Evaluating software as a service for your business.pdf

Evaluating Software as a Service for Your Business an IT Management eBook contents] [ Evaluating Software as a Service for Your Business This content was adapted internet.com's ASPNews Web site and EarthWeb's CIO Update and Datamation Web sites. Contributors: James Maguire, Galen Gruman, Marcia Gulesian, Jeff Vance and Julie Craig. 4 4 Why You Need to Weigh the SaaS Option Julie Craig 6 8 6 8 Leveraging SaaS to Manage Partners and Projects Jeff Vance Financial, Legal and Negotiation Issues Marcia Gulesian 12 12 15 Integration Issues May Hinder SaaS Adoption Galen Gruman 15 SaaS Advice from the Experts Sandra Gittlen Evaluating Software as a Service for Your Business, An Internet.com IT Management eBook. © 2007, Jupitermedia Corp. 1 [ Evaluating Software as a Service for Your Business ] Evaluating Software as a Service for Your Business By Julie Craig I T industry veterans are familiar with the application service provider (ASP) concept. The idea is that a business software company, or its designated partner, hosts an enterprise software offering for end-user IT organizations. This eliminates the need for IT to plan, deploy, support and modify the software in-house. While the ASP concept has always seemed like a good idea, it never really took off. Now, we're hearing about the same concept with a new name: software as a service (SaaS), a phenomenon whose poster child is Salesforce.com. Is SaaS just hype, or is something really going on here? And if there is fuel behind these flames, what's different? Why has a model that languished for a decade suddenly gained steam? It is clear an emerging industry is quietly but steadily gaining ground and that SaaS may be on track to change the face of enterprise computing. Salesforce.com CEO Jim Steele believes the SaaS market will represent 25 percent of the software delivery marketplace revenue within four years. If this is true, SaaS will have an enormous impact on the way IT does business, and on the fortunes of enterprise software companies. Before Salesforce.com rolled out its first services in 2001, companies that wanted to keep track of sales leads and pipelines installed customer relationship management (CRM) packages such as Siebel's Sales Force Automation. These products were notoriously dif2 ficult to implement, with some estimates putting the percentage of CRM licenses relegated to shelfware at 50 to 75 percent. Why? CRM packages are expensive to buy, they are more expensive to deploy, and can be unwieldy to use. Industry experts estimate that between 65 percent and 85 percent of CRM project implementation attempts end in failure. The reasons are numerous and varied but when the costs are totaled, a failed CRM implementation is an expensive proposition. Licensing costs start at six figures, and the total deployment costs can hit seven and eight figures with everything factored in. With a track record like this, it's not surprising companies are seeking alternatives. These deployments are considered to be both high-cost and high-risk, with a history of failures and cost overruns. It's only natural that a paradigm that promises to mitiJupiterimages gate both cost and risk has proven attractive, and that is exactly what is happening with SaaS. Almost 30,000 companies have already exited the CRM obstacle course in favor of Salesforce.com. Although some say that's just a drop in the bucket, Salesforce.com's revenues are growing at a rate of 50 to 75 percent per year. And although the enterprise resource planning (ERP) side of SaaS is not quite as well developed as the CRM An Internet.com IT Management eBook. © 2007, Jupitermedia Corp. [ Evaluating Software as a Service for Your Business ] side, Dave Duffield, the ERP heavy-hitter who founded PeopleSoft in 1987, is in the process of addressing this shortfall. After Oracle acquired PeopleSoft in January 2005, Duffield went on to found Workday.com. Duffield's Workday is now in the process of developing an ERP package designed specifically for delivery via the SaaS model. The track record for ERP implementations approaches that of CRM. Because of the complexity of implementation, many ERP companies actually took a hands-off approach and relegated deployment to IT consulting firms. Although this is certainly one way to get rid of a headache of your own making, thousands of "Big Four" consultants put their kids through college on earnings from ERP implementations; some of which were successful and some of which were not. Popular wisdom says, "What goes around comes around" and it looks like Workday could have the same impact on the ERP marketplace as Salesforce has on CRM. Workday is already starting to sign clients and Duffield indicates that his platform is on track to be fully competitive with SAP (with the exception of a manufacturing module) by Q2 2008. means if you need one application server to host Company X, you need a second for Company Y and a third for Company Z. The same applies to database and other servers, because the software was never designed for multiple companies to run applications on a single instance. This architecture impeded ASP's ability to scale and the concept dwindled. SaaS software is specifically engineered for multi-tenancy. Customer implementations can be insulated from one another and still be stacked on shared computing resources. This is a major cost savings that enables some SaaS vendors to dramatically whittle down delivery costs. SaaS vendors enjoy other advantages as well. They support only one version of their software and deliver their service on a single platform. Many are making wide use of open source in their products, eliminating a large percentage of licensing fees. They are designing delivery platforms capable of piggybacking multiple products on Although the industry a single delivery infrastructure. Finally, is still nascent, with they are making broad use of servicemany SaaS applicaoriented architecture (SOA), which simplifies software delivery and scaling tions focused at the while providing a very flexible platform small to mid-sized for ongoing product development. “ Enterprise Software and ASP (SMB) market, they continue to mature in terms of scalability and functionality. There is no doubt SaaS is on track to garner increasing market share, but many insiders are wondering what changed. The good news is products like Salesforce and Workday are not just ASP