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Pros and Cons

While this series of articles discusses many of the benefits of SaaS, like any technology option it has both pros and cons. It is unrealistic to turn to SaaS for the full spectrum of services provided by the average IT organization, just as it is unrealistic to outsource all IT services.

Companies considering SaaS should carefully evaluate the capabilities of specific providers against a detailed list of requirements, goals, and objectives.

Pros

• Cost: Economy of scale gives SaaS providers the ability to deliver services very cost-effectively. Companies should weigh the cost of SaaS-provided services against the cost of delivering comparable services in-house.
  


• Risk mitigation: SaaS vendors theoretically assume the risks of developing, maintaining, and delivering an application. That being said, CIO's are still accountable to their companies for the quality of the services actually provided, and SaaS vendors should be approached and managed accordingly.
  


• Flexible contracts: This is one of the big advantages of SaaS versus outsourcing, with SaaS vendors offering short-term, and even month-to-month, contracts. This gives companies the flexibility to pursue a "try-before-you-buy" strategy and to replace a poorly-performing vendor with little or no liability.
  


• Predictability: Another big benefit is that cost, staffing requirements, and levels of service all become more predictable.
  


• Business focused IT services: While traditional IT organizations have been responsible for delivering technology, today's businesses look to IT for thought leadership and business-enablement as well. Offloading aspects of technology delivery can free up IT executives and technicians alike to pursue high-impact projects that add value to the business.

Cons

• Standard product for all customers: A high percentage of the deployment cost of traditional ERP and CRM products has been in customizing software to fit the business. Since SaaS offers limited customization options, companies may instead be required to change their internal operations to fit the application.
  


• Scale: Today most SaaS vendors are aiming for the SMB market, and SaaS applications may not scale to tens of thousands of concurrent users. However, this will likely change as SaaS evolves.
  


• Product maturity: While ERP vendors such as Oracle and SAP have spent years building and acquiring functionality, Workday is projecting that its functionality will be on a par with SAP (excluding a manufacturing module) in approximately 18 months. That being said, specific modules are available today for companies that don't require a total ERP suite.

Although SaaS is not a magic wand, it certainly bears consideration, especially for small and medium-sized companies. By adding predictability to both costs and risks it can be one alternative to keeping IT afloat with in-house talent alone.

For enterprises, some SaaS products just aren't there yet. Workday, for example, will continue to build out functionality over the next 18 months. On the other hand, Akamai's Web application acceleration technology seems very well-suited to WAN-intensive enterprise applications. Companies of all sizes should carefully evaluate potential SaaS vendors for functionality and performance before abandoning in-house application hosting.

The bottom line is the SaaS train has left the station and is building steam. It doesn't replace in-house IT; however, research indicates that it could well represent 25% of the software market by 2010. This growth will likely impact software vendors as well as IT organizations, and CIOs would do well to keep SaaS on the radar.

Adapted from The CIO Information Network