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Benefits of Software as a Service (SaaS)

10/13/2011

2 Comments

 

Software as a Service (SaaS) may be defined simply as software applications deployed over the Internet. With SaaS, a third-party provider licenses an application to customers either as a service on demand, through a subscription, in a “pay-as-you-go” model, or at no charge when there is opportunity to generate revenue from other streams (advertisement).

The primary advantage of SaaS is purported lower IT costs: smaller monthly fees to use the software, no internal hardware/software maintenance, and update/bug fixes automatically delivered. No hardware, no database servers are necessary for the software. Access to the Internet from PC clients does need to be provided along with secure firewalls and the usual infrastructure for Internet connections.

Key Benefits of SaaS

Lower IT Costs: Low cost of entry and potential lower total cost of ownership (TCO). When you subscribe to a SaaS application, you avoid the overhead associated with implementing conventional software. A typical software implementation involves purchasing and maintaining servers, housing them securely, and installing and maintaining the software. This requires the time and effort of experienced IT personnel and deflects the efforts of employees at a number of levels away from the core mission of your organization. 

More Powerful and Secure IT Infrastructure: Few organizations can match the infrastructure and security investments made by SaaS vendors.

Economies Of Scale: Subscription costs for SaaS applications reflect the economies of scale achieved by “multitenancy.” Multi-tenancy means that many customers run their applications on the same unit of software. For example, in a SaaS website calendar application, customer data is all stored in one database. This makes the overall system scalable at a far lower cost. 

Pay As You Go:  When you subscribe to a SaaS application, you usually pay a monthly or annual subscription fee. Compared to a traditional software license, this subscription payment structure may work to your advantage. An on-going monthly expense is easier to incorporate into your budget than a large one-time outlay. You can cancel or change your subscription at any time without losing a large initial investment. In many cases, SaaS subscriptions are based on metered usage so you pay for exactly what you use. Rather than making a long-term commitment to one fixed account structure, you can add or subtract accounts at any time as your organizational needs shift.

Save Time: Because you eliminate many of the typical implementation tasks associated with licensed software and because the software is already up and running on the SaaS vendor’s data center, deployment time tends to be much shorter with a SaaS application than a traditional one.

Focus Technology Budgets On Competitive Advantage Rather Than Infrastructure: When you subscribe to a web-hosted application, you free your organization from supporting high-cost, time-consuming IT functions, including:
  • Purchasing and supporting the server infrastructure necessary to install and maintain the software in-house
  • Providing the equipment redundancy and housing necessary to ensure security, reliability, and scalability
  • Maintaining a labor-intensive patch and upgrade process
Not Platform Specific: It does not matter whether the computer you are using runs on an Apple Mac OS, Linux or Windows – as long as you are able to use a browser and access the Internet then you can use the software. This makes it far easier to switch platforms if you desire.

Automatic Upgrades: You will always have the latest software version. The SaaS provider provides upgrades automatically and quickly makes changes if an error is found in the software.

Access Your Data Anywhere: One of the greatest advantages of SaaS is the freedom it gives you in terms of when and where you choose to work. All of the data you use within the software is stored on the servers of the SaaS provider – meaning you can log into your account wherever you are in the world and access it instantly. 

SaaS Disadvantages
  • Unrealized cost savings
  • Opex vs. Capex
  • Implementation issues
  • Limited customization
  • Security concerns
  • Licensing issues
  • Infrastructure issues
Cost appears to be the primary driver for SaaS. Yet if a business hasn’t made the necessary transitions with its people and processes within its corporate environment first, then it’s probably not going to be more cost-effective. It’s more effective once the people and processes have been prepared for the shift in the applications delivery model. That is painful and takes time.

Moreover, there is controversy over purported SaaS cost savings considering capex vs. opex. 

Capex (asset is a newly purchased capital asset or an investment that improves the useful life of an existing capital asset) vs. opex (operating expense for normal business operations) is how compute resource is paid for by the consumer of those resources. For example, if one uses a SaaS service, payment is made on either a monthly, yearly or a highly granular level for the use of the resources — either time (so much per server-hour) or consumption (so much per gigabyte of storage per month). The consumer does not, however, own the assets that deliver those resources. The third party SaaS firm owns the server, application and storage machinery.

