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Considering Enterprise Software as a Service?

Weighing the pros and cons of this on-demand technology
University Business, Nov 2009

Over the past decade, the software industry has seen a swell in adoption of on-demand deployment, and the higher education market is no stranger to this growing trend. On-demand software ? commonly referred to as Software as a Service or “SaaS” ? allows vendors to license enterprise-level software deployed through the internet.

There are several advantages to SaaS, though colleges and universities must weigh the advantages and disadvantages of SaaS versus traditional commercial software before making a purchasing decision. Choices are good, and the best choice for one university isn’t always the right fit for another.

A SaaS business model enables software vendors to deploy their solutions via a secured internet connection. SaaS is also known as “cloud computing,” where cloud is used as a metaphor for the internet. SaaS software users are not required to be technology experts or have control over the technology infrastructure in the “cloud” that supports them. Rather, vendors license applications to customers for use as an on-demand service accessed through their web browsers. SaaS vendors can host the application on servers they own or lease in a data center, or servers on their premises.

Google Analytics is a prime example of a familiar real-world SaaS application. This enterprise-class tool is a cross-platform, web-based application that gives website administrators insight into their site traffic and marketing efforts. The application is accessed via the internet and updates are automatic, alleviating the cumbersome logistics, licensing, and use limitations of software residing on local computers and servers.

There are numerous vendors worldwide with quality SaaS solutions supporting millions of customers every day. SaaS vendors provide highly scalable and full-featured solutions that can support the most demanding enterprise objectives, even in the field of higher education. Many SaaS providers back their solutions with robust architectures providing 99.99 percent availability that rivals the reliability of any in-house enterprise system. With a little homework, you are likely to find an enterprise-class SaaS solution with capability, performance, and speed that outweigh traditional software.

One can also argue that the interests of the customer and the SaaS vendor are better aligned than in the traditional case. This is due to the nature and responsibilities of the relationship. Because the relationship is ongoing, the SaaS provider is motivated to offer continuing relevant improvements in the feature set as well as service, which typically results in a more harmonious relationship. The traditional vendor, on the other hand, is somewhat forced to rev up its offering periodically to enhance revenue, often to the detriment of the customer.

It is up to the SaaS provider ? and it is in their best interest ? to ensure the hardware supporting their offering is best of breed. Because the vendor hosts the application, hardware requirements are of little concern to institutions when utilizing a SaaS solution. SaaS vendors have a vested interest in an institution’s use of their software since buy-in is typically on a pay-as-you-go basis, unlike traditional software that comparatively has little follow-up from the vendor after the close of sale.

SaaS solutions offer a far lower cost of entry than traditional software. The first year cost of SaaS solutions can be as low as 20 to 25 percent of the total cost of ownership. In addition, SaaS can be implemented far faster than traditional software, often in a matter of days. Because customer uptake of the software is so important to SaaS vendors, training is completed more quickly.

There are also long-term cost savings to the SaaS approach. SaaS is supported and maintained by the vendor, relieving institutions of significant time and money spent on technical support. Most SaaS vendors provide the support as part of the overall solution. In addition, SaaS typically does not require additional fees for software updates. SaaS providers roll out product updates with new features on a monthly or even weekly basis as part of a license agreement; therefore, institutions always have the newest version of software offering the latest capabilities and features.

Security is also of great concern to SaaS providers and institutions alike. SaaS vendors understand how paramount security is to their customers and employ some of the highest security measures available for their solutions. This includes an abundance of high-grade encryption, authentication, and access features. Many SaaS vendors also provide flexibility in data storage, such as enabling clients to maintain their own database server on their premises with seamless integration to the SaaS solution.

Some institutions look at SaaS with great caution. They see vendor-hosted SaaS solutions as a risk because the institution loses control or is at the mercy of their SaaS provider in terms of high availability and reliability. Simply put, some institutions do not trust SaaS vendors with control over their software.

There are institutions that consider security a disadvantage of SaaS, as there are select vendors that house customer data on their own database servers. The lack of control over personal data may pose security questions for some institutions.

Some institutions also believe software specific to the higher education industry is too complex for a SaaS-based approach and seemingly not mature enough or even available. Such factors make institutions look twice before buying into SaaS solutions.

Traditional commercial hardware and software have been used by institutions since computing began. They are a tried and true approach to conducting business. A typical process for implementing a software solution involves acquiring hardware powerful enough for the software, such as computers and servers, as well as the appropriate software, either installed locally on each computer or on a server for the enterprise to access. It’s a very familiar process for institutions around the globe and, as such, there is a well-known set of expectations and practices in place, which provides a sense of comfort for institutions.

There is also the perceived advantage of ownership. Once you pay for software and hardware, it is yours to do with as you please ? keeping within the terms of the license agreement, of course. Some institutions have reservations about giving over control or trusting third parties (SaaS providers) to manage their applications, and such control can be maintained with ownership.

Traditional software is often seen to be a disadvantage because of its lack of customization. Buying into a large enterprise-class system often requires the purchase of proprietary hardware and software that doesn’t allow for the ability to integrate with other software.

Upfront costs are also a definite disadvantage compared to SaaS solutions. Traditional software purchases require a commitment for the entire solution, making first-year costs two to three times more than that of a SaaS solution. Hardware purchases or upgrades may also be needed, compounding the total cost of ownership.

Traditional software often requires new buy-in when new versions are released. As a result, many institutions forego the updates to save on costs, leaving them with outdated software. Application upgrades and customizations may also require costly upgrades to hardware to support new features or simply to keep up with required processing power that comes with newer generations of software. It’s not uncommon for an institution to buy into a system that is believed to meet all their needs and within weeks it becomes apparent that specific customizations are needed. Unfortunately, the institution is now tied to the solution and customizations become an additional expense (whether done in-house or sourced from the software vendor). Many institutions using traditional software are several versions behind in their system upgrades due to a fear that each upgrade may uncover a new bug or database problem, or even bring the system down completely.

The SaaS industry is rapidly maturing and the benefits of cloud computing are clear. Consequently, there’s a growing trend by software providers to offer SaaS solutions of all types. The number of SaaS providers is increasing, even in software sectors that tackle highly complex needs. There are now many enterprise-class SaaS solutions provided by vendors with a knowledge depth to get clients trained and up and running in no time.

Popular tools offered as SaaS solutions in the higher education sector are web content management systems (CMS) and customer relationship management (CRM) systems. While there are important considerations every institution must weigh before jumping on the SaaS bandwagon, the financial advantages can be compelling. Enterprise SaaS systems used by colleges and universities today offer several advantages over traditionally installed software, including no application installations, no software upgrades or maintenance, and no software installation fees. Vendors providing SaaS solutions pay for the hardware, maintenance of that hardware, and the bandwidth required for the application. With CMS and CRM solutions generally offered a pay-as-you-go cost structure, the cost savings can be substantial.

Lance Merker is president and CEO of OmniUpdate, Inc. He can be reached at