Companies can end up spending more on SaaS than they would for an in-house application

Want to save money using SaaS? Be wary of contract terms

Vendors may pitch software as a service (SaaS) to help companies avoid high up-front costs of deploying IT systems, but these applications can end up being more expensive than in-house software programs, warned a speaker at Springboard Research's SaaS Asia Conference 2009 in Singapore.

IT managers considering SaaS offerings have to consider the total costs that will be incurred over the life of the application, said Paul Sharp, vice president of information technology and supply chain at AdvalTech Omni, a maker of precision tooling and molds.

Done right, SaaS offerings -- sometimes called cloud computing applications -- can eliminate capital expenditure costs required to roll out new systems and reduce service and maintenance costs. But a badly negotiated contract can end up being an expensive burden that can last for many years, long after arguments that these contracts save capital expenditure costs have been forgotten, Sharp said.

"If you go into this blindly, you'll end up paying a lot more than doing it in-house," he said.


Many Asian companies are considering SaaS applications as a way to cut their IT costs, particularly capital expenditures, said Michael Barnes, vice president of software and Asia-Pacific research, at Springboard Research.

"There's an absolute focus on cost savings. Everyone is talking about capex and being able to cut down that up-front expenditure," he said.

After 12 percent growth during 2008, IT spending in Asia-Pacific, excluding Japan, is expected to grow by 7 percent in 2009, driven by demand from India and China, as well as government stimulus programs, Barnes said.

Technologies that are getting the most attention from Asian companies right now are virtualization, collaboration tools and cloud computing, Barnes said, noting that e-mail, customer relationship management and security are among the most popular SaaS applications in the market.

Barnes advised conference attendees to resist the urge to cut spending on IT, saying investments in SaaS and other technologies can make them more competitive -- a factor that is more critical now that key economies are mired in recession.

"In a growth market, even turkeys can fly," Barnes said. "To avoid being left behind, to position yourself to succeed, you absolutely need to be investing now."

A Practical Demonstration of SaaS using Oracle Application Express

by Steve Bobrowski

Learn the basic concepts of "software as a service" architecture by building your own mini-SaaS application.

Whether you believe in creation, intelligent design, or Darwinism, evolution is an undeniable process that spans most everything around us. In nature, species evolve to survive in an ever-changing environment. And in business, well-managed companies evolve their business operations to compete better and increase profits.

One of the most prevalent trends in today's business world is an evolution toward the delivery and consumption of software as a service, or SaaS. This article explains some of the fundamental concepts, benefits, and implementation details of SaaS and provides a workshop on building a demonstration application so that developers and consumers can better understand and take advantage of this emerging technology.

Why SaaS?

In the broadest sense, SaaS is an uncomplicated concept: customers access software as a hosted application over the Internet. So why is such a straightforward idea all the rage? Consider a simple example that compares how a medium-size or large business might implement a standard customer relationship management (CRM) application by taking two different approaches: the traditional on-premises, application ownership model versus the on-demand SaaS, or application subscriber model.

The traditional application ownership model typically requires a company to;

Buy software and support licenses for an operating system, database, and CRM application
Purchase hardware (one or more servers and storage) to support the CRM application
Hire a staff of one or more administrators and consultants to install, configure, and maintain the CRM environment
From the customer's perspective, the total cost of ownership for the first year of owning a traditional CRM application would no doubt be hundreds of thousands of dollars, not to mention the ongoing annual costs to maintain it. From the CRM application developer's viewpoint, the pool of potential customers is limited to companies that can afford to pay the hefty price tag associated with owning and managing their own copy of the application.

Compare this with the simplified SaaS approach—a company just subscribes to a CRM software service for however many users require access. The company doesn't need to buy any special hardware or software and doesn't need to hire staff to install, configure, patch, monitor, and otherwise maintain operating systems, software, and data. The company's users do nothing more than use inexpensive PCs to load application pages into a standard Web browser and do their job. Consequently, the total cost of the company providing its users with a CRM application drops significantly. For example, one popular on-demand CRM solution, Salesforce, from salesforce.com, sells for as little as $140 per user per year! From the customer's point of view, the bottom line is certainly compelling—unless a company has thousands of users, subscribing to a CRM application is much more cost-effective than paying for the privilege of owning one outright.

Application vendors can also benefit tremendously from a shift to SaaS. Low-cost commodity hardware and open source operating systems facilitate profitable hosting of SaaS applications, provided that the applications are well designed and scale as hundreds or thousands of users subscribe to their services. By passing on the reduced cost to customers, software vendors now have tremendous sales potential from new markets such as small businesses that were traditionally unapproachable with the application ownership model.


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