Benefits of software as a service model

This column discusses the challenges of going to a software as a services (SaaS) platform both from the companies considering purchasing a SaaS solution to companies looking to provide customers with their software as a managed service.

When the idea of outsourcing first emerged, enterprises found it hard to trust a third-party to manage something as sensitive as their corporate networks. Most enterprises were slow to adopt outsourcing, but the value that adopters gained was undeniable -- increased availability of the network, a reduction of investment in tools and training to manage the network, and the freeing of resources (both staff and capital) to focus on business critical initiatives. As early adopters recognized their positive return on investment, they spread the word. Today, the outsourcing of network management is a common practice for large and small enterprises alike.

Likewise, software as a service (SaaS), the "pay by the drink" method of deploying applications, promises many similar benefits but may be hard to accept. Challenges exist not only for the software companies planning a move to a SaaS business model, but for the enterprises that must decide whether or not to give up control over their applications. Enterprises want the assurance that their application will be available whenever they need it, wherever they need it, and at a performance level they that they have come to expect. In the case of network management, few companies are comfortable handing over control of their business critical applications to an outside vendor.

Although the initial decision to relinquish control is a difficult one, it is one that can come with improved efficiency, lower risk, and a generous return on investment. Application deployment cycles inside companies can take years, consume massive resources, and yield unsatisfactory results. Instead, more and more companies want to consume software as a service, and are using the SaaS model for corporately mandated applications, especially CRMs and those that fall under the SOX compliance umbrella - such as financial recording and human resources. By using the SaaS model, enterprises ensure that all locations are using the correct application software version and, therefore, the format of the information being recorded and conveyed is accurate. Furthermore, by placing responsibility for the application with an outside company, the SaaS model allows enterprises to reduce the management burden for corporate applications, increase the availability of the applications to their locations, and gain the confidence that all application transactions are logged for compliance audits. The benefits to the customer are very clear.

However, while the benefits for their customers are numerous, many vendors are struggling to adapt their business model and effectively offer their traditional application software in the SaaS model. They must provide an application delivery and management platform that will ensure consistent, end-to-end operation of business-critical applications with the same quality of service as before. Although the customer's investment becomes minimal with SaaS, the investment for the vendor can be daunting. Problems for the vendor include:

  • Building and maintaining a complete network infrastructure from which to deliver the application,
  • Assuring application availability via the network, providing enhanced security (not only for access to the application but to keep individual customers' data completely separate and secure), and
  • Ensuring that customers have access to the latest version of the application software.

Solving these problems would appear to not only take a large capital investment, but to be costly in precious time to market implementation.

When left to themselves to manage the network, infrastructure, and deployment of applications, the costs in both time and money can be too great for any application vendor. Ensuring that an application is secure, reliable, and available 24/7 is an intensive undertaking, especially when coupled with the other duties of that vendor. However, some vendors have found alternatives to traditional network infrastructure and management that allow a smooth, cost-effective integration of their applications into the SaaS model. Companies can enter the market quickly by employing another company that specializes in the management and delivery of applications. This third-party would take over the responsibility and ensure the delivery of any application, to any site, over any network infrastructure. By outsourcing connectivity, security, and application management to a specialized third party, these vendors have managed to save both time and money.

For example, take the case of a placement firm that serves the employment needs of the manufacturing and light industrial markets, both of which have a large demand for temporary and day workers. Unlike its competition, this firm both acts as the hiring company and handles all payroll operations for the workers that it places. The firm secures the loyalty of its best workers by cutting payroll checks daily, instead of making workers wait until the end of a payroll cycle as other firms do. However, the complexity of this practice and the size of the firm cause problems: with over 40 franchised locations throughout the U.S., the firm must ensure that all transactions on their payroll application are being handled correctly. Because the application and the information it transmits is crucial to the company's success, the firm is not willing to leave the availability and updating of the application in the hands of franchisees. When faced with the question of how to deliver this application to each of the 40 disparate locations, the placement firm turned to the SaaS model and chose a third-party to manage application deployment. They are now able to host the payroll application at their corporate headquarters, and the third party ensures that all of the franchise locations have secure access to it. By outsourcing, this placement firm has been able to reduce time spent managing their network and application by 95%.

Another company that has used the same application deployment model is a securities trade clearing company that implemented a trading application to clear European benchmark trades in the U.S. This type of application was even harder to deploy as a service, due to the unreliability of network connections between the U.S. headquarters and its business partners throughout Europe. However, by using the same third-party solution, the clearing company was able to not only successfully deploy their application as a service to their customers, but also to ensure network availability and transaction security. Furthermore, due to the consolidated reporting abilities that the third-party is able to offer, the clearing company gained better visibility into network and application performance while reducing the burden on its IT staff. Not only is the company spending less time on its network, but it has managed to significantly reduce costs for its customers.

To meet the needs of both customers and application vendors, a new method must be employed for distributing and managing applications across IP networks. By employing the specialized solution of a third-party to deploy and manage their applications across distributed networks, vendors can feasibly deliver their software as a service in a fast and cost-efficient manner, as demanded by their customers.


About the author: Jim Zucco is Chairman and CEO of Corente, a provider of integrated software-based services for the secure delivery and management of distributed applications and diverse networks. With more than 20 years of industry experience, Jim has held executive roles at MCI, AT&T and Lucent and was an Executive-in-Resident at Kleiner, Perkins, Caufield and Byer.

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This was last published in February 2009

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SaaS has one tremendous benefit that overrides most of the other considerations, IMO, and that is the need to deploy individually updates and changes. Frankly, I do not miss testing installers :).