re-packaged, but totally new products engineered specifically for SaaS delivery. ” Overall, the SaaS model brings with it advantages to consumers that are difficult to ignore. The prospect of predictable levels of service at a predictable cost with minimal risk is an attractive one, especially to war-torn IT organizations tattered from the struggle to deploy and maintain enterprise software packages. Although the industry is still nascent, with many SaaS applications focused at the small to mid-sized (SMB) market, they continue to mature in terms of scalability and functionality. SaaS also gives SMB subscribers an expertise advantage. Smaller companies typically have a relatively few number of IT personnel who wear many hats. With the complexity of today's IT, it's not possible for a small team to have both breadth and depth. SaaS provides a way to share expertise among multiple customers while still providing high quality business An Internet.com IT Management eBook. © 2007, Jupitermedia Corp. The major disadvantage of the ASP model was that providers typically hosted standard vendor products. Oracle (including the Oracle, PeopleSoft and JD Edwards families of software) and SAP have engineered their solutions for single-customer execution environments - for single-tenancy. These environments include tiered, multi-server architectures with specialized servers for applications, databases and other activities. With single-tenancy execution, each customer has his or her own separate execution environment. This 3 [ Evaluating Software as a Service for Your Business ] services. Combined with predictable cost, this combination will be difficult to ignore. from other tenants by the inherent product design • Cost-effectiveness: Multi-tenancy enables SaaS vendors to deliver services very cost effectively. RightNow Technologies, a SaaS vendor whose products include a hosting platform and a CRM product, has stated its hosting costs are only 6 percent of its overall service delivery expenditure. This enables RightNow to deliver service to consumers at a very reasonable cost, especially when compared to the average 60 to 80 percent of budget that goes toward IT administration and support in the average enterprise. • Open source: When SaaS vendors write and host their own applications, they can choose their technologies. RightNow uses no Microsoft or Oracle products, and instead relies heavily on open source in its product delivery. This is another area of savings that helps keep costs down. With SaaS evolving and maturing every year, it is becoming an increasingly attractive alternative for IT organizations struggling to deliver business services at a reasonable price. SaaS vendors are reporting they can host an entire application for less than in-house IT organizations pay for product technical support. Obviously, such cost advantages are difficult to overlook in an industry that is being pressured to next few years. Those counting on SaaS going the way of ASPs will likely be disappointed. ■ What Makes SaaS Different? Today's SaaS vendors have capitalized on the lessons learned by their predecessors and are addressing them with innovations that yield big advantages. These innovations include: • One version, one platform: While legacy vendors still focus the majority of their resources on supporting multiple versions and platforms, Salesforce.com supports only one version running on one platform. One hundred percent of Salesforce's resources can be devoted to innovation, resulting in a product evolution that is very agile and much more in touch with "real-life" IT requirements. Customers always have the most recent version of the software and they never have to worry about upgrading or migrating data, both of which are highrisk activities. The vendor does this automatically, with no added cost, little or no risk, and with minimal disruption to service. • Multi-tenancy: While ASP vendors had to add hardware or virtual servers to add customers, both Salesforce and Workday are engineered for "vertical," rather than "horizontal," scaling. This means that multiple customers can be stacked across a single delivery platform, with each customer protected Why You Need to Weigh the SaaS Option By Julie Craig I 4 t is no secret that IT executives are reevaluating their application delivery options. Outsourcing is a trend that has yielded mixed results. Amidst complaints of language roadblocks, security questions and cultural differences, the bloom has largely faded from the outsourcing rose. CIOs, however, are still seeking a magic bullet that will help them provide quality business services with minimal downside. While the bad news is that there is no magic bullet, the good news is that the SaaS option is coming of age. Jupiterimages An Internet.com IT Management eBook. © 2007, Jupitermedia Corp. [ Evaluating Software as a Service for Your Business ] The drivers for SaaS include cost, risk, staffing concerns and complexity. Most CIOs are re-evaluating delivery models in an effort to reduce the 60 to 80 percent of budget typically spent on IT administration and support. Risk mitigation is another driver, with new reports of security breaches and data theft surfacing in specific business sectors almost weekly. Staffing is a growing concern as well, with salaries rising and hot skills such as security analysts and enterprise architects in short supply. Information Week recently reported that IT professionals are earning higher salaries than at any time in the past 10 years. And IT complexity continues to mount, impacting all of these areas. In this climate, SaaS becomes increasingly attractive, particularly for (SMBs). In addition to providing a high quality of service at an often-reasonable price, SaaS gives these companies an opportunity to benefit from expertise that might otherwise be beyond their reach. SaaS companies are hiring some of the industry's best and brightest experts, whose salaries are then shared across multiple companies. Such expertise is beyond the reach of smaller IT shops whose limited budgets dictate that they hire IT generalists capable of wearing multiple hats. For such companies, SaaS mitigates the security and performance risks inherent in in-house hosting while offloading complex activities such as installing, configuring and maintaining applications. And while protection of intellectual property and personal data are proving to be significant concerns in the