From an accounting perspective, owning an asset is considered a capital expenditure. It requires payment for the entire asset and the cost becomes an entry on the company's balance sheet, depreciated over some period of time.

By contrast, operating expenditure is a cost associated with operating the business over a short period, typically a year. All payments during this year count against the income statement and do not directly affect the balance sheet.

Depending upon the use scenario of the individual application, paying a yearly depreciation fee may be more attractive than paying on a more granular basis. Consider automobiles — it's economically optimal to purchase a car for daily use in your home town, but cheaper to rent a car for out-of-town business trips.

Some organizations find it very difficult to relinquish control or trust third parties to manage their applications and data.

Some vertical markets require industry specific business applications for which SaaS solutions are not available.

Organizations without clear objectives and defined business processes will be no better off with a SaaS solution than with an on-premise solution.

Many SaaS providers are also stuck and confused about their software licensing models. This is a serious problem because old licensing models don’t fit well with the cloud. As they transition to newer billing models, there is a great amount of confusion because there are so many different models.

Characteristics of SaaS

It is important to ensure that solutions sold as SaaS in fact comply with generally accepted definitions of cloud computing. Consider three layers of cloud computing:
  • SaaS (Software as a Service)
  • PaaS (Platform as a Service)
  • IaaS (Infrastructure as a Service)
Not all implementations of SaaS use all three of these layers. Depending upon when their solution was architected, some SaaS vendors may not conform to this latest version of the cloud. There are several SaaS offerings that do adhere to this structure. It is important to consider the PaaS supporting a SaaS offering. A good PaaS will help support the following features:
  • Application design and development
  • Bug and enhancement tracking
  • Database support 
  • Security 
  • Versioning
  • Customization
Some defining characteristics of SaaS include:
  • Web access to commercial software 
  • Software is managed from a central location
  • Software delivered in a “one to many” model 
  • Users not required to handle software upgrades and patches
  • Application Programming Interfaces (APIs) allow for integration between different pieces of software
Where SaaS Makes Sense

Organizations considering a move to the cloud should carefully consider which applications they move to SaaS. Candidates for an initial move to SaaS include:

“Vanilla” offerings where the solution is largely undifferentiated. A good example of a vanilla offering would include email where many times competitors use the same software precisely because this fundamental technology is a requirement for doing business, but does not itself confer an competitive advantage.

Applications where there is significant interplay between the organization and the outside world. For example, email newsletter campaign software.

Applications that have a significant need for web or mobile access. An example would be client relationship management and mobile sales management software.

Software that is only to be used for a short term need. An example would be collaboration software for a specific project.

Software where demand spikes significantly, for example tax or billing software used once a month.

Note that SaaS offerings are evolving and include sophisticated business processes such as enterprise resource planning, enterprise content management, human resources and others.

Where SaaS May Not be the Best Option

Examples where SaaS may not be appropriate include;

Applications where extremely fast processing of real time data is required.

Applications where law or other regulation does not permit data being hosted externally.

Applications where an existing on-premise solution fulfills all of the organization’s needs.

SaaS Vendor Due Diligence

It is important to consider how SaaS systems are architected for SaaS delivery. Make sure the benefits of SaaS can be realized: lower cost of operation, lower costs for updates, ability to maintain your own custom code line, robust personalization capabilities, and ability to integrate to your other applications seamlessly.

Most important is SaaS vendor due diligence when it comes to security, reliability, performance and availability. The vast majority of companies that have opened their doors as SaaS providers don’t have the rigorous infrastructure and support structure in place.

SaaS can work for some applications. Yet a better model may be the mixed private - hybrid cloud where the organization builds a private cloud and selectively outsources certain application services to a SaaS provider in the public cloud.
2 Comments

Future Of Cloud Computing

8/27/2011

1 Comment

 
Cloud computing providers - platforms and applications alike - are counting on more than USD $40 billion in revenue in 2011 alone, growing to more than USD $241 billion in 2020, according to a recent report on "Sizing the Cloud" by Forrester Research.

Planning and executing a prudent cloud computing strategy requires insights into the future private and public cloud market size and growth dynamics.

