It is not often that you get a second chance in IT: a failed
technology is about as enticing as fish that has passed its sell-by
date.
But
software as a service (SaaS) seems to be the exception that
proves the rule. This year, the business of providing hosted
applications delivered via a web browser to users paying a monthly
subscription has begun to take off.
Some experts claim SaaS, also known as on-demand or
cloud computing (after the representation of networks as clouds
in system diagrams) is the future of software.
Other commentators argue that SaaS has its limitations: it is
for companies without IT departments, or it is only useful in
application areas such as human resources or CRM.
One thing is sure: the technology has a long pedigree.
Timesharing and bureaux services were around at the start of
computing, but when easy, cheap internet communications arrived in
the 1990s, dot com entrepreneurs saw an opportunity to revive the
idea and set up application service provider (ASP) companies.
But their ventures mostly flopped. Products were not scalable,
service levels were low and they did not shape their offerings well
enough for the web. For instance, some companies tried offering
standard PC productivity software as a downloadable service.
Bandwidth was expensive and the applications were unsuitable for
downloading on-demand.
Now the software industry is having a second go and customers
seem to like it better this time around, in particular IT
departments which previously tended to dismiss SaaS on reliability
and security grounds.
Google, Amazon and established enterprise software companies
including Microsoft, Oracle and SAP, have joined specialist
pioneers such as
RightNow,
NetSuite,
Salesforce.com and
SuccessFactors in the marketplace.
Normally conservative users, including
Procter & Gamble and
General Electric, are adopting
SaaS: both of them use
Google
Apps, the search engine company's online office productivity
suite.
Some users are evangelical. "IT departments can get bogged down
in building specifications," says Lucy Mills, business excellence
manager at
Nimbus
Partners. "With SaaS the systems are owned by the business
areas. Salesforce never says no, but talking to an IT department
they do."
Analyst firm Gartner is bullish.
It has predicted there will have been a 20% increase in the use of
SaaS between 2006 and 2007, with continuing growth over the next
three years. By 2011, Gartner forecasts that SaaS will account for
35 per cent of software deployments.
Databases are most suited to SaaS according to a survey of IT
managers commissioned by telecoms firm
Colt and
published in June. Customer relationship management (CRM), human
resources (HR) and enterprise resource planning (ERP) are the next
most popular.
In terms of benefits, respondents put cost savings on top,
followed by the belief that SaaS will make applications easier to
manage and provide an improved service to end users. Managers cited
security concerns as the biggest potential barrier to adopting
SaaS.
User-friendly interfaces, rapid deployment, limited upfront
investment in capital and staffing, plus a reduction in software
management responsibility all make SaaS a desirable alternative to
software on a user's premises.
Dedicated database
Architectural approaches to SaaS vary from those in which every
user has a dedicated database to ones in which information is held
in common. However, SaaS is not a delivery mechanism best suited to
every circumstance. For example, applications with a high volume of
data transfer such as data warehousing put a big strain on
networking bandwidth.
SAP also sees
smaller enterprises as natural customers for SaaS. The ERP company
launched its Business by Design service in December last year for
businesses with up to 300 employees. And although there are
projects in SAP to develop SaaS for larger enterprises, there are
no plans to move customers off existing in-house platforms.
Service levels have to be high. For example, SAP makes concerted
efforts to record errors that occur in Business by Design, because
it cannot rely on non-technical end users to describe problems
accurately.
"On-demand computing has provided a compelling case for
providing technology to smaller businesses," adds Gareth Davies, a
manager in Deloitte's consulting practice.
Pure SaaS companies are adamant that they are now part of
enterprise computing. "We are dealing increasingly with IT
directors," says Laef Olson, chief information officer of CRM
provider RightNow Technologies.
"When you think about all the services a CIO supplies to an
organisation, you have not abdicated your responsibility just
because you buy SaaS. "I don't think it is revolutionary because
the first thing a CIO asks is, 'What business issue do I need to
solve?' If you are a good CIO you are going to be looking at it in
terms of enterprise strategy."
However, "There is a grey scale between pure on-demand and pure
on-premise, with few applications being black or white," says Clive
Longbottom of analyst
Quocirca.
Microsoft has christened its hybrid approach to SaaS as
"software plus service". "Software and existing assets have
survived the test of time," explains Matt Deacon, chief
architectural advisor in Microsoft's developer and platform group.
"People just cannot afford to rip out and replace existing systems.
There are also concerns over sharing data outside the
firewall."
Nonetheless, the company has already introduced SaaS for the
Exchange mail program, Dynamic CRM and its SharePoint collaboration
product. Commentators are disappointed Microsoft did not go further
by delivering Microsoft Office as a SaaS. But that is not on the
cards for now, says Deacon.
Hard times
Some players predict hard times for package software companies.
"Of some concern is the long-term viability of the big guys like
Oracle and SAP who are starting to see customers wonder why they
would want to continue paying for software and functionality they
do not use," says Colm Mulcahy, managing director of SaaS
consultancy Saaspoint.
One thing is clear, companies which began as one-trick ponies
have now got many more cards up their sleeve. They have increased
the range of their portfolios and begun to encourage users to
develop their own applications on so-called platform as a service
offerings.
Salesforce.com, Bungee
Connect and
Rollbase have developed
cloud-based platforms for developing, testing, and hosting web
applications. Small independent software vendors are the main
customers.
And they are trying to allay the concerns many enterprises have
about letting their data leave the safety of the company firewall.
"Vendors can also apply for industry certifications, which involve
an in-depth audit on security and internal controls. For example,
MessageLabs has the ISO 27001 certification, which shows that it
has met the industry recognised criteria for security," says Mark
Sunner, chief security analyst at MessageLabs
SaaS is undoubtedly going to play a big part in IT over the next
few years. However, software will continue to run on users' own
systems.
Prudent IT departments will hone their contract management
skills, keep their hype antennae well tuned and have a clothes peg
close at hand.