Beyond CRM: SaaS slips into the mainstream

Businesses are taking the plunge into budget-friendly software-as-a-service offerings

Customer relationship management applications are still the largest segment of the ballooning SaaS (software-as-a-service) market. But the landscape is changing. Pressured to provide faster and better service capabilities while also keeping a tight rein on capital costs, businesses of all sizes are turning to SaaS for everything from recruitment, hiring, workforce scheduling and payroll applications to procurement management and even central ERP systems.

"We never used SaaS before, but we quickly learned the benefits are flexibility and the way you can develop things quickly," says Ginnie Stouffer, vice president of consulting at Wayne, Pa.-based IDC Partners, whose bread-and-butter business is providing remote network management and business continuity services.

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For Stouffer, it happened like this: In 2007, IDC Partners secured a large help desk contract from a client who insisted that the consultancy use Salesforce.com's hosted offering for help desk ticketing. IDC Partners did so and has never looked back, Stouffer says. Since then, it has moved virtually all of its applications to a hosted environment, including disaster recovery and VoIP communications. "There's nothing in our office now but a connection to the Internet and our users," Stouffer says.

One of the greatest benefits, she adds, especially in turbulent economic times, is that SaaS licensing is flexible.

For example, with Internet phone service from Alteva LLC, "we can upsize and downsize just by giving notification," she says. "With other software, if we bought 50 licenses then laid off 25 people, we'd still have 50 licenses."

Sizzling SaaS

Tight IT budgets, the lingering effects of a brutal recession and a pervasive cautiousness in the executive suite over long-term capital investments are no doubt contributing to a growing interest in SaaS.

Early last year, market research firm IDC (not affiliated with IDC Partners) projected a 36 percent worldwide growth rate for SaaS in 2009. Then the recession hit hard, and IDC revised that figure upward to 40.5 percent.

Once the final tallies for 2009 are in, analyst firm Gartner Inc. expects SaaS revenue to total $7.5 billion, nearly 18 percent higher than it was in 2008. Gartner projects that by 2013, SaaS spending will hit $14 billion. And in an exclusive Computerworld survey of 127 IT professionals, 42 percent of the respondents reported using SaaS in their organizations, for everything from CRM (40 percent) to HR (38 percent), e-mail (36 percent) and payroll (32 percent).

Relatively low start-up and implementation costs are no doubt driving SaaS adoption well beyond CRM services, but there's more to it than that, users say. Just as important is that they typically get greater software functionality and more upgrades from SaaS vendors than they could ever manage with on-premises applications.

"Good-quality SaaS companies are constantly growing their environments," says Doug Menefee, CIO at Schumacher Group, an emergency medicine management company based in Lafayette, La. "They do quarterly releases, so I get [new] features and functionality every three months."

Menefee says that "close to 70 percent of Schumacher's processes live in some kind of SaaS environment or cloud model." The company does use Salesforce.com for CRM, but it also builds its own custom SaaS applications for other processes on Salesforce.com's Force applications platform. Schumacher also uses human resources and benefits administration software services from Workday Inc. and a physician scheduling application service called Tangier from Peake Software Labs. And just recently, the company signed a deal with Google Inc. to roll out Google e-mail accounts to more than 2,700 physicians it works with. Even Schumacher's PeopleSoft applications, including all financial software, run as a managed set of services.

"I can't say there's an application that I wouldn't be open to using in a SaaS environment," says Menefee. "I don't have a strategy to move everything we have to the cloud, though." Rather, he says, the factors driving SaaS decisions are the ease of deploying and managing the systems.

"By not having to manage that infrastructure layer, our administrators, developers and business owners can focus on innovation and using the [software service] to bring value to the organization," Menefee says. "With on-premises software, we get into bottlenecks with procurement, infrastructure and scalability."

Using SaaS -- as opposed to an on-premises application that can be customized in multiple ways for different departments -- also works to increase standardization of business processes across an enterprise, says Chris Proudfoot, head of procurement, process and system strategy at London-based Aviva PLC, the U.K.'s largest insurance company, with $95 billion in sales.

Procurement is a prime example, says Proudfoot, who has experience with both on-premises applications and SaaS. Aviva now uses Ariba Inc.'s Spend Management SaaS offering. With on-site procurement systems, "there tends to be a demand from end users to want their own processes," Proudfoot says. "[With SaaS], you've basically got to adapt to the [SaaS] process. It's a way to standardize, although there still tends to be a certain amount of debate about the processes we use."

But like other users, Proudfoot says the primary benefit of SaaS is speed. "We were up and running within days of having the software available," he says. "Following implementation, there's nothing to do other than pay your subscription, log on and use it. But, of course, use does require adaptation of internal processes."

SaaS skeptics

But not all applications are equally well suited to SaaS, users say. The best candidates are those applications that are fairly straightforward and require minimal support and virtually no customization, like e-mail or scheduling. Others see SaaS as a viable way to reduce system complexity and dramatically cut costs.

Of course, there are still plenty of skeptics. As Angelo Valletta, CIO at Sun National Bank in Vineland, N.J., sees it, SaaS is a little like old wine in new bottles. "The whole cloud thing and SaaS thing is nothing new. It's been around since time-sharing," Valletta says. "It's just rebundled and repackaged with a sexier name."

But that doesn't mean it's not valuable. Far from it. In the financial services business in particular, SaaS is what enables small and midsize banks to offer some of the services, such as Internet banking, that big banks most likely developed in-house and got to market with first, Valletta notes.

"SaaS allows midtier [banks] on the same playing field as the large institutions," he says. Sun National, for example, uses SaaS for Internet banking services and wire services. Some banks even run their core banking applications as SaaS, Valletta says.

SaaS also enables companies to test new markets with minimal risk and upfront investment. For example, Intrax Cultural Exchange, a San Francisco-based au pair placement service that also offers internships and other cross-cultural programs, used Salesforce.com's Force platform to create what CIO Mark Schwartz calls a "quick launch" package of services. Those services can be used to get new products to market without delay and to get new overseas offices up and running quickly and inexpensively. The package includes a preintegrated set of Salesforce.com applications, a Web site template in a content management system, an accounting system and other components.

"The goal is to push to the extreme where we can try out new things with very little upfront investment," Schwartz says.

But new users shouldn't make the mistake of assuming that SaaS is cheaper than using on-premises software, says Phyllis Koch, director of IT for the Boynton Beach, Fla., city government, which is in the process of migrating its ERP system to a SaaS model. The other option was to replace an aging AS/400 computer system and continue running the ERP software in-house. The hardware alone would have cost at least $100,000, and the city didn't have that kind of money, Koch says.

Koch struck a deal with Sungard Data Systems to host the ERP system for the same amount of money that had been budgeted for AS/400 maintenance. Sungard, she says "will give us better disaster recovery, flat operational costs, and we avoid capital costs, so it's a win-win." But it's not necessarily cheaper. "Operating costs are the same," Koch says. "But we could stop worrying about a big capital cost."

This story, "Beyond CRM: SaaS slips into the mainstream" was originally published by Computerworld.

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