“On Demand” Is More Than Just SaaS
Software-as-a-Service has been getting a lot of press and
buzz over the last couple of years, such as
SAP's recent emphasis of On Demand as part of their strategy. In fact,
SaaS has been around for over a decade (we've
been researching and writing about it since we were founded). Ann Grackin's recent
article on “Supply Chain 3.0” gives some insights into where SaaS fits in the
evolution of enterprise software. At ChainLink, we often prefer to use the
term On Demand which we specifically define as having three key
characteristics:
•
Pay-as-you-go — In order to keep getting paid, the vendor has to
keep their customers satisfied and using the system successfully. Some SaaS
vendors charge large up-front “startup fees” and require long (e.g. 3-5 year)
minimum commitment. Those practices are counter to the pay-as-you-go
philosophy.
•
Instant deployment — Here we don't mean merely instant deployment
of the application hardware and software (nearly all SaaS solutions provide
that). What is important is how long it takes to get customers to full
production usage (not merely a pilot). Just because a solution is SaaS doesn't
mean full implementations are rapid. For an offering to be called On Demand
(in our book) the time to full production use must be dramatically compressed.
•
Single Multi-tenant Instance/Single Release—This means all customers
are on the same release, and multiple customers may share the same instance of
the software. This is key to the lower development and support costs of On
Demand. Some firms that have hosted versions of licensed software (the
so-called ASP model, with one instance per customer) tout them as SaaS
solutions, but their higher support costs are inevitably be passed on to the
end user.
How to Decide Whether SaaS/On Demand vs. Traditional
Licensed Software is Right for Your Firm
There are a number of things to consider about your unique
situation:
1. Value
of the Network—In some applications, such as transportation management, the
pre-integration of a large number of your carriers, government agencies, and
trading partners can provide a lot of value. These networks are more common in
SaaS solutions than in licensed software.
2. Need
to attract users and customers from the web vs. preset or corporate
user base. This is why Marketing Automation is mostly a SaaS solution, for
example.
3. IT
Backlog—If your IT department has a multi-year backlog of projects, SaaS/On
Demand can get you up and running much sooner.
4. Capital
Availability—True On Demand (pay-as-you-go) solutions require much less up
front capital. A lack of capital may push you towards On Demand/pay-as-you-go.
5. Continuous
Operation—Some applications, such as Manufacturing Execution Systems (MES) or
Warehouse Management Systems (WMS) need to keep running even if the network
goes down. For these types of critical applications, pure SaaS, which depends
on the network being available, may not be appropriate. One WMS SaaS vendor (SNAP
Fulfil) addresses this issue by taking responsibility for the network service,
incorporating service redundancy and other failsafe measures.
6. Speed
of Implementation—SaaS has an advantage in getting the platform up and running.
But often that is not the biggest time-consumer in a project. It's things like
cleaning, normalizing, and importing data, integrating with other information
systems, setting up the business rules, implementing process changes, training
users, and on-boarding trading partners that usually takes the lion's share of
the implementation. For these elements, a specific licensed software package may (or
may not) have significant time-to-implementation advantages over a specific
SaaS offering. We explore this issue in-depth in our
report “On Demand Now”.
7. Security—Many
people understandably express concern over having their confidential data on
the same system as their competitor. In many cases though,
the security technology and procedures of a SaaS vendor may actually be quite a
bit stronger than the in-house systems and safeguards. Nevertheless, it's
prudent to audit a SaaS vendor's security before trusting them with
confidential data and systems.
8. Customization
Requirements—If you have many unique requirements, you should first question
whether you really need them. If you do, then customizability will be important
to evaluate. Pure SaaS (single instance) vendors will not give you the option
to modify code, but some providers offer rich customizability via configuration
options.
9. Total
Cost of Ownership—It is very important to understand the true total cost of
owning and supporting your own systems. The true cost of licensed solutions is
often underestimated, making them look unrealistically lower in cost than
SaaS. On the other hand, if you have idle or underutilized assets (data center
and IT personnel) then licensed software may have an advantage.
Examples of SaaS vs. Traditional Vendors in Specific
Sectors
SaaS has taken off more quickly in some sectors than others. We touch on some of these sectors and give you examples of key players in Table 1 below. Note: Many vendors offer a mix of SaaS, ASP, and licensed models; we put them in the category and delivery model that they most heavily sell into.
Table 1- Examples of SaaS and Licensed Software
Vendors
For more help
in understanding SaaS and On Demand Systems, see our in-depth report that
can help you make an informed decision-making process.
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