The Allure of Software as a Service

Opinion: If you haven't taken a hard look at using the software-as-service model for some of your enterprise applications, says David Coursey, now you should-at least to see where it makes sense for your business.

How has the enterprise software business changed in the post-dot-bomb era? If theres one thing, its that theres now an emphasis on right-now value. Perhaps thats because customers are more in-charge of their vendor relationships than they have been in the past.

It used to be that enterprise vendors—hardware and software both—and their corporate IT customers could have an exceptionally cozy relationship. They had to, actually, because the customer was often spending millions of dollars and getting what amounted to voodoo in return. Sure, theyd get an application or whatever that worked, but often only after months, even years, of custom development, even when what they wanted to accomplish wasnt all that different than what their competitors wanted to accomplish.

This often put corporate IT and the vendors into a closer relationship than the IT staff had with corporate management. After all, the IT people and the vendor people shared common problems and worked closely together, and ones success was tied to the others—though the vendor always seemed to hold the upper hand.

Corporate management—not savvy to the ways of computers—pretty much had to accept what it was told. Sure, there was pressure, even a lot of pressure from the C-level executive suite, but corporate IT still often worked more closely with vendors than their own corporate bosses.

Now, it wasnt that way everywhere, and maybe not where you worked. But Ive heard these stories too often to discount them. And I know that while changes have taken place, there are still a lot of IT shops that are way too cozy with their vendors, sometimes to the detriment of the IT departments company.

There is also the "other" kind of IT shops, those who are closely aligned with their CEOs and management teams, who have forsaken vendor-paid golf matches and swell gifts (well, most of them) for a real place at the corporate table. And its these companies, those that understand IT from the CEO on down, that are changing enterprise software.

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While some companies have been doing this for a while, the enterprise software vendors Ive spoken to lately say the economic downturn turned previously meek customers into lions. Now as the economy slowly returns, those customers realize they increasingly hold the upper hand with their old vendors and are, in some cases, actively seeking new ones.

They are also looking at new ways to purchase enterprise software. And enterprise software is becoming more like packaged software—in the sense that it does more "out-of-the-box" without huge investments in custom work for every installation.

Customers are also looking for more flexible licensing terms, generally aimed at not buying more licenses than they actually need, and are looking for a more pay-as-you-go relationship, with less upfront expense. Paying by the month—as some companies are beginning to do—helps keep vendors responsive and on their toes.

Many of these trends are evidenced in the growth of software-as-a-service (SaaS). There are a number of these vendors, who typically deliver web-based applications paid for on a per user/per month basis.

Two companies in this space are, the poster child of SaaS, and a new player called AirFrame Business Software that is trying to compete by giving customers more applications for the buck.

Siebel is also in the online CRM space. And if you look around, you will find many vendors delivering software online. Many are directed not at entire enterprises, but at workgroups and business units—this probably describes most accurately, and certainly describes Intuits QuickBase, an online database application development platform that I use every day.

SaaS isnt the only way customers are putting the screws to enterprise software vendors, but it could become one of the most important.

Here are some of the benefits of SaaS:

  • Easy set-up and limited customization—great for new businesses and business units.
  • Predictable ongoing expense—generally easy to walk away from.
  • Web-based apps are inherently mobile.
  • The vendor manages the servers, backs up the data, updates the application, reducing IT overhead.
  • Should cost less—maybe a lot less-than doing this yourself.
But then, there are downsides as well:
  • Limited customization may mean you cant always get what you want. It may be hard to change business practices to match how the SaaS app does business.
  • The ongoing expense goes on and on. You dont own the software.
  • Web-based apps may be a security risk.
  • Your data resides on the vendors servers.
  • Cheaper isnt always better.
There are many more issues, of course, but those at least scratch the surface. This week I am hosting a conference in San Francisco where SaaS will be among the topics. While I am there, I want to flesh out the pros and cons of SaaS and will tell you what I find out in my next column.

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