing and new on-premise applications by these Cloud-native capabilities sitting outside of the company. Here we see very big potential, and the opportunity to create new applications that use these Cloud-native elements as a core part of their functional scope and as a core part of how people interact with them. Carmichaels view is that the biggest development will be a demand for integrating SaaS technologies in the same way that there was demand for integrating the supply chains of organisations in recent years, and I know I probably keep coming back to it but that to me is the fundamental thing, helping that stuff to talk to each other.

Are there any other points you would like to add with regard to SaaS solutions?

Clarkmakes the point that SaaS solutions are not vapourware and pipedreams. They are running 24/7 business-critical applications for some of the worlds largest companies they are proven and available now, he said. However the questions to ask are:

  • Has it been designed specifically for SaaS deployment using web native technologies, or just installed on a server farm and offered out as a web-enabled solution on a monthly payment plan?
  • Is the server infrastructure used specifically designed for Web Access, or a multi-purpose venue, without the levels of redundancy and resiliency required to provide maximum uptime?
  • Are the relevant implementation services delivered as part of the solution, fully embracing the Software as a Service ethos, or are these still charged in the traditional way, or not provided at all in a self service method?
  • Is there a strong support team behind the application, providing the same levels of customer support that a traditional software purchaser would expect, or is the SaaS application treated like a poor relative to the vendors other Traditional applications, due to the lack of initial capital investment made by the SaaS user?

Clarkadds that the SaaS vendor should be able to offer a solution that is:

  • Engineered for SaaS.
  • Certified safe (with a resilient deployment infrastructure).
  • Fully inclusive of the essential implementation services (and RF hardware if required).
  • Delivered and supported with excellent customer care.
  • And with the internet provision managed to limit any aspects of Internet connection reliability issues.

If this is the case, then the recognised benefits are really self-evident, saidClark. In summary, SaaS applications are the solution that your business needs, without the capital investment barriers that can make it unavailable when you really need it.

Andrew Bond, core technology director at Oracle EMEA, has a view of the future where applications will be deployed either publicly or privately in such a way that users can pick up components and join them together to fit their organisations particular business processes. So I think the definition of SaaS will become a lot less rigid than it currently is, he said. Bond also believes that platform providers need to further demonstrate their offerings inherent security attributes to the SaaS application vendors. For example, we need encryption throughout the stack and must ensure that the data is transparently encrypted when it runs through the network. Platform providers need to demonstrate that every part of that configuration in terms of application has a right to be there. The process also needs to be auditable and fully compliant with security as well as legislation that affects all organisations concerned. And in terms of quality of service, I think high availability is important; SaaS vendors need to know they can offer software to their customers wherever they are in the world.


Careful consideration

The final word comes from Simon Black, managing director of Sage Pay, who suggests that if you are looking to source a software solution either on-premise or as a Cloud/SaaS offering, ask yourself what is really important to you as a business, and what the benefits to the customer would be through using a particular software solution. For example, is it remote access you are looking for or maybe functionality that might not be available yet in a web-based application. And consider what your timescale and available budget is because investing in, a software system can amount to an investment of thousands or even tens of thousands of pounds and take months or longer to implement. So be aware of the options and be aware that software in the Cloud is a trend thats going to take five or even ten years to really start to mature. If you take a retail shop analogy, there was incredible hype in 1999 around the Internet. Some commentators said shops were going to disappear, but what really happened was the .com companies in retail didnt survive the hype, so to speak. Real changes take years to mature, so Cloud has some real benefits but it will take several years to become truly established as a way of enabling you to manage your business.

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