What's Driving SaaS Adoption?

Tuesday Oct 13th 2009 by Larry Marion
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Hint: it has to do with cost. Plus: the optimum value may come from a combination of SaaS and on-premise, especially for large companies.

All the consultant talk and vendor hype about Software as a Service (SaaS), plus some of the widely promoted benefits, are leading to a major shift in technology implementation and spending. While there are some distinct differences in how large versus medium-sized companies look at SaaS, the overall interest in the key component of cloud computing is stronger than you may realize.

A survey about SaaS conducted in August 2009 by BusinessWeek Research Services found that four out of five managers and senior executives in North America are either interested in, or in the process of, adopting the Software as a Service approach to information technology. In fact, roughly a third of the 326 respondents’ companies have already fully or partially adopted the SaaS approach for at least one application.

The key distinction is the level of interest in SaaS for mission-critical apps. In general, execs at medium-size companies ($100 million to $1 billion in annual revenues) are adopting SaaS for key applications, while managers at larger companies are typically only comfortable considering SaaS for less vital tasks.

Check out this table below to get a snapshot of the current level of SaaS interest:

saas in the enterprise, survey

The level and type of interest by big companies isn’t surprising. Most companies with more than $1 billion in annual revenues are not going to throw away their huge investments in their legacy systems.

However, utilizing SaaS as a solution to a new technology or business problem makes sense. Especially in the current economic environment.

Another aspect of SaaS for big companies is the adoption of the technology to augment existing operations. Using SaaS to provide applications access to a new operating unit of an existing company is a fast and economical way to solve a problem, notes Shailesh Rao, senior vice president, large enterprise on-demand, at SAP.

The leading ERP vendor sees a number of its existing customers using SAP’s on-demand service as a way of quickly provisioning an application without having to worry about the integration risks.

“They see SaaS as a way of extending their investment dollar to develop new applications or provide service for new division, for example, ” explains Rao. “For these situations, SaaS becomes a great solution, since it will be automatically integrated with what they already have.”

Next Page: SaaS adoption: it's all about the money

The key driver for SaaS, though, is all about the money. When asked what were the three most important potential benefits of SaaS that drove their investigation or adoption decision, the single most common answer was the need to reduce capital and or operating costs.

This view is not just a post-economic trauma syndrome knee-jerk reaction. This is part of the new normal that economists and pundits are talking about these days. Check out the data in the table below. Notice the differences in their views between January 2008 and August 2009. While the composition of the two panels is slightly different, the take away is clear: If you want to sell SaaS in your organization, it’s all about the money.

saas in the enterprise, reasons for it, survey

The purported cost benefit of SaaS is subject to a lot of debate, of course. Both Gartner and McKinsey have published analyses of the ROI from cloud computing and SaaS that, well, cloud the picture.

Rather than just focusing on the estimated savings from a SaaS vs. on premise solution, SAP’s Rao says its customers are taking a different view on the decision about moving to the new delivery mechanism.

“There is more of a focus on adding business value to the end user,” he says. “Customers ask, ‘What can I do to give me the most value to my users in the short term? How will it position me for the long term?’ The focus on value is the key driver now and going forward.”

That should be the guiding light on SaaS, or any IT investment. Instead of debating SaaS vs. on premise, the optimum value may come from a combination of SaaS and on-premise, especially for large companies.

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