If you still consider software as a service a delivery model that makes sense only for sales force automation or small businesses, you're behind the times. Two out of three businesses are either buying or considering buying software via a subscription model, according to a recent InformationWeek Research survey.
That's put pressure on the big software vendors, prompting them to offer SaaS models or at least give lip service to the idea. Microsoft and SAP are among the companies developing more subscription offerings for customers, and Oracle president Charles Phillips is giving a presentation in New York this week on how its subscription software can lower customers' costs.
Phillips is preaching to the choir. InformationWeek found that 29% of the 250 business technology pros surveyed are using at least one licensed application that's hosted by a vendor and accessed over the Internet, typically for a monthly subscription fee. Thirty-five percent are planning to buy software that way or are considering it. And interest isn't just among small companies with minuscule IT budgets: 55% of respondents have annual revenue of more than $100 million, and a third have more than $1 billion in revenue.
Still, smaller businesses are big drivers of this approach. "SaaS is one of those technology delivery trends that will come from the bottom up; small and midsize companies will adopt it faster," says Ken Harris, CIO at Shaklee, a $500 million-a-year supplier of nutritional supplements, makeup, and other products. "Large companies will use integration and security as valid explanations not to do it," but those are solvable problems, he adds. The bigger issues are choosing the right vendors and having good service-level agreements in place, Harris says.
He should know. Before coming to Shaklee two years ago, Harris held CIO positions at Gap, Nike, and PepsiCo. "I have a much smaller budget and fewer people, but interestingly enough, I have the same breadth of application needs as I did at Gap or Pepsi," he says. "I still have to support financials and CRM, but as a midmarket CIO I have to find a lot of ways to cover the ground more cheaply, more efficiently, and quicker."
Shaklee began moving its IT infrastructure to a service-oriented architecture two years ago, and subscription software fits perfectly into that plan, Harris says. Shaklee had RightNow Technologies marketing and CRM software running within 120 days, spending in the six-figure range, he says. Similar projects at other companies where Harris was CIO cost millions of dollars and took 12 to 18 months using traditional CRM vendors. Shaklee has about 200 employees using the RightNow apps and plans to replace aging financial applications with those delivered in an SaaS model, he says.
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