Buying SaaS: 3 Ways to Ensure Cloud Benefits Meet Enterprise Needs

For all the cost-saving appeal of cloud applications — more commonly referred to as SaaS (software as a service) — enterprises are still trying to get their heads around the benefits and risks of SaaS and which parts of the company need it the most.

There’s no question that SaaS is the fastest growing public cloud category. To gather data on SaaS usage, Forrester surveyed 1,000 IT decision-makers from North American and European enterprise companies with 1,000 or more employees.

In a report by Forrester analyst Liz Herbert entitled, “The SaaS Market Hits Mainstream: Adoption Highlights 2011,” the research firm culls the survey data to highlight how companies are using SaaS, what benefits they hope to get out of it and which parts of an organization are driving SaaS purchases. Hint: It’s not necessarily IT.

Forrester’s survey research indicates that SaaS is used in three main areas: business processes (CRM and human resources), collaboration such as messaging, e-mail, web conferencing (Google Apps and Office 365), and industry-specific processes such as claims management for the insurance industry and sales reporting for retail.

The main benefit that firms hope to gain when implementing SaaS is, not surprisingly, lower costs, both upfront and long-term. Other SaaS benefits include faster delivery of application features, improved support for remote users and better overall user satisfaction via familiar Web user interfaces from the likes of Salesforce.com.

Regarding SaaS purchasing decisions, Forrester survey data confirms that partners and business groups, such as sales VPs buying Salesforce.com or HR departments buying SuccessFactors, are the primary drivers of SaaS adoption. On the other hand, IT developers handling purchases are in charge of procuring cloud platforms (PaaS) and cloud services for collaboration, security and storage.

“Much of SaaS purchasing comes from groups outside of the traditional IT sourcing model,” writes report author Herbert. “This has significant implications because it means that organizational units are sourcing their own technology in a decentralized way.”

This leaves it to “sourcing executives” — members of the IT group responsible for defining the business’ tech purchasing strategy and negotiating with vendors — to navigate the needs of business units and make SaaS purchases that have long-term benefits and solid TCO.

But as sourcing executives head to the negotiating table, they need to be wary of cloud hype and think long term. Here are three ways to make sure the benefits of SaaS meet your company’s business and technology needs.

Formally Assess the ROI of Cloud Applications

There is a perception that SaaS applications will reduce infrastructure costs by 50 percent, and eliminate support costs. But this is not a guarantee, writes Herbert.

Despite the potential cost savings of SaaS, there are many hidden costs, she says.

“When considering financial ROI, firms should take into account SaaS price increases over time, extra charges for new modules or features, and add-on costs for areas like mobile and storage.”

Continually Measure Usage and Value

Sourcing executives should also do their best to avoid paying for SaaS features that the company may not need.

“Despite the hype that SaaS eliminates shelfware, some SaaS buyers find they pay for subscriptions that are minimally, or not at all, used,” writes Herbert.

To avoid this, sourcing executives need to work closely with cloud vendors to understand usage metrics, and then adjust contracts or vendor mix accordingly.

Plan an Exit Strategy

Most SaaS relationships will come to an end, according to Forrester, either because the buyer chooses to switch to another service or the vendor gets acquired or goes out of business.

To this end, Forrester encourages generating relationships with numerous vendors and having an alternate deployment strategy in place.

Also, Herbert stresses the “the importance of having contractual terms such as exit clauses and mechanisms to get your data back.”

Shane O’Neill covers Microsoft, Windows, Operating Systems, Productivity Apps and Online Services for CIO.com. Follow Shane on Twitter @smoneill. Follow everything from CIO.com on Twitter @CIOonline and on Facebook. Email Shane at soneill@cio.com