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I recently came across a White Paper from Saugatuck Technology, Inc. entitled “SaaS Realities: Business Benefits for Small and Mid-sized Enterprises”. In the spirit of full disclosure, this research paper was sponsored by SAP so there is a one page blurb from SAP at the end of this White Paper which reemphasizes the benefits of SaaS for SME’s and then touts its own SaaS offering Business ByDesign. I chose to post this review of the White Paper since the research is very current, describes the benefits succinctly yet thoroughly, and is also presented in an unbiased format.

The paper is written with the SME in mind, as one can discern from the title, however it begins with a very brief background to the pre-SaaS days. As a bit of a history buff myself, I always appreciate it when an adequate foundation is laid so we can see how things have progressed over time. The paper points out the initial two choices available to us:

·         Purchase of software suite from an ERP Vendor: The enterprise’s IT department is then saddled with all the tasks from selection, installation, maintenance, all hardware, and networking; or

·         Engage a VAR or Systems Integrator (“SI”) to install new software and integrate it with its existing legacy systems: Here selection and installation are handed over to the VAR or SI, leaving maintenance to the Enterprise’s IT department or perhaps outsourcing it.

The authors address the question of when is the optimal time to contemplate a switch in technology from the old approaches mentioned above to the latest alternative, SaaS:

·         Establishing a new location

·         Serving new markets

·         Sudden sustainable growth

·         Preparing for a recession

·         A new sales channel

·         A new supply channel

·         New governance or reporting standards

·         New performance goals

·         Aggressive competition

·         Increased customer expectations

The authors then go into a deeper discussion of SaaS. They begin, as most SaaS discussions begin, with the pricing model, per user / per month, and variations of this model. This is followed by a discussion of what an enterprise is really purchasing with SaaS (i.e. a business service). This business service includes:

“… the entire range of data center infrastructure services: networks, storage, operating systems, databases, application servers, Web servers, and of course, disaster recovery and backup services. Moreover, a full range of data center operational services – authentication, availability, identity management, production monitoring, patch management, activity monitoring, software upgrades and customization …”

The research paper then gets into the heart of the issue, mainly the Advantages of SaaS. There is a very well-written discussion including:

·         Financial Value

·         Time to Value:  Quicker installation, quicker integration, quicker pay-back period.

·         Affordability:  No large up-front costs

·         New technology

·         Continuous innovation:  Multi-tenancy allows for a continuous stream of enhancements

·         Improved Operations

·         Customization: Easily adaptable for SME’s

·         Integration: Service Oriented Architectures (“SOA”) are standard for SaaS providers. Also, three additional means of achieving seamless integration with other enterprise applications on premise include: Web-based SaaS integrators, SaaS integration appliances, and SaaS system integrators.

·         Fewer technical resources needed: Less strain on your IT department and small firms can take advantage of the latest technologies

·         Focus: Allows firm to focus on its core competencies

The research paper concludes by recognizing that SaaS may not be the answer for your particular firm. For example:

·         The application differentiates your firm from the rest of the market (i.e. the application is tied to your core competency); or

·         An existing large investment in your existing IT; or

·         Regulations may require that you keep and manage your data behind a firewall and your SaaS provider cannot accommodate this requirement.

Saugatuck Technology, the author of this White Paper, is a strategic advisor to senior executives, information technology vendors and investors, providing strategy consulting, subscription research and thought-leadership programs focused on emerging technologies, key business / IT challenges, and effective management strategies.

For further readings on this topic, see the following posts in this Blog:

SaaS Customer: A Checklist of What You Need to Know Before Selecting the Vendor

SaaS Contracting: Tips Leading to the Decision and What to Include in the Agreement

Also on the left hand sidebar insert “SaaS” into Keyword search and hit “go”. You will find numerous articles relating to SaaS.

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Well, you just don’t mess with maintenance fees, or so we thought. In my career it has been my experience that a software developer, in particular, the large ERP Vendors, would be willing to grant some pretty large discounts on the licensing of their software. There would be a standard discount and this could be followed by a non-standard discount which could then be followed by a special one-time discount and so on. As long as we could think of inventive names for the next round of discounting and the business approvals kept coming, a savvy customer could get what appeared to be an incredible buy. So you might wonder how a large ERP vendor could discount the initial one-time license fee of their product 50% to 65% to 80% and above. The secret my friends (well it’s not really a secret) is that an annual maintenance fee was exacted as a percentage of the “net” license fee after the first initial standard discount. I remember when this maintenance rate was 15% and then it was raised to 17% and recently it has been raised to 22% by the big ERP vendors. It really doesn’t take a rocket scientist to figure out that after approximately 4 ½ years the customer has paid for the software again. As long as the ERP vendor can receive their annual cash inflow from these maintenance fees on their customer installed base, these vendors will be willing to discount their license fees.

