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Report: Enterprises Adopt SaaS Aggressively

Despite security concerns and reservations about how Software as a Service (SaaS) will integrate with existing on premise systems, enterprises surveyed cited easier maintenance and cheaper cost as a key factor for buying SaaS.

By C.G. Lynch

May 07, 2008 — CIO — Software as a service (SaaS) — which allows organizations to access software over the Web instead of locally on a desktop — is rapidly pervading the enterprise space, with nearly 73 percent of large companies saying they have adopted it or plan to adopt it in the next 18 months, according to a recent survey by Kelton Research.

The survey, commissioned by Acumen Solutions, a business and technology consulting firm, polled around 100 executives representing enterprises in the Fortune 500. The majority of respondents hailed from IT backgrounds, while some came from general business departments, says Nathan Richter, Executive Director, at Kelton Research.

The participation by general business people in the survey, rather than only technology executives, shows just how disruptive an innovation SaaS has been for IT: if a line-of-business department doesn't want to wait for IT to provide them with a piece of technology, as the saying now goes, a SaaS offering is only "a credit card purchase away."

"Two years ago, that was exactly what was happening," says Donita Prakash, chief marketing officer of Acumen Solutions. "Now we see IT embracing SaaS and doing replacements of on-premise software."

Prakash says most implementations of SaaS software have centered around CRM software, as evinced by the success of Salesforce.com. She says producitivity software, such as Google Apps, has been slow to catch on and that, anecdotally, Acumen didn't see much adoption yet. Salesforce.com recently announced it would add Google Apps for free for any customers who wanted it.

"That area of software is still heavily in the desktop environment," she says.

Traditionally, as the report notes, IT departments purchased software with a "one-time cost that depreciated over time." SaaS, conversely, works on a subscription basis, where businesses typically pay a monthly or yearly fee for the software. Respondents didn't seem concerned about the new model SaaS has presented: only 21 percent said they were hung up on buying software via a subscription.

The primary reasons for heavy SaaS adoption, the report noted, center around speed-to-market and easier maintenance. With SaaS, the vendor providing the software makes updates to it seamlessly. This differs from installed software, where IT departments or users have to generally make upgrades more manually.

A third factor is price. According to the report, most SaaS offerings, with their subscription model, are cheaper than on premise software. By paying for each individual employee who uses it, companies never buy software and have it collect virtual dust if an employee leaves or stops using it. With SaaS, if an employee stops using the software, the administrator can eliminate (and stop paying) for that subscription.

Enterprise customers still hold some reservations about SaaS, however. More than half (56 percent) said they worry about how SaaS offerings can integrate with existing installed (on-premise) data. In addition, since SaaS vendors typically host the data for their customers, many enterprises (62 percent) worry about the security of data not behind their firewall.

 

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