Beware of the SaaS trap

Adoption of the software-as-a-service (SaaS) sales model is accelerating at a phenomenal rate in the region, changing the way vendors do business and the way organisations use software.

SaaS has been one of the IT industry’s hottest buzzwords over the past couple of years, and for many good reasons. The ease of use, rapid deployment, limited upfront investment in capital and staffing, plus a reduction in software management responsibility all make SaaS a desirable alternative to on-site solutions.

Simply, SaaS is a term used to describe a software application delivery model which sees a software vendor host applications over the Internet and deliver those applications to the customer for a recurring license fee.

Data from Springboard Research shows that the noise around SaaS is more than hype. The market researchers show significant growth in awareness and adoption of SaaS across the region, with the market increasing 92.5 percent in 2006 to reach a market size of US$154 million this year.

The SaaS market in the APAC region will reach US$1.16 billion by 2010, with a compound annual growth rate of 66 percent, to comprise 15 percent of the enterprise software application market.

The success so far of vendors offering customer relationship management (CRM), collaboration, and management software has shown the power of the on-demand software delivery model. However, many organisations are not aware that there are pitfalls in what looks to be the answer to all their software problems.

Issues around control, integration, security and limited application are some of the very real downsides that need to be considered before a company turns to this increasingly popular software buying model.

Control
A lack of control around organisational data is arguably the biggest downside to the SaaS model.

Previously, an organisation had total control over data as it was all stored on-site in its file servers. Under the SaaS model, the level of risk rises as your data is transferred from your own premises to those of third parties and their applications.

If a potential SaaS user neglects to fully investigate a SaaS provider and determine what they will do to protect sensitive customers, sales and other data, then there is increased risk of that data getting into the wrong hands and all that implies.

There are also questions of internal control regarding who has say over what applications get installed and used. Because it is so easy to obtain such SaaS-based software (often all you need is a credit card and an Internet connection), businesses need to determine who has the authority to buy/download and use what software – is it the IT manager, or your IT fix-it guy or the MD?

There’s also the question of application failure. Can an application delivered by a hosted service provider be resurrected faster if it falls over compared to one run by your in-house IT staff or IT partner?

Integration and security
Having full ownership and control over your data allows you to embark upon software integration projects that would otherwise be impossible. We mentioned before that because SaaS is so easy to initially deploy, individuals in businesses have begun procuring SaaS applications themselves – leaving the IT manager or partner out in the cold.

This is also an issue when it comes to security and IT management. Again, as these applications reside with a third party, and are typically initiated and implemented by non-IT professionals, these applications invade existing business processes, creating more work for the IT guys and possible security issues.

Just because an application is web-based or hosted offsite, it doesn’t mean it doesn’t have to adhere to a company’s security, privacy, and Internet use policy requirements. There is also the question of data backups. With SaaS, data backup is typically offloaded to the SaaS provider, but many organisations feel much more comfortable being in total control of their own data.

Limited application
Larger, more complex applications such as accounting and enterprise resource planning (ERP) currently do not lend themselves to being delivered over the web. They require very detailed implementation and integration with the other systems, applications and processes of a business.

SaaS should be avoided when dealing with transactional-intensive applications such as in a warehouse management system, when data is exceptionally sensitive, and when
on-demand service providers don’t have the functionality to provide the level of integration required.

SaaS has its benefits, but an organisation needs to bear in mind that SaaS lends itself to business functions such as sales and HR for a reason.

An SaaS advantage is using the SaaS providers’ hardware, however with cost of hardware becoming a negligible part of the overall investment in a business system, this advantage becomes much less attractive.

Happen Business is an Australian-owned accounting and workflow software provider. Paul Berger also heads the development team.