Busting the myths about SaaS

1 Jan 2009

A recent conference in Dublin heard that a third of traditional software projects fail. CIOs in large organisations are under increasing pressure from business units to deliver usable technology more quickly. As markets slow, business users can ill afford to wait around for 18 months while an on-premises software development is rolled out.

Speed, ease of implementation, no capital investment costs and rapid return on investment have been the driving force behind the growth of Software as a Service (SaaS). But can it deliver to enterprise the benefits it has demonstrated across SMEs? I believe there are four great myths when it comes to enterprise implementation of SaaS.

Myth 1: SaaS is only for SMEs

A recent report from Saugatuck Technology found that only 4pc of large enterprises (5,000-plus employees) are not planning on deploying SaaS.

McKinsey & Co reported 62pc growth in enterprise SaaS adoption between 2005 and 2006, while Gartner finds that on-demand applications now represent between 25pc and 40pc of the €220bn software industry. Gartner estimates that SaaS adoption in enterprise will increase by 20pc per annum through to 2011 and will more than double to US$11.5bn by then. These estimates are borne out by real enterprise users such as Japan Post, which has 65,000 salesforce.com subscribers, Merrill Lynch (25,000 users) and Dell (40,000 users).

Myth 2: SaaS is only for CRM

Michael Ybarra, author and monthly columnist for SearchCIO-Midmarket.com, comments that the SaaS model continues to win adopters because of its speed and ease of deployment. While the most popular applications continue to be human resources, collaboration and CRM, more companies are also looking at the model for enterprise systems as well.

David Linthicum of consultants ZapThink has been talking about the SaaS-only or SaaS-majority enterprise for some time now. “In essence, it’s a new or existing business that has most or all of its critical business applications – and data – delivered on-demand. While this scares the hell out of most IT shops, the courageous and innovative organisations using internet-delivered applications and services are finding huge benefits.”

Myth 3: It’s hard to integrate SaaS with legacy systems

A Forrester survey found that integration was the most common reason why tech execs shied away from SaaS. However, according to Frank McCracken, a founder and executive vice-president of Saaspoint, many firms are missing out on the benefits of SaaS because they think that integration with existing legacy systems such as Oracle, SAP or Sage is impossible or overly complex and time consuming. But, he says, SaaS applications vendors have a better track record of maintaining stable APIs than do the legacy on-premises vendors. He points out that not only can CIOs retain their legacy on-premises software but they can also enhance its usability and adoption. The traditional headaches around integrating and making software upgrades compatible are eliminated under the SaaS model.

Myth 4: SaaS is not for enterprise application developers

According to Linthicum, enterprise architects must plan for SaaS. “Many Global 2000 enterprises could find that 20-30pc of their enterprise applications are SaaS-delivered and need to function like any other enterprise system, working and playing well with others – users, legacy systems etc.” Meanwhile, Beagle Research Group points out a major reason why SaaS has infiltrated the enterprise, suggesting the traditional software paradigm is in serious trouble. “Application development has become complex and expensive to the point that it presents a serious impediment to business growth,” it says.

One of the drivers for SaaS becoming central to enterprise application is that it releases CIOs and their developers to innovate. As the research company CXO Media points out: “Too often, IT departments are infrastructure mills, with most of their resources bound up in the rote exercises of maintaining hardware, patching software, tuning databases and running backups.”

A study by IDG Research Services with CIO Magazine subscribers in March 2007 found some 80pc agreed that on-demand allows IT to focus more on innovation and less on infrastructure. Half of all surveyed said it is critical for on-demand software to serve as a platform for new application development and deployment.

Saugatuck Technology puts it best: “SaaS is expanding well beyond its early low-cost, easy-to-deploy, niche application roots to become an important business computing force that is fully integrated with broader enterprise architectures. SaaS is growing up and going global, with an increasing focus on core financial and human resource management systems of record – not just on the early poster-child solutions categories such as CRM, sales force automation and collaboration.”

SaaS could indeed be the catalyst that finally transforms the CIO into an enterprise’s chief innovation officer.

By Fergus Gloster, senior vice-president (EMEA), Salesforce.com