The dinoaurs are kidding themselves if they think SaaS myths are reality, reckons John Appleby of Saaspoint.
SaaS is not core to the business
The reality is that organisations implement technology for one of two reasons. To increase revenues or reduce costs. The traditional 9-12 month framework for implementing on-premise software is no longer credible. We live in a competitive world and currently in a challenging economic climate, where companies cannot afford to wait around. In a few months’ time the original business case will have changed due to new competition, changes in the market, M&A activity and so on.
Software-as-a-service (SaaS) applications can be implemented in 30-90 days with rapid ROI. SaaS has become core to business because it has the flexibility and speed of adoption to keep up with the changing demands of the organisation.
So, contrary to what certain parts of the software industry – albeit increasingly fewer detractors - believe, SaaS has become core to the business because traditional software applications are no longer relevant to today’s rapidly changing business environment.
SaaS is just a small part of the total software market
Many of the more traditional software ‘dinosaurs’ have been trying to reassure themselves that SaaS is still only a small part of the overall software market. Industry analyst Gartner forecasts that SaaS will constitute 25% of the market by 2011. It expects the SaaS market to grow at 25% CAGR over the next three years. According to a recent survey by Gartner among IT managers in the US and Europe, nine out of 10 companies plan to grow their use of SaaS in the next year, with more than a third planning to replace on-premise software with SaaS to drive down total cost of ownership. In reality these figures under-represent the true size and penetration of SaaS into the software market overall.
This is for two reasons. First, the revenue recognition model is totally different. On-demand revenues are calculated as a monthly subscription; traditional software is calculated on the value of the licences over a year or more. New license sales have been flat or declining in recent years. SaaS is a more accurate analysis of income because of the predictability of the revenue stream.
Second, the bane of traditional enterprise software is shelfware. It has been estimated that well over a third of on-premise software revenues turn out to be shelfware and not implemented or used. The easy configurability and user-friendly nature of SaaS has consistently outscored traditional software applications for high usability.
SaaS is only for small and medium sized firms, not enterprises
This myth still persists in many quarters. Tell that to Merrill Lynch, Cisco or Dell all of whom have implemented salesforce.com. Major organisations all over the world are implementing SaaS across multiple functions and in multiple ways - and in most cases it is replacing or being implemented as an alternative to more traditional systems.
The two major drivers of this accelerated adoption are cost advantages and increased proof of data security. Corporations always undertake detailed cost-benefit analysis and are recognising that they can no longer wait for traditional in-house software to deliver on expected returns. Nor can they justify the costs in licences, implementation and maintenance.
While CIOs at large enterprises previously viewed SaaS as a threat to their power over IT, it is now seen as a way of fulfilling business mandates without stretching increasingly thin IT budgets and resources.
CIOs are suspicious of SaaS
CIOs have changed their attitude to SaaS for many reasons. First, it removes the maintenance/support headache, an issue on which considerable time and budget has been devoted. There is no support issue because hosting, servers, software and security are managed and maintained by the SaaS provider.
Second, the CIO needs to be able to partner with the business to provide enabling technologies for implementing corporate strategy cost-effectively. The modern CIO is transitioning from a pure technologist to a key strategy or business process enabler - SaaS is one of these enablers.
In the past it is true that in many cases SaaS was implemented without the CIO, bought in by hard-pressed sales directors who could not afford to wait while traditional enterprise software was rolled out to users who could not understand it and would not use it. The SaaS world is full of installations which began in a small department somewhere and spread throughout the entire organisation.
SaaS is only for CRM
Yes, this one is still doing the rounds believe it or not! SaaS has been extending its initial dominance within CRM to every single corner of the business, from HR and accounting to procurement, supply chain management and all sorts of collaborative working practices.
This move was almost certainly accelerated by Salesforce.com’s AppExchange platform, which triggered a wealth of on-demand applications featuring sophisticated processes and business. It enables unprecedented levels of customisation, allowing modification of existing features, or creation of entirely new functions and capabilities. And, like other customisations built on the platform, Apex applications are packaged and shared through the AppExchange directory.
SaaS has finally come of age and it will only continue to mature. So, examine carefully the myths still out there.
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