Is SaaS for you?

Apr 01, 2008 9:30 PM  By

“Software on demand.” “Software as a service.” “Hosted solutions.”

They’re all different names for the same thing — using business applications that are maintained off-site, either by the software vendor or at a secure third-party location, and using the system on some type of pay-as-you-go basis.

There’s no consensus on the term quite yet, even though the concept is sufficiently proven by now that it ranks as a legitimate alternative to licensed applications that are typically deployed inhouse and managed with internal IT staff. Software as a service, or SaaS, seems to have a slight edge in the name game, so we’ll go with that.

TECHNOLOGY

There are a couple of technology basics associated with SaaS. The first is that in most cases the system you access remotely will be available over an ultra-high-speed, secure Internet connection (or, alternatively, via a virtual private network, which for all intents and purposes amounts to the same thing).

Although it is not required, SaaS solutions typically also have a Web browser interface, which some users believe makes for a less efficient use of screen “real estate.” But with browser technology supporting such techniques as “drag-and-drop,” these objections are less and less significant.

One of the biggest technology benefits of a hosted solution is that it can inherently provide a platform for a “services-oriented architecture,” or SOA. This is a way to enhance the functionality of a system using external “services” available via the Internet, rather than coding all system functions internally. There is no direct relationship between SaaS and SOA, but if your SaaS solution is designed to take advantage of it, that can be a benefit in providing add-on functionality.

THE BOTTOM LINE

Before reviewing the pros and cons of SaaS in general, let’s go right to the bottom line. The biggest objection that direct marketing companies usually have to hosted solutions is that they are essentially paying for the system according to order volume (or, alternatively, on a periodic fee basis, typically related to volume). It’s like riding in a taxi as opposed to renting, leasing, or buying a car.

Five years ago, this was a valid objection. But since then, e-commerce has become a large and growing aspect of every direct merchant’s business, and there is a general acknowledgement that some form of “pay-as-you-go” or “pay-for-volume” is the logical way to pay for usage of e-commerce platforms.

So if you’re paying for 35%, 40% or more of your orders on a volume basis, why not go all the way?

While the financial aspects of a hosted solution can be finessed in that fashion, there is a second and even more problematic issue for a substantial number of direct commerce companies: If you need a highly customized system, SaaS may not make much sense.

CUSTOM FIT

To be sure, you can have a software vendor customize a system and host it at their site just for you, providing access to your users via Web browsers. But this one-off approach is not what most vendors have in mind when they talk about a hosted solution — although it is exactly what an “ASP” or “application service provider” is all about. SaaS presupposes that, while the system may offer a vast array of options, the combination of options you choose to use will be selected from those available in the standard solution.

In a true SOA environment, many of the “options” you select would be true Web services — and highly configurable. We haven’t really reached that level of sophistication yet with hosted direct commerce systems, however. Give it another five years — if the whole shooting match hasn’t been re-engineered by then.

In any case, many companies actually don’t want customized systems because they are afraid, quite rightly, that they will become “orphaned” as the standard version of their system is enhanced in future versions. Thus, there is a growing receptivity to SaaS in the direct response sector.

THE ADVANTAGES

What are the advantages of a hosted solution? For one thing, you don’t have to invest in expensive server hardware, and keep upgrading it as technology changes. The vendor does that for you.

You also don’t need a large IT department to babysit the hardware. All you need (apart from a high-end Web infrastructure) is inexpensive “thin” clients, i.e., cheap PCs.

Another advantage is quick implementation, typically weeks rather than months. As your business grows, the cost of managing this growth is reflected only in your fee, rather than in replacing/upgrading your hardware. You might then start using additional functions in the hosted solution, or other modules, and these are available just by “switching them on.”

Granted, you can do that in a solution you run inhouse, but in general, people don’t buy a lot more system than they need, so the “traditional” model would require installing a new module and perhaps upgrading the main system. With SaaS, that time-consuming process might take only a few minutes or hours.

Since the hosted system has a browser interface, it is also available to any platform that can link to the Internet, whether it’s a laptop in Lapland or a handheld PDA in your warehouse. You can also share the system selectively with business partners in the value chain.

It’s all part of the virtual world, where Web demos of systems are taking the place of old-fashioned on-site visits.

FACING CHALLENGES

Don’t underestimate the infrastructure hurdles of SaaS, however. Chances are, whatever your current Internet gateway provides you to support Web access, you are going to have to invest in upgrading it. That can run into tens of thousands of dollars up front, and probably result in an increase in ongoing fees and charges.

You don’t need to be concerned about the easy aspects of data security. SaaS vendors have crossed that bridge successfully. But, you are still going to rely on third-party partners for the integrity of your system, and up-time has to be as big a concern as data security.

If there are dozens, or hundreds (or more) clients using a solution during peak volume periods during the holidays, there is an increased risk this could overload the servers at the worst possible time. Be sure that fail-safe, back-up servers are available in different geographic locations (to accommodate “acts of God,” as well).

Also check on the software vendor’s back-up procedures and policies, and the service provider’s disaster recovery methods and plans.

One advantage of SaaS — that the system is easily updated with new functionality — can be problematic if the new features impose a more or less constant “learning curve” for users. Then again, no pain, no gain.

Integration with other applications, such as accounting or manifesting systems, should not prove any more difficult with SaaS than with standard solutions. The technology is mature enough to make this more or less a nonissue.

Finally, browser interfaces tend to look and feel different from standard programs, often with a less efficient use of screen space, sometimes requiring several screens to enter an order, for instance, rather than the efficiency of single screens in a traditional “client/server” solution.

But this issue is being addressed. Web technologies like AJAX are giving browser interfaces a much more traditional look and feel. Once hosted-solution providers begin to widely adopt such techniques (including drag-and-drop), you may find it difficult to tell whether the system you are using is running on your PC or in a browser.

NETTING IT OUT

So, is SaaS right for you? Usually, the answer is based more on “soft” issues, like comfort-level with new technologies or running your system remotely, than on the hard numbers of “total cost of ownership” of SaaS vs. traditional solutions. Thus, rational arguments and quantitative analysis may be trumped by the gut-feel of the decision makers who have to live with the decision going forward.

Virtually all of the SaaS providers are relatively new to the direct commerce business. This inevitably means that SaaS solutions will be less “mature” than traditional systems. This is clearly not a show-stopper, but it does compel a warning to assume nothing, investigate closely, and get detailed input from early adopters who have businesses similar to yours and have gone down this road ahead of you. None to talk to? Then that should probably be a road “not taken.”


Ernie Schell is director of Ventnor, NJ-based consultancy Marketing Systems Analysis, and author of The Guide to Catalog Management Software.