offshore world, SaaS has so far presented few such problems. In short, SaaS is turning into a cost-effective option that can be a lower-risk alternative to outsourcing and offshoring. It's no wonder that companies such as Salesforce.com report growth in the neighborhood of 50 to 75 percent per year. Pros and Cons 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. SaaS in the Marketplace What kinds of applications are being delivered as services these days? Nearly any application imaginable. Concur Salesforce.com Online travel management and expense reporting. Best known for CRM applications, Salesforce.com also offers a hosting platform for third party vendors to develop and deliver their own online applications. Although Symantec is best known for its Norton and Veritas lines, it began offering online back up in the spring of 2007 and plans to host additional services in the future. Aggregation platform that allows service providers to integrate multiple Web-based services for resale. IT monitoring and analytics. Online CRM services. Hosted acceleration for Web-based applications. Akamai operates an "Internet within the Internet" that accelerates the performance of widely distributed online applications. Hosted ERP services. An Internet.com IT Management eBook. © 2007, Jupitermedia Corp. Symantec Jamcracker Klir RightNow Akamai Workday 5 [ Evaluating Software as a Service for Your Business ] • Risk mitigation: SaaS vendors theoretically assume the risks of developing, maintaining and delivering an application. That being said, CIOs 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 highimpact projects that add value to the business. • 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- to 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 percent 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. ■ 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. Leveraging SaaS to Manage Partners and Projects By Jeff Vance B 6 andwidth.com, a provider of business communications, started investigating on-demand software because the company was having trouble keeping up with demand. Not a bad problem to have, right? Not necessarily. "This was a time when we were experiencing exponential year-over-year growth," said Scott Barstow, CTO of Bandwidth.com. "We were unable to keep pace with Jupiterimages An Internet.com IT Management eBook. © 2007, Jupitermedia Corp. [ Evaluating Software as a Service for Your Business ] internal development efforts. We needed more features and quicker deployment." To do this internally would take time, putting the company further behind, and it would cost a good deal of money. Rather than investing in internal IT, Bandwidth.com realized the majority of its IT problems were in a specific area: customer relations. "One of our main problems was that we didn't have a good way to show customers what was going on with the installation of their communications products," Barstow noted. Typically, the company handed trouble tickets off to its telecommunications partners but, once the hand-off was made, they had no way of tracking those trouble tickets. This is basic CRM stuff, so what's the big deal, right? Actually, it's more complicated than that. Since Bandwidth.com resells many telecommunications offerings, often bundling them with other products and services, a web of business relationships must be negotiated. Early on, Salesforce.com picked up on the fact that its customers were using its CRM platform for more than traditional CRM. To capitalize on this they rolled out AppExchange, a venue for the sharing of business applications. AppExchange features more than 200 plug-and-play applications, which are easily downloaded and integrated into the basic platform. If one customer builds a related application, they can offer it to the entire user base, and they typically earn a fee for doing so. Often, internal development efforts can pay for themselves, since these applications can now be resold. Customers can plug in applications for anything from electronic document signing to payment processing. Rather than building an application and maintaining it in-house, they turned to on-demand software vendor Salesforce.com, subscribing to its CRM platform. By going this route, deployment time was cut dramatically, and the company didn't have to hire and train new IT staff. Besides the traditional benefits of on-demand software—lower costs and fewer management burdens—SaaS ends up changing the vendor-customer relationship, offering more benefits to each. “ Good for the Goose The creation of an application ecosphere benefited Salesforce.com as well. With so many partners building applications around the basic CRM offering and customizing certain components within the CRM platform, it made sense for Salesforce.com itself to participate in and encourage this give and take. ” "An example of this is when we updated our user interface," said George Hu, SVP of applications for Salesforce.com. "In the old world of shrink-wrapped software, existing customers have what they have, and the vendor focuses on new customers." However, in the on-demand software world, any changes made to entice new customers might inadvertently irritate existing customers who were comfortable with the way things were. "What we did was post the prototype of the new interface to our user community," Hu said. "We got back hundreds of responses, which helped us build a much better product." Salesforce.com vetted and improved its product, without dumping huge piles of cash into those processes, and at the same time customers felt like they were in the loop. Besides the traditional benefits of on-demand softwarelower costs and fewer management burdens-SaaS ends An Internet.com IT Management eBook. © 2007, Jupitermedia Corp. "With this application in place, our customers can now interact directly with the service provider handling the trouble ticket without us having to broker the exchange," Barstow said. Once they started handling customer service in this manner, they realized that the Salesforce.com platform could also serve as a portal for communicating with partners. "Let me give you two concrete examples," Barstow said. "CDW and CompUSA are both partners of ours, and both use Saleforce.com as a CRM tool. Prior to Salesforce.com, we would have had to build a specific application interface for each partner. Now, we just wall them off within Salesforce.com. It's an instant partner portal." 