SaaS 101: The Benefits


Viva la SaaS!In Matt’s previous post, he made mention that the true sign of SaaS’s arrival is that it has garnered the sincere interest, and better yet dollars, of the investment community.  More people in a greater array of business roles are giving SaaS the ol’ thumbs up.

We’ve established that the pursuit of SaaS is on the minds of *almost* everyone, but what is it about SaaS that gives us all the warm and fuzzies?  For the most part, SaaS is still a nascent industry.  It wasn’t long ago the purveyors of SaaS applications or enablement technologies were referred to as the tech industry’s “lunatic fringe”.  Strangely, the benefits of SaaS have emerged and shown a bright light on the future of all those involved in delivering software functionality to businesses.  So, what are these benefits? This may read like a SaaS 101 laundry list… but to see where SaaS is going, it might be best to take another look at the fundamentals.

For the Consumer:

  • No client/server software installation or maintenance - that’s right, no more 800-page planning and implementation guides.
  • Shorter deployment time - potentially minutes as opposed to a phased implementation that could take months (see item #1)
  • Global availability - sure the technology exists to make on-premise software available outside of the premises, but we’re talking about functionality that is available from anywhere on the internet natively.
  • Service Level Agreement (SLA) adherence - reported bugs can be fixed minus any rollout overhead.  Sure the provider actually has to fix the issue, but assuming they’ve deployed a moderately efficient SaaS application the rollout of a patch or fix should happen in the blink of an eye.
  • Constant, Smaller, Upgrades - when you use a SaaS application, it is in the best interest of the provider to keep you happy and they can do so by constantly improving the application experience.  With SaaS this can come in the form of consistent miniscule changes that add up over time instead of monster patch and upgrades that cost you time and money to implement. 
  • Ease Your Internal IT Pains - This is a big one. Most of the last several points here highlight that SaaS offloads a great deal of IT pains incurred by software consumers in the traditional client/server model.  This leaves IT personnel to focus on improving the day-to-day technical operations of your company instead of being called upon to troubleshoot 3rd party software or maintain aging infrastructure.  Which leads to…
  • Redistribute IT Budget - by outsourcing software functionality to a provider, the enterprise realizes a cost savings in infrastructure requirements and IT personnel knowledge requirements.  This allows the enterprise to focus on core competencies.  It also means that the cost savings from using SaaS applications can be flat out saved, or reallocated to boost productivity through other services.

For the Provider:

  • Aggregate operating environment - as a provider, you own your domain.  No longer are you sending technicians to fix or customize your software because it doesn’t fit into a customer’s highly-specialized (or horribly outdated) infrastructure.  You have complete control to optimize an infrastructure to your SaaS application’s specific requirements.  This is synergy at its best, and leads to financial savings as well as less headaches.
  • Predictable Revenue Stream - the subscription model associated with SaaS means that your customers will pay you on a recurring schedule.  If you make this cycle flexible enough, you can get a real handle on forecasting revenues.  The payment may be tied to your product (think cell phone plans) where everybody pays according to the same term, or tied to your individual subscribers where some may pay monthly, some yearly, and some quarterly.  In my opinion, the more flexible you are with this piece of the offering the better.  Either way, because of the scheduled nature of cash inflow, revenue modeling becomes more reliable.
  • Predictable Growth - Same as above, but here we’re talking about sheer volume of subscribership.  The fact that users hit your site to access the application means that with the right tools you can monitor their usage pretty closely - something that’s not so easy with all your customers running the application on premise.
  • Focus On Smaller Upgrades Instead of Monster Patch Rollouts - and while you’re at it, don’t worry about rollout logistics across all of your customer sites either.  Your development teams can focus on fixing core application functionality, tackling bugs and enhancing features in smaller incremental rollouts because it’s just easier to do so.
  • Sales Becomes Customer Relationship Management - When you are selling a subscribable service, the game of gaining subscribership becomes one of balancing user retention vs. attrition more than a game of landing the ‘big deals’.  Sure, it’s important to have a team out there pounding the pavement to sell your application - i.e. getting subscribers in the door - but the real thrust of the new sales and marketing in SaaS is customer relationship management.  The equation becomes quite simple - keep retention rates higher than attrition rates and focus on bringing in new customers. 

Adoption of the model has been growing at well over 20% year over year, Nick Carr says (paraphrased) that SaaS adoption is set to explode and reports that McKinsey & Co. will release a survey showing that 61 percent of CIOs at North American companies with sales over $1 billion are already planning to adopt one or more SaaS application.  Additionally he says that Deutsche Bank projected that the SaaS market will account for half of the application software spend by 2013, Gartner predicts that SaaS will triple in size by 2011 from 2006, Jeff Kaplan thinks SaaS adoption is underrated and the success of companies like SalesForce.com should be enough to convince even the most skeptical, but if all of this is still not enough and you are having trouble convincing your customers, your boss or yourself into adopting SaaS, here is a list of benefits to consider.

