Apps on Tap

'Software as a service' is a modern take on the ancient practice of renting mainframe time. By accessing applications online, a company can outsource data-handling and enjoy instant upgrades. Mike Hewitt explains the offering.

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Last Updated: 09 Oct 2013

Today, every desk in every business looks naked without a PC or Mac, and the lowliest number-crunchers have computer power at their fingertips the like of which their 1970s predecessors could never have imagined. Ask either of them for their opinion and they would both tell you it was a change that transformed business for the better. So why, 20 years later, are some companies moving office tasks off their own PCs and servers and back onto powerful computing clusters - this time, not in the basement, but thousands of miles away in another firm's air-conditioned warehouse?

The idea of 'software as a service' (SaaS) has been talked about for a decade or more, ever since the high-speed internet connections that make it possible first became available. It arrived just as Microsoft's dominance of PC operating systems and software was beginning to alarm business users. Enterprises were faced with escalating bills for hundreds of thousands of licences for Microsoft Office and a seemingly never-ending series of 'upgrades' to Windows - not to mention the armies of IT support staff needed to keep it all running 24/7.

The essence of SaaS is that, rather then buying 1,000 licences for a shrink-wrapped PC application such as the sales-management programme ACT, a firm would buy 1,000 subscriptions to an online service such as Salesforce.com. There are no disks, no packaging, and no installation. All the clever stuff, as well as the data storage, happens on the Salesforce.com servers in San Francisco or at a local data centre. To use the application, subscribers need only a web browser such as Internet Explorer or Firefox, both of which are free, running on a basic PC.

In theory, the advantages are many. Not least is avoiding the 'built-in obsolescence' that comes with shrink-wrapped software - as soon as you've bought one version, a new one is released and you either pay to upgrade or get left behind. Under the SaaS model, every user gets the benefit of improvements in the software as they are released.

Another key advantage is mobility. If all you need to use your software is a browser, you can access it anywhere, from a PC in the office to a laptop in your car or an internet cafe in Bogota. Every time you log on, all your work is just as you left it. Finally, the costs are predictable and there is less need for expensive in-house IT support staff.

So persuasive are these benefits, in fact, that Salesforce.com, the SaaS pioneer founded in a San Francisco apartment in 1996, now claims 41,000 customers around the world, and CEO Marc Benioff has said he aims to create a $1bn company by next year - he's already notched up $749m in revenues for fiscal 2007.

It's not just Salesforce: research company Gartner reckons that by 2011, 25% of new business software will be delivered as SaaS. But perhaps the best indicator of a rosy future for software as a service is the reaction of traditional software giants such as Oracle and SAP, suppliers of the large-scale enterprise resource planning (ERP) systems that drive the processes of the largest businesses; they have most to lose from widespread adoption of SaaS.

Oracle has already said it plans to release versions of its software with the web 2.0 features found in SaaS applications like Salesforce.com, and will add social networking features such as those found on LinkedIn.com. Oracle OnDemand applications were announced in November, and first off the launchpad, unsurprisingly, is an on-demand customer relationship management (CRM) offering that seems destined to compete directly with Salesforce.com.

SAP entered the market last year with Business ByDesign, an SaaS offering with prices starting at $149 per user, and although it's early days - and the firm had to deny rumours that it was scaling back its investment in the product - the fact that the colossi of ERP are tackling this market indicates its potential.

But there are drawbacks to SaaS. One is that you never own the software - your annual charge per user continues for as long as you use the software, and by the time you've added all the optional extra features, it can be hefty. You'll still be paying for your SaaS HR suite long after the shrink-wrap equivalent is fully depreciated and, effectively, free. But this is true only for smaller businesses, which may not want the very latest versions: a typical large installation of 'traditional' software will include an annual maintenance fee and require the support of a considerable internal IT team, so SaaS proponents say their model still has the advantage on monthly TCO (total cost of ownership).

Another drawback used to be security concerns. Your data will be sitting on someone else's servers, so you'd better be sure their security is at least as good as yours. Truth is, concern is fading as the widespread adoption of data warehousing and business process outsourcing means that sensitive data is just as likely to be accessed from Mumbai as Manchester, and network security awareness and standards have risen as a result.

Still a real issue, however, is the 'one size fits all' syndrome; whereas a large organisation would expect a high level of customisation for its specific software needs, the essence of SaaS is that every customer is using the same suite of applications, give or take additional modules - which are available for an extra charge.