7 [ Evaluating Software as a Service for Your Business ] up changing the vendor-customer relationship, offering more benefits to each. SaaS vendor OpenAir believes there are even more side benefits emerging from the SaaS model. OpenAir, a professional services automation company, believes SaaS can be extended beyond the applications themselves, serving not only as an IT management and communications platform, but as an overall business management tool as well. along and people realized certain workflows could be streamlined and leveraged across an organization. To optimize anything, you need to find a way to measure it, however, said Panner "understanding exactly what knowledge workers are doing is difficult to measure." The way someone works varies from person to person, with each completing tasks through different means, relying on different skill sets. "Therefore, the natural tendency is to do nothing. You just let them go on doing what they've always done." The goal of professional services automation (PSA) is not to change how employees work, but rather to give them a better understanding of the scope of each project along with associated tasks and ultimate business goals. "Visibility into project metrics minimizes that risk," Panner said. "If you break projects down into their constituent parts, your employees are aware of the value they're adding to a project, so they can be careful to not give their work away for free." In essence, a good SaaS operation functions like a network, in that with a network the value of it rises exponentially with the number of nodes. While any given end user may not have encountered a specific business problem, chances are someone in the user base has, and that knowledge finds its way into the application. Each time a new customer adds knowledge, every customer benefits. ■ Managing Professionals Morris Panner, OpenAir's CEO, believes a good ondemand business software platform can serve as a method for managing service professionals in a way that leverages the efficiencies learned through IT management. "Service professionals are often the most talented and highly trained employees in an organization," Panner said. "However, the work they do is often a mystery to management." The U.S. economy is now service-based, and, therefore, more and more of the workforce is service-oriented. Today, people work on projects, rather than toiling on assembly lines, but according to Panner that doesn't mean they can't work more efficiently. Since those jobs were relationship-oriented, they were considered too nebulous to automate, but then salesforce automation (SFA) and CRM applications came Financial, Legal and Negotiation Issues By Marcia Gulesian A 8 software as a service contract is more an outsourcing deal than a software purchase, so potential SaaS customers should negotiate accordingly. A cross-functional team with representatives from IT, Finance and Legal should be involved in the acquisition of mission-critical SaaS applications. SaaS can offer customers lower costs that are aligned with usage, minimal upfront expense, rapid implementation and time to value, plus reduced risk. In individual cases, however, the CIO must decide whether SaaS is Jupiterimages An Internet.com IT Management eBook. © 2007, Jupitermedia Corp. [ Evaluating Software as a Service for Your Business ] good for his or her IT operation, while the CFO must decide whether SaaS is good for the economy of the firm as a whole. Microsoft and other industry-leading software vendors have indicated that future product releases will often have both a traditional and SaaS version, which is recognition that customers can now choose to deploy software in their own infrastructures in combination with solutions delivered through SaaS. There are two types of SaaS providers. With the first type of provider, a licensing fee and a monthly fee are separate and are paid to the maker of the software and to the hoster of the software. With the second type of provider, there is no division between licensing and hosting fees. The SaaS provider hopes to achieve better economies of scale than its clients could when operating the application themselves. By applying economies of scale to the operation of applications, a service provider can sometimes offer cheaper and more reliable applications than companies can themselves. flows of each alternative. Still, in order to make this comparison, they must consider a number of factors. If a firm owns an asset, it can depreciate the asset and reap the tax shield from the depreciation. In this case, the company is liable for any and all costs of the asset, including the expenses of operation and maintenance. Any interest that is incurred to purchase the asset is deductible, but principal payments are not deductible for taxes. You can set up two tables showing cash flows for owning (hosting software in-house) and cash flows for leasing software (SaaS). You can then discount the cash flows from both options at the opportunity cost for owning (e.g., the return from or opportunity cost of investing excess cash rather than using it to purchase an asset). If the present value of the cost of owning is less than the present value of leasing, then the effective interest rate in the lease is higher than the opportunity cost of funds from owning. That is, you will add more to your company's bottom line if you own (host the application yourself). You can also find the interest rate that forces the cost of owning to exactly equal the cost of leasing. This is the effective interest rate of the lease. Finance Leasing versus buying is a common comparison between SaaS and hosting software in-house. To the CFO it is similar to the lease versus buy decision he or she makes when acquiring a car or real estate property for the firm. A software as a service contract is more an outsourcing deal than a software purchase, so potential SaaS customers should negotiate accordingly. “ ” Leasing is one form of financing. Companies can buy assets using excess available cash, using cash borrowed from a bank or other lending institution or using cash from equity or debt offerings. Once managers have compared all sources of financing they could employ to own an asset and decide to borrow money from a lending institution at X percent, this rate becomes the relevant "buy" alternative to be compared with the cost of leasing. The only costs that managers need to compare in