What do you think? Have you experienced other benefits already? On the contrary, have you experienced major drawbacks? We would love to know what’s holding you back or what has pushed you forward!

 

Links
View Technorati Links

SaaSBlogs Tags
Tagged with: • • • • •

(4 votes, average: 5 out of 5)
Loading ... Loading ...

Information and Links

Join the fray by commenting, tracking what others have to say, or linking to it from your blog.

Information
May 2nd, 2007
14 Responses
Feeds and Links
Comment Feed
From This Author
Del.icio.us
Digg
Technorati
Categories
Business
SaaS

Other Posts
Running a SaaS Business Costs Money?!?
The SaaS Investment Landscape



Write a Comment

Take a moment to comment and tell us what you think. Some basic HTML is allowed for formatting.

Reader Comments

Comment Number:
1
Written by:
Dawn Tupciauskas
Posted on:
May 5, 2007 at 8:45 am

SaaS is definitely starting to become an entity in the real market place. It will be interesting to see how it evolves, and who the powerful players in this sector will be. It’s just so much more of an attractive way to purchase software functionality for small and large businesses.

Comment Number:
2
Written by:
En Avant » Blog Archive » SaaS business blog
Posted on:
May 24, 2007 at 10:38 am

[…] SaaS 101: the benefits […]

Comment Number:
3
Written by:
Martin
Posted on:
October 6, 2007 at 4:15 am

An interesting article, but shouldn’t there also be a discussion of the downsides of SaaS if its called “SaaS 101″. This is assuming there are downsides…

Comment Number:
4
Written by:
Abraham Sultan
Posted on:
October 6, 2007 at 9:40 pm

Martin,

You are absolutely right, We’ll make sure to follow up with the downsides in the near future.

Stay tuned!

Comment Number:
5
Written by:
Martin
Posted on:
October 7, 2007 at 5:36 am

I am completely new to the topic and just started to read about Saas a few days ago but I see a number of downsides and also obstacles for adoption:

- Security concerns (company information being held on a server that is outside the company’s network)
- Applications are not available if the connection to the SaaS server is down (If the company’s connection to the outside world is down the employees can at least use their normal desktop applications)
- Employees, especially sales people who are out in the field can’t work if they don’t have a internet connection (what happens if your connection is hideously slow because you have bad 3G reception or there is just dial-up available?)
- Is it going to be cheaper to rent a software than just paying a lump sump?
(Obviously depends on a number of factors as the charging model of the SaaS software, the price for the desktop application, additional cost for network bandwidth, lower cost because roll-outs and updates as much easier, etc)

I guess there are many more. But (with my limited work experience) I would assume that the first point will be one of the major obstacles to the adoption of SaaS.

cu
Martin

Comment Number:
6
Written by:
Matt Ammerman
Posted on:
October 7, 2007 at 12:28 pm

Martin,

The concerns you’ve laid out are definitely valid… and usually the first concerns to come up when one starts to analyze the real world utilization of the SaaS model from an end user perspective. If I may, I’d like to address your concerns individually as a precursor to a future article about SaaS’s downsides (and how they may be mitigated.)

1) Security concerns. A very valid concern on the part of any organization - and not surprisingly, also a major hurdle for public/government adoption of SaaS. As you may have surmised by our involvement in the SaaS platform space (Apprenda’s SaaSGrid), my assertion is that SaaS vendors would benefit from getting on board with a trusted platform provider, and SaaS end users would benefit from signing on with vendors who are on board with a trusted platform provider. Why is this? Because any security concerns mitigated by the platform are inherently mitigated in the applications it hosts. A quick example, if a platform provider becomes SAS70 certified, then the aggregate effect is that all applications that are hosted within the scope of the platform inherit this certification. The centralization of these hosting management concerns becomes a value add to the vendor, and a benefit to their end users in turn. Other security risks can be mitigated in much the same way.

2 & 3) Both of your points address the concept of running software in a ‘disconnected’ state. Whether it be due to an inactive internet connection or the lack of an internet connection altogether (i.e. air travel). I agree that the operation of SaaS applications in a disconnected state is a concern that cannot be ignored. In talking with SaaS vendors I am aware of several that tout ‘offline’ versions of their applications. The implementation of these ‘offline’ modes vary between vendors, with the common goal of letting an end user disconnect from the core application and work in a minimally-featured version of the application that is then ‘re-synced’ with the online version of the application at a later time. My advice to someone shopping for a SaaS application is to pay attention to whether or not an application includes an ‘offline’ mode.  Pay particular attention to what is meant by ‘offline’ mode, because the true capabilities of this feature are often surrounded by marketing hyperbole.

