SaaS Sheds Its Small Business Image

Alan Radding, Veteran Tech Journalist | 5/27/2010 | 9 comments

Alan Radding
Software as a service (SaaS) generally has been viewed as an SMB play, for a variety of reasons. But as enterprises crawl out from their bunkers to face a budding economic recovery, SaaS is gaining currency as an ideal way for large enterprises to quickly rejuvenate their applications.

It's a done deal, according to Jeff Kaplan, principal of THINKstrategies and developer of the SaaS Showplace, a free directory of more than 1,300 SaaS applications. "Siemens AG (NYSE: SI; Frankfurt: SIE)in Germany replaced SAP AG (NYSE/Frankfurt: SAP) with a SaaS application to do human resources management," he notes.

You don't get much more enterprise than that.

Meanwhile, Inc. 's customer list now includes Motorola Inc. (NYSE: MOT), Dell Inc. , Google (Nasdaq: GOOG), NBC Universal , and more along with its thousands of SMB customers.

Of course, these large companies aren't running all their applications as services. For one reason or another, however, they each decided to rent particular functionality rather than license and run it in-house or build it from scratch.

Large enterprises have two main concerns with SaaS: 1) the pricing model; and 2) security, governance, and compliance. They have other issues too, including "not invented here" and "we don't do that," but pricing and security are what I hear about the most.

SaaS typically is priced by subscription or pay-for-use. SMBs like this model because they get a predictable price and know the functionality works. However, many SaaS providers charge extra for bandwidth, storage, and other services. In a large enterprise, though, these charges can add up to hefty sums.

Kaplan, however, dismisses enterprise price complaints. "There is no price higher than buying expensive shelfware. If SaaS reduces risk and increases utilization and productivity, there should be no problem." In addition, SaaS prices often include volume discounts and may have negotiable wiggle room on top of that, especially for large enterprises with thousands and thousands of users.

Security, governance, and compliance present trickier complications. For starters, large enterprises like to keep their primary production data close at hand, on the premises. They aren't flocking to the cloud storage providers for just that reason. And while big enterprises haven't always proven rock solid at protecting their data in-house -- just ask TJX -- they still get justifiably nervous when it sits beyond a porous firewall.

Governance and compliance, on the other hand, may be easier to address. This is mostly a question of negotiating appropriate service agreements, building in both rewards and penalties for SLA performance (or the lack thereof). Then, of course, you will also need tools to monitor and enforce the SLA.

Today, it just doesn't make sense to let SaaS's fading association with small and midsized businesses keep enterprises from taking advantage of it as well.

View Comments: Newest First | Oldest First | Threaded View
Matthew McKenzie   SaaS Sheds Its Small Business Image   5/31/2010 6:11:54 PM
Re: Holding onto the teddy bear
@Zentropis, I agree with you completely about the impact of open-source software. A few great examples are CRM, ERP, and PBX software. Five or six years ago, these were all the equivalent of old-boys clubs, where a handful of major vendors called the shots and set the prices. The explosion of open-source alternatives didn't change that singlehandedly, but it sure played a major role.
Zentropist   SaaS Sheds Its Small Business Image   5/31/2010 2:30:36 PM
Re: Holding onto the teddy bear
Somehow I don't think that most SaaS vendors envision themselves as the "big stick" used to pummel traditional software vendors into submission... although the imagery is kind of funny.

I think that SaaS largely is founded on the premise that a lot of people and organizations have grown tired of having to purchase a physical product, install it, hope that they have sufficient licenses to operate it, and then be forced to upgrade it in a few years because the OEM has decided to "improve" the product (which may or may not be an improvement) and is now ramming this version down its customers throats. 