So what does a customer get for this annual maintenance fee? Since we are talking about software, any Director of IT will tell you that maintenance gives you access to the 24/7 help desk. But there’s so much more than the help desk. A customer will need access to the latest patches and fixes that are inevitable when dealing with software. Maintenance also allows the customer to receive the next version and/or release of the software. With the new higher maintenance rates of 22%, the vendors are providing more and more enhanced support in order to justify the higher fees.

However, it seems that the current economic downturn has made the untouchable somewhat vulnerable to attack. For a more in-depth report on this phenomenon read Barbara Darrow’s article in IT Channel entitled Oracle fees for maintenance and support under fire. In it she describes the sea-change in the attitude towards maintenance fees coming from the customer base. There are some reports that customers are switching their application servers just to avoid Oracle altogether. Another approach customers have been taking, but one fraught with pitfalls, is to forego maintenance completely.

“There's definitely been a significant spike in the percentage of clients pushing back on Oracle support rates or who have let support lapse," said Eliot Colon, president of Miro Consulting, a firm that specializes in license negotiations.”

As Darrow reports, one option customers are exploring is to limit their maintenance fees to only what is deployed (e.g. users, modules, functionality). But it looks as though Oracle will not capitulate and only offer an all or nothing alternative. When customers choose “nothing” they run the risk of losing out on new upgrades. Once they decide to reinstate maintenance, they’ll be hit with all back maintenance fees during the period they declined maintenance and also a reinstatement fee.

And still another option for customers is to use third party support. David Rowe, senior vice president of marketing for Rimini Street states:

“Take your existing bill for maintenance, cut it in half, and then cut it further, because we let you drop maintenance for modules you're not using, whereas vendors have some very tough policies on that.”

For further discussion on this topic see also:

• IT shops renegotiate contracts to get savings out of vendors
• Rework vendor contracts to save money in tough times
• IT Shops renegotiate contracts to wring savings out of vendors

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Bahan Sadegh, CEO and co-founder of NETtime Solutions and a veteran of the on-demand software industry, has written an article with the SMB Customer in mind.  Sadegh has created a list of questions for the SMB to consider before choosing its SaaS Vendor entitled 10 Questions To Ask A Potential SaaS Vendor.  His list is very informative and it would be wise to keep handy when considering which SaaS Vendor to select.  I cannot attest to the fact that this is an inclusive list, but I will tell you that his discussion of the points he has identified gives the reader enough information to perform their due diligence and ask more questions and there really are more than 10 points to know if one includes all the “sub-points” Sadegh includes.  I will try to provide a brief synopsis of his 10 Questions below:

1.     Billing should be pay-as-you-go: We all know there is a business cycle and your invoice should reflect this cycle.  Also, there should never be any maintenance fee on your invoice.

2.     Security:  Sadegh has a very good list of questions to ask in this very important area.  Instead of trying to paraphrase his words, I think it best to directly quote him on this matter:

“Ask your potential SaaS vendor:

-       Does the data center that is housing the servers have physical security 24/7?

-       Is the perimeter of the data center secured (do guards walk the perimeter at least once per 24 hours)?

-       Who has permission to the access these servers (only internal employees or do contractors also have access)?

-       Is there a log that captures who came in and when they left? If so then how often are those logs audited?

-       Does the application use industry standard 128-bit encryption?

-       If multiple customers are housed on the same server then are they logically/physically separated to ensure your data is not viewed by unauthorized eyes?

-       Has the staff of the SaaS vendor who has access to your data gone through a criminal background check? It’s important to know whether or not convicted felons have access to your sensitive personal data.

-       Does the vendor have a formal BCP (Business Continuity Plan)? Is the vendor willing to share it with you and does it satisfy your concerns?”

3.     Solution must be web based:  There should be no requirement to install an application on any computer.     Also any SaaS application should be able to run on any platform and any browser.  In the event of a computer crash, you must have access to your application.

4.     An experienced vendor:  Make sure the vendor has experience in hosting.  A vendor experienced in hosting has already addressed such issues as scalability and security and is not merely repackaging their application as SaaS. (NOTE:  See point 8 below regarding MSP’s).

5.     Upgrades should be automatic:  You want to be on the latest version and have the most current functionality.  There should be no need to retrain your users.  The upgrades should be seamless.

6.     Integration:  You should have the ability to transfer between the web based applications and any on-premise applications.

7.     Data must be backed up regularly:  Nightly onsite back-ups and weekly offsite back-ups should be the minimum.  Does the vendor test how to restore their database?

8.     Who is hosting the solution:  Is this an in-house hosting arrangement or has the SaaS vendor contracted out with a Managed Service Provider (“MSP”)?  Get a SAS 70 report and verify that in the data center every system has at least one independent backup to ensure availability in the event of system failure; this is known as N+1 configuration.

9.     Scalabilty:  Can the SaaS vendor grow as your company grows?  Ask about their largest customer and ask them about their plans for growth.

10.  Is the SaaS system monitored:  An easily overlooked question.  Do they have monitoring software and do they test their firewalls?

Sadegh concludes his checklist by suggesting that the SaaS Customer perform a bi-annual review of their service with the above checklist in mind.

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