Software // Enterprise Applications
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11/9/2007
05:15 PM
Rob Preston
Rob Preston
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Down To Business: Don't Care For Software As A Service?

Fair enough--as long as you're not just digging in to preserve budget control and organizational status.

Software as a service is still an unsavory prospect for many business technology professionals. Their point of view: If information is the lifeblood of the 21st century organization, then ceding management and ultimately control of that information to third parties is something of an unnatural act.

But if we're to evolve our thinking about the role of IT, software as a service can be a fertile testing ground. Which applications and data must IT govern directly, especially in a world where regulators lurk around every corner? How much underlying infrastructure must reside on premises? How much can we rely on the structural integrity of the Internet and the competence of external providers to deliver secure, always-available software?

One attribute of the SaaS model is that businesses can roll out most software services in chunks to select departments, branches, or users, rather than having to bet the farm on one gigantic deployment. In fact, the main reason most enterprise software startups are embracing SaaS is because they understand that potential customers won't even consider big software deployments from unproven companies. With SaaS, startups can get their foot in the door and expand incrementally or virally, much like Salesforce.com did with its CRM service.

Even though most software services are sold to line-of-business managers, the CIO still has veto power, notes Aneel Bhusri, a former PeopleSoft exec who's now running HR and financial SaaS startup Workday. The reality today, Bhusri says, is that many CIOs aren't willing to replace legacy systems with new software services because they don't want to "waste" the 20% of their IT budgets earmarked for innovation. In other words, they're determined to continue funding software from the fatter, 80% of the budget set aside for maintenance, leaving the 20% for other projects.

That bunker mentality must change. The guy wielding the veto pen as he guards the maintenance budget will never be considered the most strategic exec at the company, especially if he's at odds with other business decision-makers. Bhusri says Workday, despite its tight relationships with hundreds of enterprise CIOs dating back to founder Dave Duffield's days at PeopleSoft, nonetheless sees CIOs getting more and more conservative, an assertion supported by recent InformationWeek research.

Of course, not every IT exec skeptical of SaaS can be dismissed as a control freak. There are real dangers in giving up direct oversight of your data. For example, Salesforce.com revealed last week that an employee had unwittingly given a phishing scammer access to various customers' information, including names, e-mail addresses, and phone numbers. SaaS providers, given the breadth and depth of their data stores, will increasingly become central targets for thieves. There also are legitimate IT concerns about SaaS uptime and scalability. Workday, for instance, says it can prove that its multitenant architecture will scale only to 20,000 to 40,000 employees, leaving enterprise-scale deployments at Fortune 1,000 and government agencies out of the equation for now.

Perhaps I've drunk the Kool-Aid on SaaS, but the model just makes so much intuitive sense. Pricing is more predictable. Deployments and upgrades are faster and easier. And through Web services APIs, SaaS offerings are far more customizable than they once were, allowing for some competitive differentiation within the framework of a utility-like service. All kinds of software beyond CRM and ERP is being delivered as a subscription service--system management, business intelligence, vulnerability assessment, supply chain management--from established vendors and startups alike.

Gartner predicts that a quarter of new business software will be delivered as services by 2011, up from around 5% now. If your organization is swimming against the current, make sure it's doing so for the right reasons.

Rob Preston,
VP/Editor In Chief

rpreston@cmp.com

To find out more about Rob Preston, please visit his page.

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