Over the last 5 years the business application software industry has gone through a transition (some claim transformation) moving toward new delivery models based on software as a service. A little history may help here. A traditional or on-premise software deployment involved the purchase of software licenses from the vendor and usually an associated software maintenance plan. At this stage you would ask your IT department to provision or acquire appropriate hardware, make any necessary network connections, ensure the security, availability and disaster recovery requirements were in place and then begin the process of configuring the software for production use. Under this model the purchaser acquires a perpetual license to use the software.
The introduction of software-as-a-service (SaaS) approximately 6 years ago fundamentally changed this model. In essence, instead of buying the software and running it on your own hardware, the SaaS vendors provide the software as a subscription service running on their hardware typically in state-of-the-art data centers. Under this model there is no need to buy hardware or deal with the network connectivity, security and redundancy issues. In many cases, the SaaS solutions can be implemented without the involvement of the IT department a paradigm shift indeed. The SaaS model is not without its own set of unique factors that need to be carefully considered:
* Cost: Typically the service is provided based on a monthly per user cost. This pricing model provides a flat rate, predictable cost for the solution. While the non-SaaS software vendors often respond to the SaaS alternatives with FUD (fear, uncertainty and doubt) and alleged higher total cost of ownership (TCO) over a longer haul, well cited research provided by Sheryl Kingstone of the Yankee Group convincingly illustrates that hosted solutions continue to show lower TCO over a five year period. Reference Appendix V for publicly distributed Yankee group figures or contact the Yankee Group for more detailed information. We highly recommend preparing your own Total Cost of Ownership analysis if you are trying to evaluate the relative costs of hosted and non-hosted solutions.
* Reliability: With a SaaS solution, the provision of an adequate infrastructure is the responsibility of the software vendor. This means that as part of your due diligence you must ensure the vendors data center operation is reliable and secure. The best way of understanding the reliability of the vendors data center is simply to ask for a log of all recorded interruptions, outages or downtime over the last 24 months. This objective measure will provide a real world indicator of the reliability of the vendors data center and ability to deliver SaaS CRM solutions without user interruption.
* Security: Security was initially a big concern when the SaaS model was first introduced. Security however, is integral to the SaaS value proposition and the leading SasS providers such as Salesforce.com, NetSuite and Aplicor provide security infrastructures that generally exceed the capabilities of most of their clients.
Vendor Viability
Having validated the functionality of the solution and determined the preferred deployment model, it is important to ensure that the selected vendor will be around for the long term. As even the largest companies like Enron, WorldCom and Andersen collapse, size or even the reliance on public company status gives us little comfort. We suggest therefore that you focus on the fundamentals: How long has the company been in existence? Is the company profitable? Does the company have a litigious history? Does the company have any litigation pending? Asking for detailed financial information is generally not a particularly revealing question as many privately held companies will not make this information available and for the public companies it may be difficult to understand how your targeted solution fits into their overall financial picture. Perhaps instead asking for certain metrics might yield a better result. Consider for example, customer churn. This metric represents the number of customers that renew service/maintenance agreements over time or for the SaaS vendors how many subscribers continue to renew their subscriptions annually.
The introduction of software-as-a-service (SaaS) approximately 6 years ago fundamentally changed this model. In essence, instead of buying the software and running it on your own hardware, the SaaS vendors provide the software as a subscription service running on their hardware typically in state-of-the-art data centers. Under this model there is no need to buy hardware or deal with the network connectivity, security and redundancy issues. In many cases, the SaaS solutions can be implemented without the involvement of the IT department a paradigm shift indeed. The SaaS model is not without its own set of unique factors that need to be carefully considered:
* Cost: Typically the service is provided based on a monthly per user cost. This pricing model provides a flat rate, predictable cost for the solution. While the non-SaaS software vendors often respond to the SaaS alternatives with FUD (fear, uncertainty and doubt) and alleged higher total cost of ownership (TCO) over a longer haul, well cited research provided by Sheryl Kingstone of the Yankee Group convincingly illustrates that hosted solutions continue to show lower TCO over a five year period. Reference Appendix V for publicly distributed Yankee group figures or contact the Yankee Group for more detailed information. We highly recommend preparing your own Total Cost of Ownership analysis if you are trying to evaluate the relative costs of hosted and non-hosted solutions.
* Reliability: With a SaaS solution, the provision of an adequate infrastructure is the responsibility of the software vendor. This means that as part of your due diligence you must ensure the vendors data center operation is reliable and secure. The best way of understanding the reliability of the vendors data center is simply to ask for a log of all recorded interruptions, outages or downtime over the last 24 months. This objective measure will provide a real world indicator of the reliability of the vendors data center and ability to deliver SaaS CRM solutions without user interruption.
* Security: Security was initially a big concern when the SaaS model was first introduced. Security however, is integral to the SaaS value proposition and the leading SasS providers such as Salesforce.com, NetSuite and Aplicor provide security infrastructures that generally exceed the capabilities of most of their clients.
Vendor Viability
Having validated the functionality of the solution and determined the preferred deployment model, it is important to ensure that the selected vendor will be around for the long term. As even the largest companies like Enron, WorldCom and Andersen collapse, size or even the reliance on public company status gives us little comfort. We suggest therefore that you focus on the fundamentals: How long has the company been in existence? Is the company profitable? Does the company have a litigious history? Does the company have any litigation pending? Asking for detailed financial information is generally not a particularly revealing question as many privately held companies will not make this information available and for the public companies it may be difficult to understand how your targeted solution fits into their overall financial picture. Perhaps instead asking for certain metrics might yield a better result. Consider for example, customer churn. This metric represents the number of customers that renew service/maintenance agreements over time or for the SaaS vendors how many subscribers continue to renew their subscriptions annually.
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