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Clarity - Simplicity - Productivity

Benefits of Software as a Service (SaaS)

Software as a Service (SaaS) may be defined simply as software applications deployed over the Internet. With SaaS, a third-party provider licenses an application to customers either as a service on demand, through a subscription, in a “pay-as-you-go” model, or at no charge when there is opportunity to generate revenue from other streams (advertisement).

The primary advantage of SaaS is purported lower IT costs: smaller monthly fees to use the software, no internal hardware/software maintenance, and update/bug fixes automatically

delivered. No hardware, no database servers are necessary for the software. Access to the Internet from PC clients does need to be provided along with secure firewalls and the usual infrastructure for Internet connections.

Key Benefits of SaaS

Lower IT Costs: Low cost of entry and potential lower total cost of ownership (TCO). When

you subscribe to a SaaS application, you avoid the overhead associated with implementing conventional software. A typical software implementation involves purchasing and maintaining servers, housing them securely, and installing and maintaining the software. This requires the time and effort of experienced IT personnel and deflects the efforts of employees at a number of levels away from the core mission of your organization.

More Powerful and Secure IT Infrastructure: Few organizations can match the infrastructure

and security investments made by SaaS vendors.

Economies Of Scale: Subscription costs for SaaS applications reflect the economies of scale

achieved by “multitenancy.” Multi-tenancy means that many customers run their applications on the same unit of software. For example, in a SaaS website calendar application, customer data is all stored in one database. This makes the overall system scalable at a far lower cost.

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subscription fee. Compared to a traditional software license, this subscription payment structure

may work to your advantage. An on-going monthly expense is easier to incorporate into your

budget than a large one-time outlay. You can cancel or change your subscription at any time without losing a large initial investment. In many cases, SaaS subscriptions are based on metered usage so you pay for exactly what you use. Rather than making a long-term commitment to one fixed account structure, you can add or subtract accounts at any time as your organizational needs shift.

Save Time: Because you eliminate many of the typical implementation tasks associated with

licensed software and because the software is already up and running on the SaaS vendor’s data center, deployment time tends to be much shorter with a SaaS application than a traditional one.

Focus Technology Budgets On Competitive Advantage Rather Than Infrastructure: When

you subscribe to a web-hosted application, you free your organization from supporting high-cost, time-consuming IT functions, including:

● Purchasing and supporting the server infrastructure necessary to install and maintain the software in-house

● Providing the equipment redundancy and housing necessary to ensure security, reliability, and scalability

● Maintaining a labor-intensive patch and upgrade process

Not Platform Specific: It does not matter whether the computer you are using runs on an Apple

Mac OS, Linux or Windows – as long as you are able to use a browser and access the Internet then you can use the software. This makes it far easier to switch platforms if you desire.

Automatic Upgrades: You will always have the latest software version. The SaaS provider

provides upgrades automatically and quickly makes changes if an error is found in the software.

Access Your Data Anywhere: One of the greatest advantages of SaaS is the freedom it gives you

in terms of when and where you choose to work. All of the data you use within the software is stored on the servers of the SaaS provider – meaning you can log into your account wherever you are in the world and access it instantly.

SaaS Disadvantages

● Unrealized cost savings ● Opex vs. Capex

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● Infrastructure issues

Cost appears to be the primary driver for SaaS. Yet if a business hasn’t made the necessary transitions with its people and processes within its corporate environment first, then it’s probably not going to be more cost-effective. It’s more effective once the people and processes have been prepared for the shift in the applications delivery model. That is painful and takes time.

Moreover, there is controversy over purported SaaS cost savings considering capex vs. opex. Capex (asset is a newly purchased capital asset or an investment that improves the useful life of an existing capital asset) vs. opex (operating expense for normal business operations) is how compute resource is paid for by the consumer of those resources. For example, if one uses a SaaS service, payment is made on either a monthly, yearly or a highly granular level for the use of the resources — either time (so much per server-hour) or consumption (so much per gigabyte of storage per month). The consumer does not, however, own the assets that deliver those resources. The third party SaaS firm owns the server, application and storage machinery.

From an accounting perspective, owning an asset is considered a capital expenditure. It requires payment for the entire asset and the cost becomes an entry on the company's balance sheet, depreciated over some period of time.

By contrast, operating expenditure is a cost associated with operating the business over a short period, typically a year. All payments during this year count against the income statement and do not directly affect the balance sheet.

Depending upon the use scenario of the individual application, paying a yearly depreciation fee may be more attractive than paying on a more granular basis. Consider automobiles — it's economically optimal to purchase a car for daily use in your home town, but cheaper to rent a car for out-of-town business trips.

Some organizations find it very difficult to relinquish control or trust third parties to manage their applications and data.

Some vertical markets require industry specific business applications for which SaaS solutions are not available.

Organizations without clear objectives and defined business processes will be no better off with a SaaS solution than with an on-premise solution.

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Characteristics of SaaS

It is important to ensure that solutions sold as SaaS in fact comply with generally accepted definitions of cloud computing. Consider three layers of cloud computing:

● SaaS (Software as a Service) ● PaaS (Platform as a Service) ● IaaS (Infrastructure as a Service)

Not all implementations of SaaS use all three of these layers. Depending upon when their solution was architected, some SaaS vendors may not conform to this latest version of the cloud. There are several SaaS offerings that do adhere to this structure. It is important to consider the PaaS supporting a SaaS offering. A good PaaS will help support the following features:

● Application design and development ● Bug and enhancement tracking ● Database support

● Security ● Versioning ● Customization

Some defining characteristics of SaaS include: ● Web access to commercial software

● Software is managed from a central location ● Software delivered in a “one to many” model

● Users not required to handle software upgrades and patches

● Application Programming Interfaces (APIs) allow for integration between different pieces of software

Where SaaS Makes Sense

Organizations considering a move to the cloud should carefully consider which applications they move to SaaS. Candidates for an initial move to SaaS include:

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Applications where there is significant interplay between the organization and the outside world. For example, email newsletter campaign software.

Applications that have a significant need for web or mobile access. An example would be client relationship management and mobile sales management software.

Software that is only to be used for a short term need. An example would be collaboration software for a specific project.

Software where demand spikes significantly, for example tax or billing software used once a month.

Note that SaaS offerings are evolving and include sophisticated business processes such as enterprise resource planning, enterprise content management, human resources and others.

Where SaaS May Not be the Best Option

Examples where SaaS may not be appropriate include;

Applications where extremely fast processing of real time data is required.

Applications where law or other regulation does not permit data being hosted externally. Applications where an existing on-premise solution fulfills all of the organization’s needs.

SaaS Vendor Due Diligence

It is important to consider how SaaS systems are architected for SaaS delivery. Make sure the benefits of SaaS can be realized: lower cost of operation, lower costs for updates, ability to

maintain your own custom code line, robust personalization capabilities, and ability to integrate to your other applications seamlessly.

Most important is SaaS vendor due diligence when it comes to security, reliability, performance and availability. The vast majority of companies that have opened their doors as SaaS providers don’t have the rigorous infrastructure and support structure in place.