Software as a Service
Software as a Service (SaaS) is an idea whose time has come. Technical and market obstacles that once held back hosted software are resolved and venture capital is available.
Sep 11, 2006
Software as a Service (SaaS) is an idea whose time has come. Technical and market obstacles that once held back hosted software are resolved and venture capital is available. Entrepreneurs can now build software companies around remote sales and support—rather than expensive direct sales, support, and marketing—and deliver on long-awaited customer benefits (unprecedented business process outsourcing, pay-per-use pricing, and the like). But while SaaS may be the wave of the future, it is not a panacea. And unless companies building to this model understand and address its inherent pitfalls, the process will be anything but smooth sailing.
For years, application service providers (ASPs) sought to make SaaS a reality, but last-mile bandwidth was insufficient, server infrastructures were not reliable enough, and operating platforms were not stable enough. ASPs also lacked multitenant applications (for simultaneous sharing by multiple customers), and many customers were reluctant to allow data to reside outside of their firewalls.
Now, with technologies that successfully address these issues, the advantages of SaaS can be realized. But to deliver on them, companies will first have to run a gauntlet of configuration, design, architecture, complexity, integration, and other challenges. For instance, companies must be able to configure environments for individual customers without requiring programming changes, and build applications that will not cause performance issues as they scale. Companies that fail to implement architectures allowing scalable designs will be unable to configure systems to meet ongoing needs. And because it is not feasible for very large numbers of customers to share the same software, applications must be architected up front to be easily broken into pods as needs grow.
SaaS companies should also avoid certain complex applications, such as those that are deeply integrated with back-end systems (ERP and the like) or highly customized to meet specific customer needs. These applications are not a good fit for SaaS, and negate its cost and time advantages.
Legal contract issues can create pitfalls as well. Traditional software companies have maintenance contracts to address legal issues (automatic renewals, termination clauses, Service Level Agreements, and so on). But SaaS companies will have to provide subscription licensing for these purposes. Customers will back away unless the licensing clearly shows what they get for their monthly fee, provides for accountability, and offers strict guarantees up front. For this reason, some SaaS companies might want to outsource—rather than host—their applications to other companies that specialize in SaaS enablement and delivery and provide hosting, back up, and disaster recovery services. Such outsourcing allows companies to deliver their applications to end customers while minimizing legal risks.
Finally, SaaS companies must understand that their initial operating costs will be higher than those of traditional software companies. Customer acquisition costs will be higher because it will require sophisticated web marketing (beyond buying keywords), and sales, marketing, and operating expenses will be higher coming out of the gate.
Companies that successfully avoid these pitfalls will be able to deliver the advantages of SaaS to their customers. For instance, SaaS will save customers the time and costs of performing system work and business functions in house by allowing outsourcing of compensation, spending, application lifecycle, inventory management, and other processes. SaaS also gets applications up and running in days rather than months and allows enterprises to make cost a pay-as-you-go variable rather than a huge, up-front payment.
For example, on-demand sales compensation management services now available from one of the early SaaS companies provide automated, easy to use, affordable ($50 per-salesperson), and real-time visibility into sales performance—with no software to buy and no IT involvement required. Customers can quickly and effi
For years, application service providers (ASPs) sought to make SaaS a reality, but last-mile bandwidth was insufficient, server infrastructures were not reliable enough, and operating platforms were not stable enough. ASPs also lacked multitenant applications (for simultaneous sharing by multiple customers), and many customers were reluctant to allow data to reside outside of their firewalls.
Now, with technologies that successfully address these issues, the advantages of SaaS can be realized. But to deliver on them, companies will first have to run a gauntlet of configuration, design, architecture, complexity, integration, and other challenges. For instance, companies must be able to configure environments for individual customers without requiring programming changes, and build applications that will not cause performance issues as they scale. Companies that fail to implement architectures allowing scalable designs will be unable to configure systems to meet ongoing needs. And because it is not feasible for very large numbers of customers to share the same software, applications must be architected up front to be easily broken into pods as needs grow.
SaaS companies should also avoid certain complex applications, such as those that are deeply integrated with back-end systems (ERP and the like) or highly customized to meet specific customer needs. These applications are not a good fit for SaaS, and negate its cost and time advantages.
Legal contract issues can create pitfalls as well. Traditional software companies have maintenance contracts to address legal issues (automatic renewals, termination clauses, Service Level Agreements, and so on). But SaaS companies will have to provide subscription licensing for these purposes. Customers will back away unless the licensing clearly shows what they get for their monthly fee, provides for accountability, and offers strict guarantees up front. For this reason, some SaaS companies might want to outsource—rather than host—their applications to other companies that specialize in SaaS enablement and delivery and provide hosting, back up, and disaster recovery services. Such outsourcing allows companies to deliver their applications to end customers while minimizing legal risks.
Finally, SaaS companies must understand that their initial operating costs will be higher than those of traditional software companies. Customer acquisition costs will be higher because it will require sophisticated web marketing (beyond buying keywords), and sales, marketing, and operating expenses will be higher coming out of the gate.
Companies that successfully avoid these pitfalls will be able to deliver the advantages of SaaS to their customers. For instance, SaaS will save customers the time and costs of performing system work and business functions in house by allowing outsourcing of compensation, spending, application lifecycle, inventory management, and other processes. SaaS also gets applications up and running in days rather than months and allows enterprises to make cost a pay-as-you-go variable rather than a huge, up-front payment.
For example, on-demand sales compensation management services now available from one of the early SaaS companies provide automated, easy to use, affordable ($50 per-salesperson), and real-time visibility into sales performance—with no software to buy and no IT involvement required. Customers can quickly and effi