In for the long haul Why the SaaS model is here to stay

The SaaS model for software implementation has been radical and disruptive. It has acted as a game changing catalyst accelerating transformation in the way software is purchased, used, and delivered. Although this might seem like too sweeping a statement- the fact that nearly 72% of companies currently using SaaS solutions plan to increase their investments slightly or significantly (User Survey Analysis: Software as a Service, Enterprise Application Markets, Worldwide, 2010: Gartner ) indicates that SaaS is here to stay. It's no longer a new buzzword pushed by analysts and vendors but a paradigm shift that is going to not only affect IT investments and activities but bring a wider transformation in the way business is conducted. The proliferation of SaaS technologies has been brought about purely because of the changing business environment where organizations are looking to cut costs and increase operating efficiencies. Instead of listing out all the advantages of SaaS applications that are common knowledge let’s look at what are the changes in the business environment that are going to help SaaS be a sustainable option for nearly 25% of all new IT implementations in the next year (Gartner) Buildingless Commerce: With rapid globalization and opening up of new markets, the need to expand and reach out to more sales regions is felt by most organizations even if initially they cannot justify investments in full-scale physical infrastructure. SaaS applications that can be accessed online allow sales representatives to be in touch with complete information about their sales leads with just a laptop and an internet connection. Sales presence can, thus be maintained and grown in more regions without upfront investments in infrastructure. This also helps sales and marketing to form a streamlined open line of communication to nurture, maintain and convert leads without physically being on the same premise. Sales can be on field and still manage to see and act on activities conducted by the marketing team and align their sales calls and pitches accordingly. Resource optimization: Did you know that companies trimmed 5% off their IT expenditure in 2009, compared to an increase in 4% and 7% in 2007 and 2008 respectively? (Independent Insights IT Survey, Goldman Sachs). Though many CFOs and CIOs do not plan to go back on these cuts even after the economy has seen signs of recovery, the pressure to deliver superior business results has not abated. This brings resource optimization to the forefront of every organization’s agenda. With SAAS applications in place, companies can use their limited IT resources to focus on more strategic corporate initiatives rather than reacting to daily application, availability, maintenance and support issues. Optimal usage of resources leads to more effective processes. SaaS makes this possible as the maintenance, administrative and technical aspects of applications get taken care of by the vendor. Reliability is assured by constant data back up at the vendor end while constant patches and upgrades ensure that the software is in tune with changing needs of the user, without any extra demand on resources.

The green argument? A tangential train of thought looks at how moving to a SaaS model enables lesser energy consumption and increased efficiencies. With most companies vying for a more green and efficient image for their organization this might not be a trivial benefit anymore. A modern SaaS data center generates economies of scale that enable the software vendor to enable many customers on the same server. This is the primary benefit of running a multi-tenant architecture which enables several SaaS customers to share the same software application and server with each user. Security is not compromised as each customer has their own secure virtual space which is completely isolated from other virtual spaces, just like tenants in a building. Modern server farms use efficient cooling methods and leverage technologies such as Virtualization and Load sharing to deliver tremendous savings in power consumption. What this means is that, the increase in consumption on the addition of an extra user is only marginal compared to the almost linear increase that is seen with on-premise applications. But this is just one part of the Green story. Think about the savings in time, money and resources enabled by the fact that SaaS support can be easily delivered remotely, without any travel required by the vendor. These are just some of the obvious benefits of SaaS in reducing an organization’s environmental footprint, and as vendors think of more ways to make their server infrastructure more eco-friendly, this is a value proposition that will not subside anytime soon.

Although things keep looking on the up and up for the SaaS market, as always there are a few words of caution that vendors of SaaS offerings need to keep in mind to ensure the sustainability of their business model. Integrate with more than just ERP Seamless integration with organization wide legacy/ERP systems is fast becoming a standard expectation from all SaaS application providers, rather than a major differentiator. Today innovative SaaS vendors are integrating into Social Networks, providing a whole new experience for their customers. An example is Salesforce.com “Chatter” – which allows users to easily communicate with each other, collaborate better and use the application more effectively. Pitch your solution as a provider of strategic value Today software has evolved to be more than just simple applications that make complex tasks easier. Software today is the backbone of many successful business strategies – enabling companies to make better decisions, reduce their risk and even build successful brands. Figure out how to position your SaaS solution vis-à-vis a real business need. For example if you sell a Sales Automation tool you can either sell software that manages a Sales Pipeline and a complex address book, or you can sell a solution which will help customers reduce their sales cycle and be more relevant to their customers. What do you think will sell better? Think about what addresses the larger business need of your customer – and position your solution right there.

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