Ten things to think about when considering Software as a Service (“SaaS”)

Traditional IT departments can be expensive to run. Problems can arise in communicating between sites, remote workers, the sales force on the road and remote offices. Large organisations with deep pockets may well be able to overcome such issues, but smaller businesses don’t always have the resources or skills to operate such systems effectively.

It is not surprising therefore that Software as a Service (“SaaS”) is becoming increasingly popular. The SaaS model overcomes many of the problems associated with running systems because they are run by the suppliers at their own (or hosted) data centres and there is no requirement for hardware or software on the customer site. The only on-site essential is a Web browser (for example Internet Explorer, Firefox, Google Chrome or Safari) and a good Internet connection, preferably with high bandwidth.

SaaS has been described as a Pay as you Grow solution and it is understandable that companies are keen to acquire good software that eliminates capital expenditure with consistent monthly bills. Furthermore, if high quality systems paid for by savings in IT costs can be achieved, SaaS can look very attractive.

Whilst the advantages of SaaS outlined above sounds very encouraging, what might appear low cost does not necessarily mean low risk. Here are 10 observations that should be borne in mind, good or bad, for anyone considering SaaS.

1. Whilst there is much talk about SaaS, and there are some good systems around, this model is still relatively new and immature. Making sure that an SaaS solution does what it is supposed to do and is reliable, robust and secure before committing to it is equally, if not more, important than in the case of traditional systems.

2. Because all the customers and all the users operate the same system there should be only one version with a common look and feel. Support should be easier with only one version in circulation

3. Because the system is hosted and maintained centrally, the important routines associated with backup, recovery and the application of patches, updates and new versions is all handled by the supplier with no requirement for extensive in-house IT expertise. Sounds good. But this could also be a shortcoming. Disruptive upgrades, possibly applied at inconvenient times can cause disruption. Adding functionality that isn’t wanted may also create problems that were not previously there.

4. Pay as you Grow allows for costs that scale with demand on a per-user basis without upfront capital investment, often with additional fees for extra bandwidth and storage. SaaS revenue streams are therefore lower to the vendor initially than traditional software license fees, but are recurring, consistent and predictable. Costs are all rental costs depending upon the number of users. Pay as you Go may therefore be attractive to those businesses that would rather expense their IT costs than show them on the balance sheet.

5. Whilst SaaS may appear cheap in the first instance, the payments will continue for as long as the system is used. Ultimately there will come a point where it becomes more expensive to rent than buy the licenses from the outset and pay annual maintenance and support fees. Thus, for a more meaningful comparison of costs between all the options, the Total Cost of Ownership should be calculated on at least a 5 year basis.

6. Often overlooked, the organisation adopting a SaaS solution is completely dependent upon its communications. Availability and robustness of the solution is essential. A Service Level Agreement is therefore essential both with the SaaS supplier and the communications provider if they are not the same organisation. Depending upon the need for continuous access, redundancy in the communications network may be essential.

7. It is important to maintain full control over one’s data. The outsource provider should not have any right to ownership of the data, or, in the event of a dispute concerning payment, deny access to it. The company should own the data, not the service provider. Full commercial review and negotiation of the SaaS contractual agreement is essential.

8. Moving to a new outsourced provider can be difficult where the company has no expertise or hardware or infrastructure in place. Getting the data back in a form that is intelligible and useable when the rental agreement is terminated may be difficult. An Exit Plan is required from the outset of the agreement that will deal with the steps, processes and rights of both parties for when the agreement comes to an end. It should also deal with how the data will be kept secure, returned, and/or cleansed from the supplier’s system at termination.

9. If the system is hosted and used by subsidiary companies in a number of countries, the content of and security over the data can become an important issue. For example, the centralised hosting of an HR system in the US for the world-wide operation of a multi-national company will raise data protection issues. Similarly, the hosting of project information listing technical specification for US based equipment at a site in Eastern Europe may raise issues of security or legality. And, if a dispute or problem arises, under what jurisdiction will the case come under?

10. Companies usually seek all-encompassing systems that meet all their need across the organisation. Where this is not possible, or where the company adopts a Best of Breed approach to adopting systems, some form of integration will be required between what is hosted and the other applications. It is important from the outset that the SaaS supplier has a policy for and an ability to provide interfaces to or integration with other applications

Thus the need to select new accounting, or any other systems in a sensible methodical way is equally if not more important in respect of SaaS.