Erik Keller: How SaaS-y do you want to get?
Erik Keller -- Manufacturing Business Technology, 7/1/2007
A while ago, Toby Redshaw of Motorola responded to me, “Money is money,” when I asked him about the budget tradeoffs of traditional software versus software-as-a-service (SaaS.) To him it didn’t matter how he paid for software—or a service—but rather what value was delivered, and how quickly.Those are probably the correct metrics to consider, but plenty of companies are not so casual about how IT monies get spent. For example, IT capital expenditures represent about 50 percent of all capital goods expenditures, and have since 2000. But given the push for SaaS, where nothing is capitalized, it is more than likely that IT capital expenditures will decrease by 10 percent to 20 percent over the next five to 10 years.
Some believe it could decrease by nearly 50 percent.
This implies a very different future for the use of IT as companies will need to determine what is good to outsource as a service versus what should be run in-house. In addition, as companies go through a change in infrastructure, so too will they need to change their financial structures and how IT initiatives will be funded.
SaaS will force more budgetary discipline as the expenses are claimed up-front rather than deferred over long periods of time. (I know of some clients who wrote off their ERP implementations over a 13-year period.)
Beyond the financial challenges of moving to SaaS are two others: customization and uptime. Unlike homegrown or even packaged software, don’t think about being able to make lots of customization changes to an SaaS solution. You will have the ability for a degree of configuration, but forget about doing everything the way you've always done it. If that is acceptable, then SaaS can represent a good fit. Uptime is a different story, however.
The potential uptime problems with SaaS were brought home to me recently when a Northeaster tore through my town and others, leaving 70 percent of all homes and businesses without power for more than two days. When we got power back, my Internet service was down and didn't get fixed for another three days. Needless to say, I spent a lot of time catching up on my non-online reading.
Not only do you need to worry about your Internet provider having 24/7 availability, but also whether your SaaS provider will be up and running. And all of the major providers—e.g., Salesforce.com, Google, and Amazon—have seen well-publicized failures.
So for SaaS to become a viable business reality, it implies that all providers—from the local mobile ISP to all the different services you subscribe to—must have a combined 99.999-percent uptime. That is a hard thing to achieve at least in the short term. So smart money says you will need a mix of approaches.
This is not a trivial question as the market pendulum is swinging very strangely now in an ellipse that looks like a combination of all the different computing and network environments we have seen in the last 20 years—plus a few ones we haven't considered yet. It’s going to be fun to see how all this gets sorted out.
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