Vendor Accent

The Second Coming

Satish Joshi explains why 'Software as a Service' is here to stay

There was a time when it was not unheard of to see CIOs spending a million dollars buying licenses of some ERP and then another million or more to implement it in their enterprise. Moreover, anecdotal evidence suggests that 40% or more of these multi-million dollar implementations did not produce the magic that was expected out of them. In response to the resulting uproar, emerged the ASPs, providing access to expensive applications in a pay-per-use mode, apparently aimed at easing the pressure on the need to make large capital investments. Unfortunately, ASPs failed! The reasons were many but primarily because although the basic idea was sound, the eco-system required for the model to thrive did not exist.

The Pay-per-use model is reemerging as Software as a Service (SaaS). Some of the old myths (and some new ones too) about it continue to cloud common perceptions. However, advances in technology–especially SOA as well as the readiness and ability of enterprises to adapt to the constraints of SaaS are indicating that unlike the first time, this second coming is here to stay.

Myths and Truths

• Myth 1: SaaS is a synonym for CRM and Sales Force Automation applications.

Without question the most celebrated example of SaaS in operation has been Salesforce.com. After the disastrous record of the early ASPs, skepticism about the commercial success of providing software in a pay-per-use model was rife. Salesforce.com certainly demonstrated that there was hope in the basic idea. However adoption of SaaS cuts across a much broader spectrum of business areas. In fact research done by both Forrester and Gartner indicates that CRM/SFA is distinctly behind in adoption of SaaS compared to areas like Content, Communication and Collaboration or Human Capital Management etc.

What is more important is that the same surveys showed significant increase in usage of applications in the SaaS mode for Order Management, Supply Chain Management, Enterprise Resource Planning etc. Recent moves by the dominant software package vendors in areas other than just CRM seem to corroborate the findings of this survey. Both SAP and Oracle have recently launched their ERP systems in a SaaS model e.g. Business By Design offering from SAP and Oracle On Demand. Other moves in the market such as Ariba’s acquisition of Procuri, which provides Supply Chain Management capabilities in a SaaS model only further validates these findings. Procuri is widely used for supply chain management by large enterprises like ConAgra, Domino’s, Eastman Kodak to name a few. The interesting implication of this is that these vendors are committing large investments because they believe that SaaS will enter into the hallowed, core business processes of enterprises: areas that are typically closely guarded, considered mission critical and central to an enterprise’s success!

• Myth 2: Barriers to wider SaaS adoption are: Fears about data security, lack of required functionality, Constraints imposed by standardization.

The usual dogma is that wider adoption of SaaS is hampered by the fears that potential users have, about keeping their data confidential. Since SaaS vendors control the functionality, behavior and look-and-feel of the applications, potential users fear that they will have to alter their business processes to match whatever the SaaS vendors choose to implement. That they will have to make do with shortcomings in the functional capabilities and will have to re-train their users to live with unfamiliar user interfaces.

Interestingly, a recent business technographics survey by Forrester seems to indicate that the top two barriers that enterprises seriously evaluating adoption of SaaS expressed concerns about, included none of the above. The top barriers were:

• Integration of software bought as a Service with the remaining in-house application portfolio
• Operating costs
• Fear about data security
• Lack of customization

Other factors figured even lower and in fact, shortcomings in functional capabilities did not even figure in the list of top 10 concerns!

The implications of this are important. Techno-functional barriers can be difficult to overcome, requiring long time, large investments in R&D etc and despite that may remain as obstacles. Overcoming commercial barriers like cost considerations are often a matter of negotiation and market pressures and therefore more readily solvable. Therefore, concerns about integration are important to understand. In today’s world organizations cannot afford to have silos of applications that do not interact well with each other. There is no such thing anymore as a standalone CRM application—the business process that starts with the identification of a prospect, needs to work its way through a multitude of applications seamlessly from lead generation to contract closure to order management to production planning to procurement and supply chain management to shipping and to service management and in the background interact with financial systems, human resource management systems and so on. Selecting one or more of these business applications to be bought in a SaaS mode creates a complex integration and change management project that must be efficiently executed if SaaS is to succeed. That is the biggest challenge to wider adoption of SaaS.

• Myth 3: SaaS is for Small and Medium Businesses.

The source of this myth is in many ways linked to the second myth, which is that SaaS is cheaper and that smaller businesses do not need sophisticated functionality and that they can live with lack of customization etc.

The facts are to the contrary. SaaS is not necessarily cheap (as borne out by the Forrester survey mentioned above) and it does not necessarily imply inferior functionality (again as borne out by the survey mentioned above).

The next frontier of SaaS

The motivation from an enterprise’s point of view to consider SaaS is obviously to reduce large capital expenditure, reduce waiting time for large development projects (which more often overrun than not) or large ERP implementation projects to complete to get access to new functionality, make operating expenses variable and proportionate to business growth. The biggest challenge in large scale adoption of

On the positive side, the evolution of technologies, especially SOA and the eco-system that has grown around SOA have provided answers to many of the problems that dogged the old ASPs–anywhere anytime access, quality of service, ease of integration and aggregation of diverse applications, data security etc.

This new wine in an old bottle is thus poised to the standard fare at corporate parties!

The author is Patni’s Executive Vice President & Chief Technology Officer