The public cloud includes IT resources that are delivered as services via the public Internet in a standardized, self-service, and pay-per-use way. These services are highly standardized - allowing limited customization - and their  respective resources are massively shared. The public cloud market is divided into various submarkets, according to the resources used: an infrastructure market (infrastructure-as-a-service [IaaS]); a software platform market (platform-as-a-service [PaaS]); an application market (SaaS); and a market that offers standardized and shared end-to-end business processes via the public Internet (BPaaS).

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ERP SaaS Cost, Customization, Security

8/5/2011

3 Comments

 
Considering enterprise resource planning (ERP) complexity and high cost, ERP SaaS (software-as-a-service) is an attractive proposition. While SaaS now accounts for just USD $1 billion of total ERP revenue, Forrester forecasts annual growth of 21 percent through 2015. 

A successful ERP SaaS offering includes: lower cost of operation, lower costs for updates, ability to maintain your own custom code line, robust personalization capabilities, and ability to integrate to your other applications seamlessly.

Yet ERP SaaS is not the right solution for every company. Organizations need to conduct a realistic and objective analysis to accurately evaluate the total cost of ownership of different ERP solutions. 

SaaS is a great fit for start-ups and other companies with limited budgets. While entry and maintenance costs are low, SaaS limits customization and may cost more in the long run. 

ERP SaaS may not be optimal for firms with long standing on-premise ERP systems with unique and complex business processes. The cost of switching from on-premise to SaaS is high. Companies have made enormous investments in their business processes, personnel training, procedures, and interfaces to other systems that eclipse the amount of money spent on software and hardware.

There are three key issues when it comes to ERP SaaS analysis: cost, customization and security. 

Three key questions:
  • How unique or complex is your business relative to others?
  • Are you more willing to increase capital versus expense budgets to support a new ERP system?
  • How much control and security do you need over your ERP systems?
Unique and complex business processes is the most important issue. The more unique and complex your processes, the more customization is required. 

What are the advantages and disadvantages of ERP SaaS?

ERP SaaS Pros
  • Cost of ownership. The ERP vendor that you are using is costing more in yearly maintenance than a SaaS offering would cost. Maintenance of hardware, operating systems, and databases is getting more expensive.
  • Implementation costs for new releases. It is becoming increasingly more difficult to install your vendor updates.
  • Management of custom applications has become difficult to maintain. In a good SaaS implementation, custom applications can live synergistically with the "standard" system.
  • Other business applications such as HR and CRM have moved into the SaaS world. Parts of your business database and software applications already live in the cloud.
The primary advantage of SaaS is purported lower IT costs: smaller monthly fees to use the software, no internal hardware/software maintenance, and update/bug fixes automatically delivered. No hardware, no database servers are necessary for the ERP software. Access to the Internet from PC clients does need to be provided along with secure firewalls and the usual infrastructure for Internet connections.

ERP SaaS Cons
  • Unrealized cost savings
  • Opex vs. Capex
  • Implementation issues
  • Limited customization
  • Security concerns
  • Licensing issues
  • Infrastructure issues
Cost appears to be the primary driver for ERP SaaS. Yet if a business hasn’t made the necessary transitions with its people and processes within its corporate environment first, then it’s probably not going to be more cost-effective. It’s more effective once the people and processes have been prepared for the shift in the applications delivery model. That is painful and takes time.

Moreover, there is controversy over purported SaaS cost savings considering capex vs. opex. 

Capex (asset is a newly purchased capital asset or an investment that improves the useful life of an existing capital asset) vs. opex (operating expense for normal business operations) is how compute resource is paid for by the consumer of those resources. For example, if one uses a ERP SaaS service, payment is made on either a monthly, yearly or a highly granular level for the use of the resources — either time (so much per server-hour) or consumption (so much per gigabyte of storage per month). The consumer does not, however, own the assets that deliver those resources. The third party ERP SaaS firm owns the server, ERP application and storage machinery.

From an accounting perspective, owning an asset is considered a capital expenditure. It requires payment for the entire asset and the cost becomes an entry on the company's balance sheet, depreciated over some period of time.

By contrast, operating expenditure is a cost associated with operating the business over a short period, typically a year. All payments during this year count against the income statement and do not directly affect the balance sheet.