4) The cost/benefit analysis of the pay-as-you-grow software model. The consensus at this time seems to be that the SaaS model is of most benefit economically to small/medium size organizations. Larger organizations may not recognize the same ROI effect over the course of, say, ten years, as their centralized user base is tremendous and tends to grow faster. However, it is always important to measure the benefit of fast, reliable, and potentially FREE upgrades and patches. Depending on the number of releases for a particular piece of software over the course of ten years, it can be argued that the end user may save considerably on new features/upgrades/patches in their hosted SaaS software that they would otherwise be paying professional service and installation fees on for the traditional on premise model. This is of course due to the release early/release often mentality of SaaS vendors, and the ease with which SaaS vendors can rollout updates for all customers at once. This whole analysis, of course, should be considered on an individual application basis.  For more on the subject, I suggest reading some of Forrester’s papers - such as Ray Wang’s  “Comparing The ROI Of SaaS Versus On-Premise Using Forrester’s TEI Approach” located here: http://www.forrester.com/Research/Document/Excerpt/0,7211,40227,00.html

Thanks again for your comments and stay tuned for a future article diving deeper into the subject.

- Matt

Comment Number:
7
Written by:
SaaS Blogs - » SaaS 101: The Drawbacks
Posted on:
October 16, 2007 at 7:22 am

[…] A while back Matt wrote an article called “SaaS 101: The Benefits” in which he discussed some of the benefits of the SaaS model for end users and software vendors alike. Of course, where there’s a yin there’s a yang, and so this article (a long time coming, we know) will explore the other side of the coin. […]

Comment Number:
8
Written by:
Abe Sultan
Posted on:
October 17, 2007 at 9:39 am

Martin as per your request check the article “SaaS 101: The Drawbacks” here.

Comment Number:
9
Written by:
Pinaki
Posted on:
October 22, 2007 at 7:20 am

Keep eyes on a2zapplications.com, India’s Emerging SaaS Vendor. I attended one of their beta sessions, I can tell for sure that their platform is going to rock in India.

Comment Number:
10
Written by:
max
Posted on:
December 3, 2007 at 9:37 am

You touched on the IT budget shifting impact of SaaS versus on-premise (re-aligned staff), but are there compelling financial/accounting reasons for SaaS? I know enough to be dangerous, so keep me honest…does the cost shift from being primarily a large upfront capital expense that is capitalized over expected life of the product to an on-going operating expense achieve any benefit? More importantly, what are the criteria that drives whether it achieves a benefit (type of business, number of users, numbver of sites, etc)?

Comment Number:
11
Written by:
Sinclair Schuller
Posted on:
December 4, 2007 at 9:02 pm

Max,

It’s not so much about a cost shift from large up front costs to an ongoing operational cost and is more about a compounding of items.

On premise software generally includes yearly maintenance and support fees of anywhere from 10% to 20% of cost, expenses associated with operating and maintaing infrastructure and staff for the software, and risk associated with maintaining that software.

SaaS does get rid of the up front cost but also removes operational costs associated with on-premise and always ensures that you’re using up to date software. In addition, the aggregation of operations yields economies unachievable by on premise.

These compounding effects produce a significant net savings rather than an accounting slight of hand.

Comment Number:
12
Written by:
C R M I T - Solution On Demand
Posted on:
February 5, 2008 at 3:02 am

[…] Posted by Matt Ammerman - Blog Track back […]

Comment Number:
13
Written by:
David Rowley
Posted on:
February 10, 2009 at 2:19 pm

People’s minds are now turning a corning when it comes to computing over the web. Online banking, Google Apps, Wiki and companies like SalesForce.com and NetSuite have helped people realize how easy it is to run their business over the web. I think the time will come when most companies look first to the SaaS model and only go to on premise if they have specialized requirements and they are willing to accept the overhead associated with it.

Comment Number:
14
Written by:
Abe Sultan
Posted on:
February 10, 2009 at 3:19 pm

David, well said,

Everyday it is more clear that the notion of SaaS is here to stay and not just another FAD.

However it is important to note that the road to SaaS requires that applications be architected from the ground up to be compatible with the model and not to try to use virtualization tricks to offer multi-tenancy as you won’t be able to achieve the margins required to run as a SaaS business.

Abe