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Explore the cloud: A guide to SaaS financial management applications

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SaaS cloud computing's future looks bright

SaaS cloud applications are becoming a preferred delivery model for software, offering enterprise and SMB firms a variety of cost and efficiency benefits.

The future is looking pretty bright for the Software as a Service (SaaS) delivery paradigm as more shops, both enterprise customers and SMBs, move beyond early experimental implementations and into more prolonged deployments of mission-critical applications on SaaS clouds.

Ongoing budgetary pressures and long-time frustration around the complexity and escalating costs (in particular, excessive maintenance fees) associated with legacy enterprise systems are the primary drivers prompting companies to consider SaaS cloud computing applications for a variety of business software needs. Furthermore, companies' increasing familiarity and comfort with the SaaS model and some of the better-known SaaS software players, in addition to growth in the related PaaS (platform as a service) cloud segment, is also making the delivery paradigm less of a risk and priming IT shops and business areas to take the plunge, according to Sharon Mertz, a research director at Gartner, who recently released figures on SaaS adoption.

Gartner projects global spending on SaaS to rise 17.9% this year to hit $14.5 billion and remain strong through 2015 when it is estimated to reach $22.1 billion. Market researcher IDC maintains that SaaS delivery will significantly outpace traditional software product delivery, growing nearly five times faster than the software market as a whole and in fact, becoming the significant growth driver for software going forward. Specifically, IDC says that by 2015, nearly $1 of over $6 spent on packaged software and $1 of every $5 spent on applications will be consumed via the SaaS model. Moreover, SaaS delivery will constitute about 13.1% of worldwide software spending across all primary markets and 14.4% of applications spending during that same time frame, IDC says.

"SaaS is rapidly becoming mainstream," concurs Jeffrey Kaplan, managing director at THINKstrategies. "It's not so much now about what it is and why you should be doing it, but it has become about where are we are doing it and how." Kaplan's take on why SaaS adoption finally turned the corner: "Because it mitigates the risk and provides multiple reasons for people to come onboard with software quickly," he explains. "It gives organizations an easy path to generate quick time to value and measurable ROI."

Specifically, SaaS cloud’s benefits around lower initial acquisition costs, the ability to be up and running quickly and to scale implementations according to user demand are all factors driving companies to push past short-term pilots and commit to longer-term contracts, experts say. Even so, not every application remains a candidate for SaaS cloud computing. Non-value chain applications or those that don't differentiate your product or service work well for the SaaS model, notes Kurt Milne, managing director for the IT Process Institute, an independent analyst firm.

However, those that deliver the "secret sauce" aren't always good candidates for a SaaS environment, he says, citing as an example, the quoting engine behind an auto or home owners insurance company. "Anything that gives you a competitive advantage or the ability to customize—you don't want to trust that data to an external environment because the risk factors can be too high," he says.

Challenges remain with SaaS cloud computing

Even with all the proven benefits for the right use case, there are still some challenges and concerns surrounding the SaaS cloud model. One of the biggest is vendor lock-in—always an issue for considering a software provider, but even more critical when evaluating SaaS offerings. More so than when data and business rules are stored on a server in an internal data center, a lot that visibility and control is lost when it's out in the cloud in a SaaS environment. As a result, companies need to consider the ramifications of that lack of visibility and control if a SaaS vendor relationship hits the skids or if they find a competing service that's more appealing.

"It's hard to migrate your data and business logic that has built up over time," says Robert Mahowald, vice president of SaaS and cloud services for IDC, adding that an Excel file is typically what you can expect when you move over to another platform. "It's complicated for a customer to think about a long-term commitment to put significant projects in the cloud when they don't know for sure what will happen in the future."

Another lingering issue is ensuring that the SaaS platform can support the specific performance requirements for a particular use case and implementation. Given that SaaS offerings run over the public Internet, latency can be a problem and there's no going down the hall to pressure IT to fix the problem. "It's easy when there's one throat to choke and it's in the internal IT queue to optimize how application interconnects work together," he explains. "[With SaaS], you can be dealing with one or as many as 30 external companies providing service to your firm. It can really slow things down."

This was first published in May 2012

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Explore the cloud: A guide to SaaS financial management applications

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