Where SaaS Works

Is it time to give your licensed software the boot? Early users find some things are less of a problem with software services.

June 7, 2008

9 Min Read
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The debate around software as a service usually focuses on whether it's better or worse than conventional licensed software. The answer is neither--businesses that have adopted SaaS will tell you it's good for some things and not for others.

But that's only one lesson gleaned from this bigger truth: You can't use the same metrics to assess SaaS as you use for conventional software. To understand SaaS requires a new mind-set.

When IT and business managers shop for software, important attributes include the ease with which it can be customized and how well it can integrate with other systems. But SaaS offerings typically can't be customized, only configured. And integrating SaaS with on-site applications can be more difficult than just integrating two on-site apps, often requiring vendors' help to deal with code dissimilarities.

This doesn't mean SaaS is inferior to conventional licensed software, only that it has different strengths. Many businesses are coming to accept those differences: In a survey of 471 business technology professionals by InformationWeek Research, a quarter of whom are SaaS users, SaaS got high marks for its upgradability, reliability, and ease of use. SaaS users were less enthusiastic about its cost, with only 32% saying they found SaaS affordable. It also didn't do well on customization, integration, and the ability to switch among vendors.

Life Time Fitness health club chain will roll out Workday's human resources software service to its 17,000 employees in early August, following a trial with 600 employees launched last fall. The company had considered customizing on-site software from Oracle's PeopleSoft or Lawson, but went with Workday. "Workday is extremely configurable, but not customizable at all," says Matt Prise, a Life Time Fitness project manager.Customization isn't part of Workday's business model. Like Salesforce.com, it offers SaaS at a cost lower than conventional software by using a multitenant approach--having groups of customers share one instance of a hosted application, while keeping their data separate.

chart: Business App Satisfaction -- How satisfied are you with the business applications in use at your organization?

Life Time was won over by Workday's user-friendly interface, Prise says, plus the ability to integrate the HR service with payroll and employee benefits services that Life Time gets from other providers. The health club chain decided it could live without customization.

Workday, like many SaaS vendors, offers a variety of configurations of its software and solicits input from customers on the features and functionality they want added to updates. Life Time has had "pretty good success" with getting its requested Workday upgrades, Prise says.


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Rydex Investments made a similar decision about the importance of customization to its marketing application. Four years ago, it started using Unica's Marketing Central, a marketing resource management software service, as a temporary solution while it looked for on-site software. It settled on a vendor that customized to Rydex's workflow needs. But right before deploying the software, Rydex had to change the customized workflow because of a new law in the highly regulated finance industry. "It became a huge deal to reconfigure the architecture on this new system," says Miyeko Keen, director of marketing operations and services. The lesson learned is that customization isn't necessarily a good thing, Keen says.Rydex went back to Marketing Central, concluding that the SaaS model of community input into upgrades was better. "If you customize, you're backing yourself into a corner, where you have upgrades designed for your benefit but you don't benefit from the community," Keen says.SAAS THAT WORKSThis approach works because most companies want the same things in certain apps. A configuration-based service makes sense for HR, sales force automation, expense management, and other more-generic business processes. But it may not work as well for something like a supply chain process that's tied closely to a company's core business operations.

Ingres CIO Doug Harr is a proponent of alternatives to conventional software--not surprising, considering Ingres is an open source database management company. Since Harr joined Ingres two years ago, Ingres has decided to move all its IT systems to SaaS or open source.

Among the SaaS apps the 350-employee company is using are Intacct for financials, Salesforce for sales force automation, Xactly for sales compensation, and ADP for human resources; it also plans to use SaaS for professional services automation, marketing, and contract management. IT spending is based on a pay-as-you-go model, like monthly fees for electricity and telecommunications services, Harr says.

Yet Harr knows that signing with a SaaS vendor is a bigger commitment than just paying a monthly fee, and that switching vendors once the contract is signed isn't easy. There's a lot that goes into selecting and implementing SaaS, migrating data, changing business processes, and doing any needed integration. And while SaaS vendors typically break contracts into monthly subscription fees, the commitment is usually a year or more.

Among the 117 SaaS users surveyed, 40% say it would be difficult to switch to a new vendor. That compares favorably with the 56% of total respondents who say it would be difficult to switch from conventional licensed software to something new.

chart: Quite Reliable -- Percentage of respondents who agree with the following statements as they apply to business applications sold under a classic licensing model

Vendor lock-in happens when a software vendor claims to be able to supply most of the business apps companies need. When companies make huge investments in software apps, all pre-integrated from a single vendor, it becomes difficult to disengage if the relationship sours.

