Demystifying Software as a Service

March 18, 2009 by Chetan Jain, SAP Consulting

What is SAP Business ByDesign? The new solution of SAP for midsize companies is much more than just another software – it is a new concept! Software as a service by SAP for the first time.

SaaS is software that is provided literally “as a service”. As opposed to the traditional ERP model, where enterprises purchase software licenses and deploy applications in-house, SaaS applications are delivered and managed remotely via a secure Internet connection and a standard Web browser. Access is charged on a subscription basis at a fixed price per user, usually on a monthly basis.

One size fits all

With SaaS, the same software version serves different customers – with one code base for all. The model operates primarily on a “multi-tenant” architecture, providing one operating environment for multiple customers. Applications are shared across customers on a common database, but data is managed securely in separate clients. The key premise is investment of the service provider in technology, hardware, and ongoing support services – as opposed to the customer.

Many enterprises also opt for a hybrid model, particularly companies that are already using on-premise software and want to try out smaller SaaS projects. This extends SaaS potential beyond the small and midsize market, and larger enterprises are increasingly experimenting with the software model. SaaS is ideal for smaller independent projects with little need for integration into the larger landscape.

Why SaaS?

SAP Business ByDesign

is SAP’s answer to SaaS. Delivered as a service and fully managed by SAP, customers can deploy the complete solution or add modules as they need them – exploiting new business trends without becoming IT experts.

With built-in service and support, SAP Business ByDesign aims to dramatically simplify IT for midsize companies and reduce cost of ownership. Companies can explore and evaluate the solution using a online personalized trial system.

The argument for SaaS is compelling. Enterprises are spared investment in hardware and infrastructure, not to mention the ongoing costs of installing and maintaining their solutions. Resources are freed up for other areas and staff can prioritize more business-critical operations. This is particularly attractive for small and midsize enterprises (SMEs) that lack the IT staff or expertise to deploy and manage their applications in-house. The pay-as-you-go subscription model also allows enterprises to operate on a fixed budget, while leaving room to scale up as business demands.

SaaS vendors are increasingly able to provide applications configured to an enterprise’s needs. The whole model is based on using standard solutions and customer-specific adaptations, with interfaces kept to the minimum. Users access everything they need over the Internet and employees use the same version of the software regardless of their location. An implicit benefit of this level of standardization is simplicity, and hence high usability, with no room to overcomplicate the solution with multiple competing requirements.

Why not?

That said SaaS is not for the faint-hearted. Many enterprises shy away from the idea of storing their data on a third-party system and surrendering control of their information. In reality, even though companies converge on one database, the multi-tenant concept separates customer data across different clients. One issue multi-tenancy does create is the multiple impact of system maintenance or upgrades. Enterprises with a low downtime tolerance will not fare well on this model and for others Maintenance may come at a critical time for their business, for example, during financial closing.

Another limitation is the requirement to stick to a standard solution. Separate hosted systems with customer-specific customization are possible but this waters down the benefits of the SaaS model. Even though most SaaS solutions provide standard open interfaces to other applications, costs quickly add up on integration into a complex landscape. Another drawback of a homogeneous solution is the lack of competitive edge using the application offers an individual enterprise.

A revolutionary road

Nevertheless SaaS has been game-changing for the software industry. Pure-play ERP vendors are feeling the pressure as customers tire of expensive licenses and lengthy implementations, and turn to on-demand software. Vendors that have recognized the opportunity and made the move toward SaaS are having to adjust to new revenue models, with a steady stream of subscription-based income replacing the big bang of upfront license sales.

Customers choosing SaaS also have a considerable budget rethink to contend with, as large one-off capital investments make way for regular subscription fees. Channel partners are seeing the fall-out as demand for third-party support drops off in license sales and implementation support. Similarly, enterprises using SaaS stand to see their IT departments shrink, as implementation and maintenance efforts disappear. Realignment is an important consideration here as the in-house IT function will still have a critical role to play in governance and ensuring service delivery.

Balancing the books

The promise of SaaS is low cost and low complexity, but enterprises should evaluate its benefits carefully based on their own unique situation. The most common arguments in favor of SaaS are low deployment times and implementation costs, but any assessment has to be subject to a realistic comparison with an on-premise solution of similar scope. Compare SaaS with an extensive on-site ERP implementation and it will always come out on top, but a smaller investment in a less complex on-premise solution may reap benefits for a company in the long term.

SaaS may not be the answer for companies running innovative wide-ranging processes that require significant customization, or need to interface with a complex landscape. But it does makes sense for those looking to get up and go quickly with a simple solution at an affordable price – particularly within the current climate.

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1 comment

  1. Mayoral

    Excellent article. Thanks for the clear and unbiased explanations

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