Software as a Service: Caveat Emptor

Here’s a challenge: Go to any enterprise software vendor’s Web site and try not to find a reference to the terms “Cloud” or “Software as a Service” (SaaS). These terms have become so pervasive that they are almost indistinguishable from the software itself.

A surprising number of applications are marketed and sold as Software as a Service, but in reality, they are hosted or “on-demand” versions of an application that may have been built many years ago. How can you decipher whether the product is truly SaaS? And, more importantly, why should you care?

Here are the Top 5 ways to determine if you are buying authentic Software as a Service:

1.  New features are included and are delivered often: SaaS is designed and built on a “multi-tenant” architecture, which means you share the application software and hardware with other customers. Given that the vendor only has one code base to manage, they can enhance that code base often; think weeks and months rather than quarters and years. Why you should care: The vendor can focus its efforts on improving the product as opposed to planning and executing numerous custom implementations. This means you benefit from enhanced features and functionality delivered faster and more often.

2.  Access it from anywhere, including your smartphone or tablet: Most SaaS applications were built recently; therefore, they were architected for the Web with mobility in mind. Why you should care: given the exponential growth in the mobile computing industry and rising expectations from a global, virtual workforce, SaaS applications are ready to take advantage of this explosive mega-trend.

3.  Pay for what you use: SaaS pricing is typically focused on unit-based pricing, e.g., users, bandwidth and storage — not software, hardware or maintenance costs. Why you should care: while a less capital-intensive approach to software is inviting to many CIOs and CFOs, it’s important to plan for the unexpected. If you acquire a company or triple your storage requirements, your price may increase substantially. On the other hand, if you divest or the business moves in a different direction, you may have the ability to rapidly scale down your costs.

4.  Configure, don’t customize: Generally speaking, when you change a SaaS application to meet your needs, you’ll do so through vendor-provided customization screens accessed via a Web browser rather than via code. This is because the underlying system is shared by all customers, so it cannot be changed unless the vendor changes it. Why you should care: Given the standardized nature of SaaS applications, it’s important to make sure your requirements can be met via available configuration options rather than deep customization. Otherwise, you may be saddled with an application that does not meet your specific needs.

5.  The price is flexible, but the service level agreements are not: Given that all customers share the same infrastructure, and that the vendor’s business is built on economies of scale, SaaS suppliers are usually hesitant to negotiate on “customizations,” which can include custom service levels. Why you should care: If highly specific and transparent service levels are important to you, you may have difficulty getting what you need from a SaaS vendor. However, remember that the vendor’s unit cost goes down with each new customer they add, so adding more users may allow you to negotiate a lower price.

ISG CIO Services experts can help you separate fact from fiction through objective advice, knowledge of your industry and experience with arrangements from simple to complex. Need help evaluating the myriad of IT options and their potential benefits or pitfalls? Contact us to learn more.

About the author

Stanton helps enterprise IT and sourcing leaders rationalize and capitalize on emerging technology opportunities in the context of the global sourcing industry. He brings extensive knowledge of today’s cloud and automation ecosystems, as well as other disruptive trends that are helping to shape and disrupt the business computing landscape. Stanton has been with ISG for more over a decade. During his tenure he has helped clients develop, negotiate and implement cloud infrastructure sourcing strategies, evaluate and select software-as-a-service platforms, identify and implement best-in-class service brokerage models, and assess how the emerging cloud master architecture can be leveraged for competitive advantage. Stanton has also guided a number of leading service providers in the development of next-generation cloud strategies. Stanton is a recognized industry expert, and has been quoted in CIO, Forbes and The Times of London. You can follow Stanton on Twitter: @stantonmjones.