With the rise of open source applications, we've arguably seen software increasingly treated as a commodity; so long as we can get the functionality and interoperability that we are seeking, a particular brand of software with bloated price tag grows less and less appealing...
Paperphobe   SaaS Sheds Its Small Business Image   5/31/2010 12:26:40 AM
Re: Holding onto the teddy bear
Not everything an enterprise company does is trade secret. Perhaps by testing the water with some of the more mundane needs is a good way to prove the helpfulness of SaaS for a particular organization. Certainly HR is a good way to go, given how many cutbacks there have been in that area (and how many rehires there are that are temporary contract-only).  The employee count is likely to be very fluid for the near future, so using SaaS can be really helpful in that case. And as an enterprise, they have plenty of negotiation power for pricing.
Matthew McKenzie   SaaS Sheds Its Small Business Image   5/28/2010 11:33:05 AM
Re: Holding onto the teddy bear
And if SaaS does nothing else, it gives enterprises a big stick they can use to beat an enterprise software vendor into giving them more for less. If -- and it's a point we've discussed elsewhere -- you're in a position to move your data between on-premise apps and the cloud without engaging in multiple rounds of rocket science.
Alan Radding   SaaS Sheds Its Small Business Image   5/28/2010 7:48:49 AM
Re: Holding onto the teddy bear
You've hit on the right strategy, not just for SaaS but most IT approaches. Organizations large and small can use SaaS in those situations where it makes sense and skip it when an on-premise application works better or costs less. Of course, the drawback from such a mixed approach is that you can't completely eliminate on-premise IT, which is one of the financial advantages of an all SaaS approach. However, large enterprises are unlikely to eliminate on-premise IT completely under any circumstances. 
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zerox203   SaaS Sheds Its Small Business Image   5/28/2010 1:03:38 AM
Re: Holding onto the teddy bear
For me, the main takeaway from this article is the notion that 'that's for small businesses' shouldn't be used by enterprises as an excuse by itself to not use or switch to SaaS when it would otherwise be a good idea. In that  same vein, I don't think businessess of ANY size should write off a strategy or tool just because it has a label attached to businessess of a different scale; all options should be always be considered, and the most financially sound one chosen.
Zentropist   SaaS Sheds Its Small Business Image   5/27/2010 3:43:57 PM
Re: Holding onto the teddy bear
SaaS applications can be great and highly appropriate for some systems regardless of the size of the business, but I don't think that smaller companies are somehow less vulnerable to security concerns or reliance on a 3rd party to perform mission critical tasks via hosted applications.

A larger business may have more resources to recover from a disruption to a SaaS solution; a small business is heavily reliant due to lack of manpower and/or capital if things go south, and the implications can be game-enders in certain scenarios. To think otherwise is dangerous, IMO. 

What SaaS really does is makes a lot of functionality and features that were formerly only available through purchase of expensive software and/or licenses more accessible to SMB's. And considering that SMB's are where most of the job growth comes from historically, this is a good thing. 
Fredric Paul   SaaS Sheds Its Small Business Image   5/27/2010 2:39:36 PM
Re: Holding onto the teddy bear
I totally agree with Alan that SaaS isn't just for SMBs anymore.

But I also believe that SMBs do have even more incentives to turn to SaaS than enterprises do. All of the benefits of SaaS apply even more to SMBs than to enterprises, and all of the drawbacks are less critical the smaller your company may be.

So while large enterprises have no excuses to avoid Software as a Service, small and midsize businesses have no choice but to embrace SaaS.
CMTucker   SaaS Sheds Its Small Business Image   5/27/2010 11:22:41 AM
Holding onto the teddy bear
Great article. I can see how bigger businesses will benefit from SaaS, as I've seen first hand how small busiensses do. And I have to agree that these large companies may want to squeeze tightly to the sensitive data...and security and mis-trust are two concepts that hold hands in larger corporations.

For one, there is less incentive for an employee to keep secrets close to the vest if they are a vendor of SaaS. A simple key stroke can send some discovered and juicy secret around the world then oops...there goes competitive advantage. Or even worse...oops, these guys are horrible corporate citizens.

Then again, they might just pick up the phone and call me to handle their PR...hehehe



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