This is the second of a two-part series. Last week, we addressed the benefits of the SAAS model. This week, Barry will focus on cost comparisons between OMS and software as a service (SAAS) systems and determining which software is right for you.

Technology has radically changed the options that are open to multichannel companies as they look at acquiring new OMS functionality. Literally hundreds of companies now use SAAS and ASPs; they have become comfortable with giving up control of the IT management and environment.

The inhouse licensed examples should include the costs of managing the IT environment. For small businesses (less than $5 million sales), a technology literate administrative person may also be the “systems administrator. Nowadays, we would expect a business of this size (220,000 orders) to have an IT manager, one full-time programmer, and one operator managing operations and the help desk. Considering payroll, taxes and benefits this may add $150,000 to $225,000 annually to the In-house licensed OMS solutions in Figure 1. Given these increased IT department costs, the in-house option becomes more expensive than the SAAS.

We believe that inhouse licensed, direct-to-customer software vendors #3 and #4 can provide the application adequately. Vendors #5 and #6 are more highly developed systems.

Regardless of the vendors listed on the chart, each company must carefully determine whether licensed products and an inhouse installation or SAAS (or ASP) will best fit the management style and required functionality. Here’s some things to consider:

1. What are your requirements? Do your homework. Write the user requirements. Do a head-to-head comparison and match up the vendor responses to your requirements.
2. How much customization is desired, as opposed to required? SAAS vendors generally do not want to customize their system unless it benefits the wider user community. An inhouse installation may allow you to develop individual functionality that is more appropriate to your business or more capable of catering to what management wants. But vendors may have different philosophies.
3. Reporting and analysis. In today’s world, SAAS are capable and willing to integrate with other commercial systems and to allow implementation of user-friendly report languages such as Crystal or other ODBC-compliant languages.
4. Expense vs asset: SAAS expenses are a monthly expense. Whereas in purchasing and implementing a licensed product, the initial implementation of the hardware, software, and training can generally be depreciated and amortized over five years or longer.
5. Get comfortable with change in control. With SAAS, the company doesn’t have the inhouse and direct control over the system, data, security, fail over, disaster recovery, and compliance with regulatory agencies and other providers (e.g., credit card PCI compliance, Sarbanes-Oxley compliance). Check this out with user references.
6. Investigate release updates. Talk to SAAS customers and determine their track record for quality assurance and testing.

Curt Barry is president of Richmond, VA-based operations consultancy F. Curtis Barry & Company.

This is the first in a two-part series. This week, we’ll address the benefits of the SAAS model. Next week, Barry will focus on cost comparisons and benefits of various SAAS and ASP systems.

You’re the IT director for a multichannel business and you’ve just made your presentation to the executive systems steering committee to replace your company’s aging, 20-year-old system. You’ve done all your homework, and the project will require a sizeable capital investment and take six to eight months to convert. While the committee agrees with the need, what has stopped them in their tracks is the purchase price for the servers and software. They’ve sent you back to the drawing board to find an outsource partner that can run a state-of-the-art order management system and maintain IT operations, but that does not require the capital investment. What options should you look at?

Application service providers (ASP), software as a service (SAAS), and managed services are all options for purchasing new hardware, software, user licenses, and managing your own IT shop. While these types of services have become more commonplace in the e-commerce world, they have gained a significant foothold in back-end order management. Applications typically include customer contact center, customer service, credit card authorization, order processing, inventory control, warehousing, marketing, and accounting for multichannel and direct companies.

SAAS providers include ProfitCenter Software (www.profitcentersoftware.com) is a division of Systemax, Inc, which includes Tiger Direct. Matt Ehrlich, president of ProfitCenter Systems, feels that there are two compelling reasons for considering SAAS. “The first is economic. Do you want to make the intensive cash outlay to build and manage an in-house installation? The second is technological. Especially with moderate to large companies, being an in-house installation puts you in the software business. Hardware is the small part of the equation today. It’s the sophistication of the network, databases, business intelligence software, etc., and the people resources required. It’s up to the SAAS provider to continue to invest and move their clients along the technology path or they leave.” PCS has Publisher’s Clearing House, Flaghouse, Compact Appliances, and That Fish Place/That Pet Place as customers.

Donny Askin—founder and former owner and president of CommercialWare, and now the CEO of Order Motion (www.ordermotion.com), an SAAS provider—believes that “SAAS is the IT deployment of the future for the multichannel industry.” Order Motion has more than 250 companies as clients, featuring more than 300 brands. Order Motion’s market is companies in a sales range of $500,000 to $40 million annually. Their clients include Gucci, Napa Style, Ronco, Wolfgang Puck, and CNet.

Benefits

Here are the major benefits to an SAAS model:

• It’s no longer necessary to invest in servers and software for your order management system, thus eliminating the capital investment;
• Lower implementation costs than licensed products;
• Variable or fixed cost of operation—there may be monthly account management fees or a hosting fee. There are different pricing models. Some companies, like Order Motion, are transaction-oriented. Others, like ProfitCenter Software, have a fixed price for implementation and a fixed price per seat ($125/seat/month). In the SAAS Internet world, percent of gross revenue is a common fee;
• SAAS eliminates IT infrastructure and IT management responsibilities.
• SAAS eliminates the IT tasks involved with updating an application, including version releases of languages and databases as well as the version releases of the application;
• It eliminates the company’s need to invest in future technology and the human resources required to implement and maintain the systems;
• Shared success—many of these services have short-term contracts, and clients can “unhook” or de-install the system with short notice.

SAAS differs from the application services provider concept (ASP) in that generally the term ASP is a single instance of a system running a single company’s business. In the case of SAAS, most providers are running all companies on a single instance or copy of the system. In both cases the operations environment is outsourced.

New ASP offering

ASP operations have been around for some time as a concept but their use has been limited in our industry. In May 2006, at CommercialWare’s (a division of Datavantage) user meeting, e-commerce design, development, and managed services provider Fry and CommercialWare, a provider of cross-channel commerce software solutions for retailers, announced a partnership to deliver multichannel retail solutions that optimize transactions from all touch points. An equally significant portion of the release dealt with managed services. “Fry will provide hosting, managed services, and operational maintenance as a single source solution, leveraging the expertise of the CommercialWare team. In addition, for retailers whose business needs only require the management and operation of the CommercialWare solutions, Fry will host and provide managed services and maintenance for CommercialWare’s products.”

Curt Barry is president of F. Curtis Barry & Company, a Richmond, VA-based consultancy specializing in customer e-commerce, contact center, fulfillment, benchmarking, and IT consulting for multichannel companies.