Software-as-a-Service (SaaS) - Rapid Deployment, Immediate ROI

Moriah Royz
Product Management & Marketing, Plataine

Introduction

In one of the most difficult economic situations in decades, businesses around the world are reevaluating their operational and IT strategies, looking for new ways to create competitive advantages. Under these circumstances, new investments are closely evaluated as to how they match up to three main criteria: initial capital expense, ongoing operating costs, and time to value.

Software-as-a-Service (SaaS) offers users the same functionality offered by ‘traditional’ (on premises) software installations only that the software is housed (“hosted”) in a remote site supplied by the vendor, and payment is done on a per-usage or other subscription basis. Thus, the SaaS model offers a fundamentally faster, less risky and more cost-effective alternative to on-premises applications: with minimal upfront costs, faster time to value and ongoing payments that are closely coupled with the value received.

Even today, many of us are already using this service model with numerous applications such as photo sharing, tax-preparation, etc. This type of service is widely accepted not only in the consumer, but also in the B2B markets. For example, Salesforce.Com (NYSE: CRM) offers companies of all sizes a high quality CRM system with a monthly payment of $59.00 per user. Prior to Salesforce.com’s service, many companies could not afford (or were not willing to invest in) a high-quality CRM system due to the cost of the software license and required infrastructure.

Similar to the above mentioned CRM system, SaaS is becoming increasingly popular in the world of manufacturing, a trend that is accelerated by the current economic crisis. Today, a wide range of applications are already offered using this method of delivery – from ERP and MRP systems to Production Scheduling, Nesting and Reporting solutions.

Customer Benefits

The SaaS concept inherently offers customers an attractive value proposition that is based on a set of financial and business benefits, including: lower up-front costs and lower Cost of Ownership, reduced financial and business risk, and the customer’s ability to focus on their core business as opposed to a demanding IT infrastructure.

• Lower upfront costs and faster time-to-value - By paying on a per-usage basis, customers are not required to venture into large-scale implementations that consume significant time and capital. Instead, they subscribe to the software application at a minimal fee and the costs are variable based on business volume. With SaaS ROI is immediate, replacing the multi-year CapEx models justifying (or delaying) today’s investments.
• Lower Total Cost of Ownership (TCO) - The SaaS model minimizes the customer's need to install and maintain the software and supporting hardware. This not only eliminates fixed costs related to IT infrastructure, but also reduces variable costs related to staffing & maintenance. In addition, the SaaS approach also enables customers to expand and contract the usage of the software based on business-volume. This flexibility is a key to controlling costs, especially during today’s volatile conditions.

Chart 1 (below) illustrates both points above and compares the traditional software and SAAS delivery models for an organization that sees fluctuation in its business volume and the corresponding value from using the software.

• With the traditional software purchase model, the customer must make a large upfront investment, and then has ongoing IT expenses and software support costs.
• The SaaS model has no substantial initial investment and the associated costs closely follow any changes in business volume.
• The ROI for the traditional model takes several years, yet the ROI from SAAS is immediate and on-going. This allows businesses to use one year’s savings to pay for next year’s software.

Chart 1 – Traditional Software vs. SaaS costs and Value Proposition

(Fluctuating Business Volume)

• Focus on Doing what You are Good at –While the vendor assumes full responsibility for a long list of IT-related tasks (hardware & software installation and maintenance, data backups and security, infrastructure stability), the SaaS user enjoys the peace of mind to focus on their core business. This is especially true for smaller organizations - where size prevents them from having in-house IT expertise.
• Reduced risk and better selection - The pay-per-use method inherent to the SaaS model enables customers to evaluate the software on an ongoing basis, and stop using it altogether if it does not meet their needs or expectations.
• Higher vendor accountability - With a lower upfront investment, the customers’ switching costs are low, forcing the software vendors to be receptive to the customer's evolving needs - both in terms of required functionality and in terms of service levels. Vendors that are not up to the challenge would either not enter this space or quickly disappear from it.
• Greater Software Variety – When companies consider several software solutions they are often forced to forego solutions that are beyond their budgetary reach, despite the fact that these solutions bring the greatest value. Finding these solutions in the SaaS model will keep them within reach, and they may very well turn out to have the best return on investment.

Summary

There is no doubt that the software world is moving towards a greater variety of SaaS solutions that will benefit both the software vendors and the customers. THINKstrategies and Cutter Consortium’s surveys found that over 80% of SaaS users are satisfied with their on-demand solutions, plan to expand their use of SaaS, and would encourage their peers to consider SaaS solutions. The success of these SaaS deployments has led Gartner to predict that 25% of software sales will be via an on-demand model by 2010[1], a trend that is accelerated by today’s economy. This, of course, includes the world of manufacturing, where manufacturers will not stay far behind to adopt the latest technology and stay ahead of the competitive curve.

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