making the decision to lease or to buy (and borrow in this case) are those that determine the incremental cash 9 This analysis may sound simple to some, but it is best handled by an experienced accountant because there are often countless details that need to be considered before the cash flows can be estimated. For example, the usual host-it-yourself software license does not include maintenance or support fees, but most SaaS fees do. The Contract There are some inherent disadvantages in adopting SaaS, including, but by no means limited to: • Integration with your non-SaaS systems may be problematic • Loss of control of your corporate data An Internet.com IT Management eBook. © 2007, Jupitermedia Corp. [ Evaluating Software as a Service for Your Business ] • Dependence on the service provider for security. These three points are of concern to IT. The first is an in-house technical matter, but the second and third need to be addressed in the contractual relationship between the firm and its SaaS provider. Setting up an escrow account becomes critical when using SaaS, since loss of support by the SaaS provider means not only the loss of the application functionality, but access to all of the proprietary data along with it. Escrow generally refers to the placing of property that is the subject of a commercial transaction (money, title deeds, software source code, etc.,) into the hands of a trusted third party for safekeeping until some specified event occurs that will trigger the release of the property to one party to the initial transaction. You are at risk of loss of SaaS support whether you're dealing with solid industry leaders or fragile start-up companies. For example, many users of Research In Motion's BlackBerry product and service faced the very real threat of seeing their addictive devices become useless because of a patent suit last year. There was nothing wrong with the products in question, and RIM was financially healthy. However, a patent trial judge nearly ordered an injunction that would have shut down this potentially patent-violating product. Make sure that your SAAS vendor offers a code-escrow deal so you have the option of running the application internally if the service were to be shut down. This model can work, but, caveat emptor, it might be weeks or months until you have the application running satisfactorily in-house. At some point, you might want to migrate away from a SaaS application to another solution, so it's important that you are able to take your existing data out of the application and move it to another one. Ask your prospective SaaS provider about any data-migration strategies and procedures it uses, including any provisions for data escrow. Escrow agreements, including verification, should be set up with your SaaS provider. Your provider should be able to guide you through the process, but independent, third party legal advice should be sought if you don't have in-house expertise in these maters. 10 The Top 10 SaaS Buzzwords by James Maguire SaaS is certainly a trendy topic these days in IT departments across the world, and with that rapid rise in popularity has come a fresh trove of new-fangled buzzwords. Pick up a press release from a SaaS vendor, and you'll see a heady array of terminology used in fresh (or hype-filled) ways. For example, if your SaaS mash-up is going to enable parametric applications, than your integration connectors must be compatible with your solution extensions. Clearly, if a new technology requires all these buzzy terms, it must be worthy of a hefty line item in next year's budget request, right? Given that many IT departments still view SaaS as a newish approach, it's likely that many decision makers can't decode SaaS jargon without some head scratching. As a public service, we set out to translate this brave new buzz-speak into human language. For help, we turned to Rob Desisto, a Gartner analyst and confirmed expert-guru on all things relating to SaaS. The following list is by no mean all-inclusive. Many vendors use their own terms, and buzzword inventors are minting new terms even as you read this. But this should get you started: 1) SaaS mash-ups The term mash-up comes from pop music, when a studio musician combines two existing recordings to create a "new" song. This same concept applies to software hosted over the Internet. "The notion is that when you get multiple Web services, you could 'mash them up' together into a total solution," Desisto says. But there's a critical caveat to SaaS mash-ups, he notes. When you combine multiple SaaS services to form a larger solution, "the total solution is only as strong as its weakest link." For An Internet.com IT Management eBook. © 2007, Jupitermedia Corp. [ Negotiation Evaluating Software as a Service for Your Business ] Continue to evolve the level of your protection by managing escrow accounts online and updating coverage levels as necessary. The Top 10 SaaS Buzzwords continued example, if you've combined three providers in a solution, and one of them has significant downtime, then the whole solution's down. In contrast, in the traditional on-premise world, companies have more ownership of their apps, and so are better positioned to deal with snafus as they arise. 2) Integration connector An integration connector is a software program that allows you to take data from one application source and load it into a SaaS solution (and also send back data the other direction). This data movement typically happens in a batch environment, in which an enterprise performs an initial data load, then does a periodic refresh as needed. For instance, Salesforce's SAP integration connector "is a mapping of SAP customer and account data to the Salesforce data model of customer account data," Desisto says. 3) Solution extension SaaS solution extensions are service offerings delivered over the Internet that add additional tools or functionality to your existing infrastructure. Desisto points to Salesforce.com's App Exchange applications as the ultimate example of solution extensions. For example, one App Exchange offering (one of the most popular, in fact) is "Salesforce for Google AdWords." This app piggybacks on to the main AdWords app, allowing greater functionality. "The other thing you could do with some of these SaaS solutions is extend the data model and provide your own user interface screens, which is a further extension of the service or the app," says Desisto. 