New research from Gartner attempts to throw some cold water on the hot software-as-a-service (SaaS) market.
In “Gartner Fact Checks the Five Most-Common SaaS Assumptions,” VP and distinguished analyst Robert DeSisto writes about the assumptions the IT industry has made about SaaS applications. His concern is that companies are deploying SaaS solutions based on false assumptions, and that they’ll be seriously disappointed as a result.
If you’re a regular reader of this blog (and you know who you are, all two of you), you know that I’ve been quite bullish on SaaS applications—whether it’s the robust SaaS CRM market, or the emerging ERP, supply chain and BI on-demand applications.
The number-one reason that I’m excitedly watching the growth of the SaaS market is because it offers companies more choice and greater flexibility in satisfying business users’ needs. I’m well aware that SaaS and on-demand apps aren’t perfect. But they are improving.
Perhaps I’ve made some assumptions myself about the SaaS market. And as my father has always said: Never assume anything, because you can make an “ass” out of “u” and “me.” So let’s examine what Gartner’s DeSisto has to say.
Assumption 1: SaaS is less expensive than on-premise software.
DeSisto’s Fact Check: DeSisto says that SaaS is only less expensive than on-premise software during its first two years in operation. “SaaS applications will have lower total cost of ownership (TCO) for the first two years because SaaS applications do not require large capital investment for licenses or support infrastructure,” he writes.
But after three years, he continues, an on-premise deployment can actually be less expensive from an accounting perspective, because companies can write down hardware depreciation costs associated with the deployment on their balance sheets.
Enterprise Software Unplugged Take: I wonder just how much companies care about this five-year TCO question right now, due to the recession. The “bunker mentality” might be so pervasive and powerful in companies today that they’re willing to take the two-year TCO savings and worry about the five-year TCO if they still have a job at that point.
Assumption 2: SaaS is faster to implement than on-premise software.
DeSisto’s Fact Check: Simple SaaS implementations will be faster, says DeSisto, but SaaS deployments are becoming increasingly complex as companies require greater customization of their SaaS apps and greater integration with existing systems. That complexity slows down deployment time.
“Vendors often quote time frames of 30 days to implement but neglect to say that SaaS deployments can take seven months or longer,” writes DeSisto. Consequently, he adds, as the complexity of SaaS deployments increases, SaaS’s time-to-benefit advantages over on-premise software decreases.
Enterprise Software Unplugged Take: Faster implementation times have been one of SaaS’s top selling points (if not the top). DeSisto’s second point is noteworthy, but with ERP and CRM on-premise installs still being measured by 12- to 18-month standards (and massive blow-ups still happening), I don’t see a seven-month long SaaS deployment being too problematic (unless, of course, the customer was expecting to have the SaaS application up and running in 30 days).
Assumption 3: SaaS is priced like a utility.
DeSisto’s Fact Check: Many SaaS providers say customers are only charged on a pay-per-use basis—similar to electric companies—but for most SaaS deployments, the pay-as-you-go model isn’t the case, says DeSisto.
“In the vast majority of cases, a company must commit to a predetermined contract independent of actual use,” writes DeSisto. “In some cases, the application lends itself to metered use—for example, an e-commerce application may have pricing based on order transaction processes—but for the most part, utility examples are in the minority.”
Enterprise Software Unplugged Take: DeSisto makes a great point here, and it is one that companies need to check out before signing any SaaS contract.
Assumption 4: SaaS does not integrate with on-premise application and/or data sources.
DeSisto’s Fact Check: This is false. DeSisto says there are two primary ways to integrate SaaS offerings with on-premise applications and/or data sources. “The first method is batch synchronization, which initially involves loading the SaaS application with data. Once this initial data load has been made, data can be incrementally synchronized on a scheduled basis,” he writes.
“The second method is real-time integration using Web services. Another way to combine the two methods is by having a Web service trigger that is based on an event occurring in the SaaS service,” DeSisto adds. “Yet another method is emerging that involves integrating SaaS applications at the user-interface level through mashups.”
Enterprise Software Unplugged Take: If business users and CIOs are assuming that this is the case in 2009, then they need to talk to a SaaS vendor ASAP. Integration technologies have a come a long way.
Assumption 5: SaaS is only for simple, basic requirements.
DeSisto’s Fact Check: In general this assumption is false, but there are still limits to what companies can do with SaaS, says DeSisto.
“There are industry examples in which complete custom applications have been built using SaaS APaas (application platform as a service),” he notes. “However, some gaps remain for complex, end-to-end processes that require complex workflow or business process management capabilities.”
Enterprise Software Unplugged Take: As DeSisto correctly notes, SaaS vendors have been dogged by a reputation that their products were simply for limited CRM applications. And that has definitely changed.