The concept is fairly simple: Instead of buying hardware and software to host an enterprise-wide business application, you find a vendor that already has an application you can use. Some software as a service applications are off-the-shelf; others can be customized by you or your SaaS vendor. Your vendor provides the IT support and all the hosting hardware to run the enterprise-wide application. You provide an Internet connection and the local PCs that actually use the application.
SaaS applications have been around business longer than the acronym has been in popular usage, but the attraction of SaaS applications for small and mid-size businesses has grown in the past few years. Gartner Research predicts that 25 percent of new business software will be provided by the SaaS model by 2011.
There are a number of reasons why more companies are using SaaS applications:
- SaaS application vendors are making richer applications that are easier to use and to customize.
- There’s no large upfront cost for hardware and software to implement an application.
- IT costs can be considerably less with SaaS, especially if your enterprise operates across numerous physical locations.
- New enhancements are being added all the time, and your SaaS vendor takes care of all the upgrade details.
- Data resides off your physical premises; so disaster recovery of SaaS applications can be easier for a small or mid-size company.
Perhaps the largest supplier of SaaS applications is Google, and nearly all of its services are free. For very small companies and individuals Google has some good answers.
So how do you pick the right SaaS for your company? John Jackson, president of Austin, Texas-based RSI, has many years of software development experience and is a certified public accountant by education and training. His company hosts computer applications for many businesses of all sizes, from large insurance companies to small nonprofit agencies. Jackson believes you should create a list prioritizing what’s important to you when you do due diligence on a prospective SaaS vendor. He believes you should consider the following as a minimum.
- Physical and electronic security (number one if you handle financial data)
- Customer service (number one if you don’t handle financial data)
- Resiliency — does the SaaS provider have catastrophe contingency plans?
- Does the vendor’s data center have redundancy and mirrored sites?
- If you work with the financial data of others are they PCI compliant?
Jackson also firmly believes relationship is king. Make sure when picking your SaaS provider that they have first-class customer support and technical service.
How can you measure the cost savings that come with SaaS? Athens, Georgia-based Plexus Web Creations is a Web site design company that uses an SaaS application called Basecamp, which is provided by 37 Signals. Plexus President and Chief Executive Officer Stephanie Sharp has used Basecamp to manage more than 300 projects with her clients.
“Our bottom line has been impacted with Basecamp because we now track every second spent on a project and can easily tell if we’re losing or making money on projects. We use the data to reassess our pricing annually. We also use the data to find out which activities are repeated often and consume time that if saved could increase our margins. From that data we write scripts to do these repetitive tasks so we can finish projects quicker with a higher profit margin,” says Sharp.
Clearly, for most small and mid-size businesses, the days of spending huge sums of money on servers and software that have to be maintained by an in-house IT department are numbered. For companies that want high-quality but easy-to-use software, looking in the cloud at SaaS applications is the answer.
Sam Thacker is a partner in Austin Texas based Business Finance Solutions.
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