4) Multi-tenancy In SaaS multi-tenancy, multiple companies all use a single physical database and infrastructure, which is hosted remotely. All these customers' data is stored in one place, though it's logically partitioned. Multi-tenancy has its strengths and its chal- You probably won't be able to negotiate the massive discounts common in the traditional packaged-software industry, in which list price is generally something of a joke. With the hosted model, you've got to keep in mind that deep discounts won't be there. Volume is your most fruitful negotiation point; to lower your cost per seat, add more seats. The SaaS has your data, so you need to have an exit strategy. Be sure to negotiate transition support: How long it will take the provider to return or hand off your data, how much notice is required on both sides, and so on? Cover all the bases. Get service level agreements (SLAs) on availability, response times and notifications of outages and how soon after a failure you must be notified. Other issues you must address include: regulatory compliance, data integrity, data privacy, frequency of backup, support and disaster recovery. Budget for surprises. Even when you think your bases are covered, you may run into nasty surprises. SOA, Web Services, etc. Most SaaS applications are specifically designed as Webbased applications. As such, they are accessible from virtually any location with an Internet connection, enabling remote access, as well as providing excellent support for businesses with multiple geographic offices or locations. A variety of enabling technologies, such as service-oriented architecture (SOA) and Web services, permit SaaS to be more easily provisioned and metered based on actual usage levels. This means companies no longer have to pay for excess capacity. The bottom line? Lower total cost of ownership and quicker time-to-value are the promise of SaaS. But, before proceeding to sign a contract for software services from an outside provider, the CIO needs chat with his or her CFO and Legal Department, particularly when large amounts of money or mission-critical data are involved. ■ 11 An Internet.com IT Management eBook. © 2007, Jupitermedia Corp. [ Evaluating Software as a Service for Your Business ] The Top 10 SaaS Buzzwords continued lenges. The upside is that the vendor has a low cost-per-customer in building and maintaining its infrastructure. The vendor can pass this lowered cost on to customers, and these customers are also spared the headaches of maintaining the platform. The downside is that in many cases, customers are forced to upgrade when that central vendor upgrades - it's like the old Soviet Union, with a single central planner that everyone lives by. "So on June 1, if a new release is coming out, you have to go to that new release," Desisto says. "You cannot stay back on the prior release - otherwise the whole notion of multi-tenancy breaks." There are, however, vendors that offer different versions of software to their various tenants. "But the minute you start to get into that game, you begin to lose some of the shared economics." When vendors support multiple versions, costs necessarily rise. 5) Vertical applications The term vertical application - referring to apps built for a narrow market sector, like banking or pharmaceuticals - isn't a new term, nor is it unique to SaaS. But while vertical applications have been around in the traditional on-premise software business for years, "in the SaaS world, in the biz app area, this whole notion of vertical applications is a relatively new thing," Desisto says. "If you look at what Salesforce has done to date, a lot of that has been on their ability to support cross industry capabilities - I would expect that to change." As it matures, customers will expect the same degree of specific vertical apps capability from SaaS as is currently offered in onpremise software. 6) Parametric applications With traditional on-premise software, the underlying code needs to be rewritten to alter the services it provides. With SaaS - in theory - a user can input a new parameter, or institute some new macro business rule, and thereby cre- Jupiterimages Integration Issues May Hinder SaaS Adoption By Galen Gruman A s enterprises adopt multiple applications delivered as SaaS, a new integration wrinkle emerges: connecting black boxes that cannot be customized by the enterprise. This puts an increasing burden on IT to use middleware and other approaches to integrate the apps-both among SaaS offerings and with their traditional inhouse applications-echoing the efforts required to integrate "best-of-breed" applications common in the 1980s and early 1990s. One way to help integrate the black boxes is to use a middleware-oriented application integration platform like Tibco or an appliance like those offered by Cast Iron Systems, said Tina Phillips, a principal at Deloitte Consulting. Another method is to use Web services, said Warren Weiss, a general partner at Foundation Capital, which has invested in several SaaS providers. "But there are challenges in the security models, data models, business processes and workflow," he cautions. In the traditional world of in-house applications, the burden of integration ultimately pushed IT to buying preintegrated suites, and the same may happen in the SaaS world, said Michael Mankowski, an analyst at Tier1 Research. "We're revisiting the whole 'best-of-breed versus suite' thing. We're back there with SaaS." 12 An Internet.com IT Management eBook. © 2007, Jupitermedia Corp. [ Owning the Core Evaluating Software as a Service for Your Business ] The Top 10 SaaS Buzzwords continued ate a "new" service. This new service is sometimes called a "parametric application" because it is customized in response to a new parameter or piece of meta data. "Salesforce has leveraged the meta data model, for example, to help facilitate and deal with upgrades and new versions, essentially allowing customers to opt in to new functionality through meta data switches and so forth," Desisto says. 7) Modular "Modularity in the SaaS world is basically turning off or on services," Desisto says. So instead of buying a huge app that is installed on-premise with full functionality, an IT manager picks and chooses menu style, only selecting (and only paying for) what's needed at the time. Also, most SaaS vendors have built their apps within the context of Web services architecture, enhancing the flexibility of modularity. "What that's allowed them to do is really componentize the capability of the system to a fairly reasonable level of detail." 