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The Truth About Software as a Service (SaaS)

Vendors say software as a service will cut costs and increase efficiency. They say it's enterprise ready. Does that sound too good to be true? It is.

May 21, 2007 — CIO —

“What if we created a utility for enterprise automation? Then you don’t have to create a data center! Then you don’t have to have a CIO!”

That was Salesforce.com CEO Marc Benioff in June 2003, selling the benefits of the then-new concept of software as a service (SaaS).

Fast-forward four years, and Salesforce.com and dozens of other companies are inundating business users and CIOs alike with pitches for all sorts of SaaS applications. Right now, SaaS seems to be everywhere.

Of course, today, SaaS vendors want to work with CIOs, not replace them, but do CIOs need to work with SaaS vendors?

Maybe. Sometimes.

“SaaS is just a means to an end. It’s part of a mosaic of solutions,” says Peter Young, vice president of IT at pharmaceutical company MedImmune.

“I view SaaS as another arrow in my quiver,” concurs Frank Modruson, CIO of the Accenture consultancy.

“SaaS is just another option,” says Rick Milazzo, CIO of clothing retailer American Eagle Outfitters.

But despite their tempered enthusiasm for SaaS, all three of these CIOs use SaaS applications...judiciously.

So far, the SaaS phenomenon has been largely confined to smaller companies. “For CIOs in the mid-market, SaaS may be the only way to get enterprise-class functionality,” notes Rob Bois, a research director at AMR Research. But as valuable as SaaS may be to smaller companies, that value may not translate to the needs of larger enterprises. CIOs at larger enterprises agree that SaaS can play a role in their software portfolio, but even its fans say that role may be limited.

SaaS and the Enterprise
There are many questions a CIO must ask when considering the use of a SaaS application. But perhaps the most critical question is whether your company wants to rely on software designed for use by hundreds of other companies.

“Don’t expect something unique. If you need everything customized, you won’t have success with SaaS,” says Lloyd Hohenstein, VP for finance, human resources, real estate and corporate communications at Schwab Technology, the financial services provider’s IT division.

But SaaS does make sense if the process “is not complex and is vanilla,” Hohenstein says. Unless there’s a reason to build technology internally—such as assuring service levels that a vendor can’t guarantee, SaaS is a good option, he adds. Assuming the software does the job well, of course.

What SaaS Is and Isn’t
The term SaaS is often abused by vendors who frequently use it to refer to any hosted application that can be accessed over an Internet connection, notes Ben Pring, a Gartner research vice president. “Some vendors are relabeling as SaaS more traditional application outsourcing approaches, and that runs the risk of both confusing and antagonizing buyers,” he says.