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10.29.08 SaaS Considerations For Business Leaders  By Jim Berkowitz Here are several excerpts from an excellent article by Thomas Wailgum, senior editor with CIO.com, 5 Questions to Ask Before You Say Yes to SaaS: Not surprisingly, SaaS vendors have decided there's no time like the present to make a full court sales press. In a down economy with slashed IT budgets, when there's no tolerance for 18-month software implementations and the price tags for on-premise software from Oracle and maintenance fees from SAP applications are not falling, software-as-a-service and cloud computing offerings become more attractive options for businesses. Gartner recently noted that worldwide SaaS revenue in the enterprise application markets was on pace to surpass $6.4 billion in 2008, which is a 27 percent increase from 2007 revenue of $5.1 billion. By 2012, Gartner predicted, the market is expected to reach $14.8 billion. Here are five important considerations that business leaders and IT staffers must think about before they sign a SaaS contract… 1. Have You Prevented Against "Sticker Shock" Down the Road? One of SaaS's biggest selling points is its simplified pricing model: those pay-as-you-go, per-user monthly fees. The term "flat" usually stars in a SaaS vendor's marketing materials. However, companies are still confused by uncertainties in pricing models and contract agreements, note Forrester analysts William Band and Peter Marston. "SaaS pricing models that seem simple and inexpensive (flat per-user monthly fees) can become costly and complex when users sign up for different pieces of functionality and support options," the analysts write. "Additional charges often apply for support, configuration services, additional functionality or going beyond a preset storage limit." In addition, business users and IT staffers can also be "unpleasantly surprised by difficult-to-enforce service-level agreements or onerous provisions that kick-in at the end of the contract term," 2. Has IT Been Included in the Decision-Making Process? It almost seems apocryphal that IT staffers wouldn't be included at all in today's SaaS decision-making processes. But the reality is that business stakeholders have become quite adept at navigating the software purchasing world: they know what they want and SaaS vendors oftentimes go straight for the business side to sell their wares. "Some SaaS buyers get into trouble by not thoroughly evaluating integration or customization capabilities at purchase time. They later go to IT with requests that the application simply can't support," note Herbert and Martorelli. "Instead, make sure to involve IT upfront to ensure that the application can support your needs before you buy in," say Forrester analysts Liz Herbert and Bill Martorelli.
3. Is the SaaS Application Set Mature Enough? Another reason for IT's involvement: Vendor selection is of paramount importance right now, especially as startup SaaS vendors and others selling their applications under the cloud computing banner might be here today, but gone tomorrow. "As SaaS continues its fast-paced growth, providers are quick to jump into the market with new solutions," write the Forrester analysts Herbert and Martorelli. "However, this makes it difficult for firms to feel secure about the long-term stability of their application purchases." 4. Have You Calculated Total Cost of Ownership? A late 2007 Forrester Research survey of North American and European software IT decision-makers found that "total cost concerns" was the second-most cited reason for why companies were not interested in SaaS. In the rush to adopt SaaS, some companies may forget about potentially conflicting total cost of ownership figures. For example, TCO of "SaaS ERP suites likely will be significant and may not compare favorably with on-premises solutions," writes Ganly, in the Gartner report. This problem applies to vendors as well. SaaS vendors "often have unrealistic expectations of their operating costs," she adds. "The multitenant architecture needed for SaaS ERP suites results in high internal efforts and costs for the initial setup and the ongoing maintenance and upgrade of the system." 5. Have You Considered All of the Integration Issues? While SaaS applications can be implemented much faster than on-premise apps, there are still lingering and tough integration issues that don't magically disappear with SaaS applications (like, how does IT connect that new standalone SaaS CRM app to the existing legacy infrastructure?). The Forrester survey, for instance, found that "integration issues" was the top reason (66 percent) cited by companies that had said no to SaaS applications. One critical integration challenge for companies is deciding just what kind of a SaaS integration provider they're going to use. Of course, not all of this can be figured out by business stakeholders, eager as they may be. SaaS analysts note that an IT implementation team that takes the time to build a strong business case for the SaaS application and implement it correctly will, in the end, deliver the most value to the business. Comments About the Author: Jim Berkowitz is a seasoned executive with more than 30 years of professional services and project management experience related to Customer Relationship Management (CRM) and Financial Management (Accounting & ERP) software solutions for small, mid-sized and Fortune 500 companies. As a Sales Force Automation and CRM Consultant, Jim has assisted more then 100 companies with the design and implementation of custom CRM solutions. Mr. Berkowitz is the founder and President of CRM Mastery, Inc.; a company dedicated to serving small and mid-sized enterprises (SMEs) by offering affordable tools and guidance to help them plan for and succeed with their CRM initiatives. | ||||||||||||||
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