8) Net-native SaaS On its face, the term "net-native SaaS" seems redundant. After all, implicit in the concept of SaaS is a service delivered over the Internet. So all SaaS apps are supposed to be net-native. But the term makes reference to the pre-SaaS days of application service providers, an earlier form of accessing remotely hosted software. "Back in the ASP days, you may have had a more dedicated private extranet style of access, versus going over the Internet," Desisto notes. Some of the earlier ASP solutions involved chunky, clunky apps that weren't really designed for cross-Internet travel. So when one refers to "net-native SaaS," the term emphasizes how the code is written to efficiently use today's fat-pipe-enabled Hypertext Transfer Protocol and the TCP/IP stack to enable services with (hopefully) few glitches. Traditional suite vendors such as SAP and Microsoft are already preparing for the SaaS-suite approach. The basic reason, they argue, is there needs to be a common underlying architecture, with a consistent data model and set of semantics to let the pieces fit together. "You need a collaborative setting and a suite as a platform so we can get closer to service plug-and-play," said Peter Graf, executive vice president of solution marketing at SAP. In SAP's case, that's the Netweaver platform. "If the customer chooses not to use that co-engineered center, they have to deal with the integration," he adds. In SAP's view, the ERP core becomes the hub around which the other pieces of the co-engineered center are designed. The same is true for Oracle's middleware-oriented Fusion approach, notes Foundation Capital's Weiss. Salesforce.com would like to become an alternative platform, in the same vein as SAP. Its AppExchange platform provides a consistent application architecture and data model for Salesforce.com's applications and those of its partners, said Parker Harris, executive vice president of Technology at Salesforce. Integration outside of these applications requires the use of middleware, common APIs and other traditional integration methods that IT must manage. "We have a connector to SAP, and IT at different companies will use that differently according to their needs," he said. IT can also use middleware such as Tibco and WebMethods that relies on Web services to connect applications such as Salesforce.com and SAP, Harris notes, "So you don't have to learn anything special about any of the apps' APIs, but you do have to understand your data architecture." The Glue The issue of domain-specific data models is why SaaS will probably evolve into collections of domain-specific suites, said Rado Nikolov, director of emerging business at IBM. "The data model is built around a specific customer profile (application domain), so building on that platform for a different profile makes no sense. (Any individual suite) is not a universal integration platform," he said. 13 An Internet.com IT Management eBook. © 2007, Jupitermedia Corp. [ Evaluating Software as a Service for Your Business ] Instead, interactions across suites will be integrated in a traditional middleware or EAI way either by vendors seeking competitive advantage through compatibility or by IT when the vendors decide it's not in their self-interest to work with other vendors' tools. A way out of that captive-platform approach could be the enterprise's use of a service-oriented architecture (SOA). "As more applications adopt SOA, a lot of these integration issues start going away," said Jeff Baker, Managed Services practice director at BearingPoint. "With SOA, APIs and open standards, apps can talk to each other, and integration can be done more simply," concurs Tier1's Mankowski. "Everyone's waiting on that," he notes. Today's SOA can't orchestrate processes designed for different architectures, with different data models and contexts, concurs Rob Beauchamp, senior director of software architecture at Sun Microsystems. "That's the opportunity for next-generation architectures," he said. At enterprises "tooling will be needed to orchestrate their own business processes, as well as in combination with the base processes from the SaaS providers. Registries and metadata become even more essential in the new world, and governance of metadata outside any one provider or user becomes important," Beauchamp said. How to get there is unclear. Beauchamp cites Wikipedia as an example of collective metadata, but admits that its governance model allows bad actors and inconsistencies to work their way in. Microsoft sees a similar approach of federating applications as services, with a central core of mission-critical, back-office applications acting as the core platform. The data architecture and the master data management (MDM) must be separate from any single application, said Tim O'Brien, director of the Platform Strategy Group at Microsoft. Instead, "you would federate metadata through some back end" with applications interacting as a mesh in an SOA approach. What IT can do is insist on integration requirements and service levels in their contracts to push vendors towards better integration with competitors and other domains. Otherwise, vendors will act out of their self-interest. ■ The Top 10 SaaS Buzzwords continued 9) Platform infrastructure You'll sometimes hear SaaS adherents hoping for some form of "platform infrastructure" to emerge, to boost the development of SaaS companies. This is because SaaS-enabled applications - and SaaS vendors do not exist in a vacuum. They need a platform to build their applications on; currently the most notable is probably Salesforce's, but there are certainly others, and new ones being built. "If I'm a start-up, and I wanted to build a SaaS solution, and I'm looking to get investment money, those [investors] would rather me not invest it in building a platform - they want me focusing on building the applications," Desisto says. "I think you're probably going to see versions of platforms from different vendors," he says. However, "I don't think it's going to be ubiquitous like the Internet. I think different vendors are going to try to make a play here." 10) SaaS "SaaS" is itself the biggest buzzword in the world of SaaS. In the hands of a gifted SaaS sales rep, a SaaS application is the answer to all your