Depending upon the use scenario of the individual application, paying a yearly depreciation fee may be more attractive than paying on a more granular basis. Consider automobiles — it's economically optimal to purchase a car for daily use in your home town, but cheaper to rent a car for out-of-town business trips.

Consider three layers of cloud computing:
  • SaaS (Software as a Service)
  • PaaS (Platform as a Service)
  • IaaS (Infrastructure as a Service)
Not all implementations of ERP use all three of these layers. Depending upon when their solution was architected, ERP vendors may not conform to this latest version of the cloud. There are several ERP SaaS offerings that do adhere to this structure. It is important to consider the PaaS supporting a SaaS offering. A good PaaS will help support the following features:
  • Application design and development
  • Bug and enhancement tracking
  • Database support 
  • Security 
  • Versioning
  • Customization
Customization. Seamless software updates and customization and "personalization" are critical in any ERP implementation. Regardless of how comprehensive an ERP package might be in terms of functionality, companies will always have a need to add or change the operation of the software to conform to their unique business practices.

The PaaS layer helps define how the software is delivered and how custom code deviations are handled. SaaS offerings also must support a very robust personalization scheme, placing business rules and behavior specific to the client in a user-specified area. The SaaS code must behave based upon a particular personalization. Personalization must also allow the user to specify which forms, which pieces of data, and which applications can be accessed.

Translation. A viable ERP SaaS system must also support translation. Multiple languages must exist simultaneously. Labels must be changeable on forms and reports.

APIs. Interfaces to other systems are critical in today's business environment. It is important to look at the available APIs in the PaaS and IaaS layers to ensure that you can get the most interoperability. There are Open Standards under development, but you can't count on them today. A robust ERP SaaS offering will have standard APIs for common business systems.

Implementation Complexity. The ERP implementation process is not automatically easier just because ERP is in the cloud. ERP SaaS implementations can be as complex as an on-premises implementation. In some areas, such as integration and customization, the job may be even more difficult. Converting from an in-house system, moving the data, and running parallel, integrating different systems are all necessary and important steps that also need to be done in a SaaS implementation. Look to see if the ERP SaaS vendor has standard tools for converting data and associated business procedures.

Upgrades. Many companies considering a ERP SaaS system are interested because of the difficulty in installing and upgrading complex releases in their own data centers. Look for a SaaS vendor that delivers pure technical upgrades with no requirements for the IT staff or end user. New software versions, which may add new functionality or changes to existing functionality will require a careful analysis on any impact to the current business processes. The system complexities (database versions, operating system versions, tools, etc.) are all taken care of by the SaaS vendor.

It is important to consider how ERP systems are architected for SaaS delivery. Make sure the benefits of SaaS can be realized: lower cost of operation, lower costs for updates, ability to maintain your own custom code line, robust personalization capabilities, and ability to integrate to your other applications seamlessly.

Most important is ERP SaaS vendor due diligence when it comes to security, reliability, performance and availability. The vast majority of companies that have opened their doors as cloud providers don’t have the rigorous infrastructure and support structure in place.

Many cloud service providers are also stuck and confused about their software licensing models. This is a serious problem because old licensing models don’t fit well with the cloud. As they transition to newer billing models, there is a great amount of confusion because there are so many different models.

ERP SaaS is a great concept that can work today for some organizations. Yet it is still a baby that needs time to grow. New technologies and paradigms need to be created to be successful for many businesses.
3 Comments

Cloud Type Comparisons

7/24/2011

0 Comments

 
Cloud definition: 

The cloud is a way of delivering IT services as an integrated solution for specific problems in an automated manner; it uses the underlying virtualization of the infrastructure so that applications are ‘abstracted’ from the hardware that processes the data. In this way, technology enabled services can be provisioned (or even self-provisioned) on an on-demand basis (often from a Web-based interface) while optimizing the infrastructure utilization that is made possible by the pooling of hardware resources.

Although this is not a perfect definition (in that it is not exhaustive), it provides a basis for then distinguishing private, shared and public clouds as well as understanding the differences between software as a service (SaaS), platform as a service (PaaS) and infrastructure as a service (IaaS).

Private Cloud definition:   the deployment of IT services inside enterprise boundaries and firewalls.
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