Vendor lock-in is less a concern with SaaS, partly because it's a highly fragmented market. A few vendors, such as NetSuite and SAP, provide full suites that cover financials, HR, supply chain management, and more, but these offerings only scale to hundreds of employees. The biggest implementations that scale to tens of thousands of employees -- including Concur, Salesforce, SuccessFactors, and Workday -- are for specific applications. "This best-of-breed approach helps you not be so locked into one vendor for your entire platform," Harr says.

The best-of-breed approach appears to be taking hold across the board. Forty-one percent of survey respondents say they use best-of-breed licensed software from multiple vendors, while just 16% say most of their systems are from one vendor.

Still, ongoing software industry consolidation and a desire on the part of some CIOs to restrict the number of vendor relationships have some businesses limiting their software spending to one or a few vendors. Companies doing this can take steps to avoid getting locked into a SaaS relationship. They need to ask the right questions up front, such as how the vendor is going to store the data and how easily they'll be able to access it, says Ben Weinberger, IT director at Ruden McClosky, a 500-person law firm that uses Google's Postini security SaaS and another specialized legal SaaS app for immigration case management. Weinberger learned what data formats and tables the immigration SaaS provider used to ensure that he could back up the data and export it into on-site systems.SAAS STANDS ALONE

The best-of-breed approach means that integration can be a challenge: just two in 10 respondents who use SaaS say they can easily integrate it with other systems. By comparison, one in three of all respondents say they could easily integrate conventional licensed software.

However, integration, like customization, isn't always a priority for those choosing SaaS. Consider that SaaS often makes its way into businesses by a single department that's looking for a quick way to automate a business process. On-site software integration requires IT's involvement and potentially outside consultants, adding time, money, and complexity to some software projects. While businesses don't want to be left with an ill-fitting collection of noninteroperable applications, some business processes work just fine when automated by a standalone, nonintegrated SaaS.In Rydex's case, once it opted to permanently adopt Unica's marketing software service, it decided to keep it separate from the rest of the company's IT infrastructure. In fact, IT is completely hands off. "I don't have to have a consultant or internal IT support to maintain the system, and that's huge," Keen says.

This approach works for Rydex because there's no pressing need to integrate marketing automation with other apps. Meanwhile, the ease with which traveling employees can tap into the Web-based hosted app from anywhere in the world also has been a huge boon, Keen says, improving collaboration and shaving about 10 days off the typical 45-day marketing project.

SaaS isn't any easier or harder to integrate than on-premises software, says Ingres' Harr. His SaaS-dominated application mix works because he's chosen vendors that already have integrated some of their systems. Intacct has integrated its order entry and accounts receivable software services with Salesforce's sales force automation service. Now Ingres is preparing to implement Vtrenz, a marketing automation software service that also integrates with Salesforce.

chart: Perception Of SaaS -- Percentage of respondents who agree with these statements as they apply to business applications delivered via SaaS -- click for full view of the chart(click image for full chart)

SaaS vendors that have been in business the longest offer the most in terms of integration and customization, Harr says. Salesforce, for example, lets him build custom screens and tables and add fields for users. Meanwhile, he expects SaaS integration will improve as more software and software services are built using Web SOAs.

Life Time Fitness' Prise says the company initially had problems getting Workday HR to communicate with a homegrown application that parses out employee data to various other systems. Workday solved the problem with some updates to its software, but Life Time monitors communications between the systems whenever Workday does an update as an added precaution. It's not a perfect solution, but it's one that lets Life Time reap the benefits of SaaS without giving up the functionality it needs.Many companies launch a search for a SaaS solution using the same criteria as when they vet conventional software--looking for customization and integration capabilities and ways to protect against a vendor relationship gone sour, among other things. But as the experiences of early users show, the driving factors aren't always the same for SaaS, which works best where there's a need for simple, reliable, and relatively affordable software that turns on every morning without the help of IT.

Depending on the business process it automates, the limitations of a SaaS offering may pale in comparison with its more positive attributes. A great user interface may outweigh lack of customization, and limited integration isn't an issue for many apps that don't need extensive connections to the IT infrastructure. In addition, vendor lock-in is less of an issue when using best-of-breed approaches.

All told, as IT managers look more closely at SaaS, they're thinking differently about what they value in the software that powers their companies.

Photograph by Getty Images

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