problems. It's cheaper, more flexible, offers fewer headaches. It's the wave of the future, SaaS adherents claim. Heck, if you buy in early enough, it might even help your love life -- or at least make you the rising star of the IT department. It's true that SaaS offers plenty of advantages. It's both a delivery method (over the Net as opposed to on-premise) and a business model (subscription versus one-time purchase). But as software-as-a-service matures during the next few years, the same old truth will apply: SaaS will only be as valuable as the applications it helps deliver. If, long term, it really does enable a more costeffective and efficient infrastructure than do traditional on-premise apps, then all of today's SaaS buzzwords will become the established vocabulary of tomorrow. ■ An Internet.com IT Management eBook. © 2007, Jupitermedia Corp. 14 [ By Sandra Gittlan Evaluating Software as a Service for Your Business ] SaaS Advice from the Experts W hile more industries are taking to the SaaS model, experts warn that offloading your applications does not mean offloading responsibility. "It's important to understand that even if you go with a hosted service, you still have to manage the quality of that application," says Irwin Lazar, analyst with Nemertes Research. Jupiterimages In the SaaS model, providers host applications over the Internet and companies are charged for usage rather than ownership. Lazar says the benefit of this approach is that IT groups do not have to spend limited budgets to buy and operate complex infrastructure. In the financial sector, more than 60 percent of the top 150 U.S. banks use at least one service-based cash management or small-business banking application, and more than 90 percent of community-sized banks (those below $4 billion in assets), use a shared service platform to offer customers Internet or small business banking. Sean O'Dowd, analyst with IDC's Financial Insights research firm, says SaaS enables banks to forego large upfront capital expenditures, such as licensing and servers, and spread out costs over time, increasing revenue predictability. Lazar agrees. "What's driving this move to SaaS is cost. If I'm an IT manager looking at the next version of a productivity suite, I can either buy a license at $200 a seat and have troubleshooting, infrastructure and management costs, or I could subscribe to a service. It's a no-brainer," he says. He points out that the SaaS model is most attractive for commodity applications, such as CRM, human resources, payroll and Web conferencing, not core software, such as programs supporting research and development. "There's a lot more sensitivity around the company's crown jewels," he says. No matter how common the task, companies must be on their toes when dealing with outsourcers, says 15 Danny Allan, director of security research at Web application security vendor Watchfire Corp. in Waltham, Mass. "The biggest risk in SaaS is you don't know how secure the provider is, and internal data is outside the organization," he says. He counsels IT managers to examine five key areas when deciding on an SaaS provider: privacy and security policies, transparency into the provider's organization, metrics regarding audits and response to security breaches, strong feedback loops and continuous education for customers. Organizations should guarantee that authorization and access controls are strong not only between them and the provider, but also among the provider's other customers that share the infrastructure. Allan admits that this can be difficult to gauge so he recommends asking to see a written policy. "This will tell you whether the organization is mature." He also encourages IT teams to write into their contracts that they will have access to testing schedules, software development lifecycles and upgrade and patch deployments. "If you don't know when they are running upgrades, there is a serious risk of downtime," he says. Just as important as transparency is having a backup and exit strategy for data. Tim O'Brien, director of the platform strategy group at Microsoft, says companies need flexibility and insurance built into the SaaS model. "As your business changes, you may want to bring the application on-premise. You can't be locked into a cerAn Internet.com IT Management eBook. © 2007, Jupitermedia Corp. [ Evaluating Software as a Service for Your Business ] tain data set. You need portability and you need to know how you're going to migrate data [off their servers]," he says. O'Brien also warns that although there are great promises of "broadband ubiquity," outages do happen and IT managers must protect themselves from this probability. "You need some measure of local capability behind your firewall to maintain business operations," he says. "Also, the terms of use between you and the provider become very, very important. You have to lay out what happens if data gets lost or there is downtime." O'Brien says IT managers should pay close attention to their provider's accounting methods. "You should know how the billing mechanism on the back-end works. How are you charged? On a per-transaction basis or monthly?" One of the many advantages of the pay-as-you-go model is the built-in reporting it offers. Everything is metered so companies can see usage trends, O'Brien says. With such detail, there is opportunity to negotiate optimal rates. Before organizations even consider SaaS as an option, they must do some legwork, according to Rachel Lyubovitzky, director at SaaS-vendor KnowledgeSum. IT teams must first inventory all their on-premise applications and tasks and decide what's core and what's commodity. They then need to consider how much customization and integration with other software they'll need for optimal user productivity. Finally, she says IT managers must consider the requirements they have around data ownership, such as security, privacy regulations, and federal and private sector mandates. Once you approach the provider, Lyubovitzky says it's important not to get pinned down. "If anything is unclear - data security, compliance or service levels and you don't feel 100 percent sure, then just walk away," she says. ■ This content was adapted Internet.com's ASPNews Web site and EarthWeb's CIO Update and Datamation Web sites. Contributors: James Maguire, Galen Gruman, Marcia Gulesian, Jeff Vance and Julie Craig. 16 An Internet.com IT Management eBook. © 2007, Jupitermedia Corp.