For SaaS proponents, this is not a problem but an opportunity; using the same applications as others makes it easier to set up joint ventures and share information with partners. Some vendors are going further and offering their services as a base on which others, including customers, can build applications of their own and effectively customise the system to their needs.

If there's a theme here, it's that making SaaS work in your organisation depends on great network connections and a willingness to let go of old ideas of ownership, of both software code and data.

The best illustration of this is at a much simpler level than that of the ERP leviathans. Google Apps is a suite of products from Google that is free to personal users and costs about $100 per user per year for its 'business class' service, with guaranteed uptime and enterprise-level mail handling from Postini.

Google Apps offers mail, calendar, document sharing, word processing, spreadsheets, presentations, an intranet and plenty more - enough for any small business to run quite happily (this article was written in four different locations using Google Apps). It's a serious alternative to Microsoft Office - provided you can live with the fact that if your internet connection goes down, you can't work.

Last month, Google Apps and Salesforce.com - which might be seen as rivals - joined forces to offer Google Apps functionality to Salesforce.com users. How long before sales execs give up on Microsoft altogether and do everything from inside Salesforce?

Quite a while, if you listen to Microsoft, which issued a statement to coincide with the announcement that grown-up integrator CapGemini would offer Google Apps to enterprise customers. The statement included the comment: 'Google's Apps only works if an enterprise has no power users, employees are always online, enterprises haven't built custom Office apps - doesn't this equal a very small percentage of global information workers today?'

There's a saying in the anti-Microsoft community that the company first ridicules rival offerings, then assimilates their best features, then dominates the market. Unsurprisingly, just as one branch of Microsoft was rubbishing Google Apps, others are launching SaaS-flavoured versions of some of Microsoft's existing product lines.

Is SaaS, then, the future of corporate IT? Probably, but we'll hardly notice it, as the always-on internet connection will blur the distinction between what's inside our office walls and what's outside. In time, the largest corporations will incorporate SaaS into their IT planning - often in the teeth of opposition from IT teams lukewarm about effectively outsourcing a large part of their role.

Right now, using SaaS products in sales, finance and HR can offer real advantages to smaller businesses that don't want the overhead of an IT department or the upfront investment of buying software and the hardware on which to run it. Just as the web allowed smaller companies to look like much bigger ones, SaaS allows the smallest firm to benefit from the same IT systems as the very largest. Tempting, isn't it?

CASE STUDY 1: DAVID BROWN ENGINEERING

'It could do much more than we wanted, but the aim was to start slow and build up'

If you've ever wondered what the DB stands for in Aston Martin's DB series, it's David Brown, whose Huddersfield engineering firm owned the marque throughout the classic years of the 1950s and '60s. Today, David Brown Engineering is part of the US Textron group, and its gearboxes and components can be found everywhere - for example, inside the British Army's Challenger II tanks and the US Army's Bradley fleet of infantry fighting vehicles.

When customer service manager Chris Riley was asked to look for ways of improving the efficiency of the sales team, he brought to the task his experience across the departments of the company where he's worked since he was 16. 'I'd done a lot of Six Sigma quality management-type stuff and my first question was "what do we measure?", so I looked for a database to gather that information.'

Trouble was, sales records at that time were held in custom-built SQL databases that didn't talk to each other, still less to the manufacturing resource planning (MRP) system that drove the firm's operations. The information that Riley needed wasn't there.

Casting around for a solution, he accepted an invitation to a seminar, saw the Salesforce offering, and next day set up a free 'sandbox' to try out the system. 'Within hours, I had a call from them to say they'd seen I'd logged on and asking if there was anything I needed, starting their sales process, and I thought: if it's that efficient for them, it could be good for us.'

Salesforce was easy to integrate with the MRP system, so sales staff had all the information they needed in one screen, and it tracked activities that Riley wanted to measure, such as contacts made, meetings held and quotations issued.

Initially, Riley opted to keep to a bare minimum the features that he activated for the 54 European salespeople. 'It could do much more than we wanted,' he says, 'but the aim was to start slow and build up.'

That was two years ago. Today, the system has been rolled out to 178 users and integrated with 10 different MRPs at sister companies within the group. Features such as web-to-lead - which routes website enquiries directly to a rep in Salesforce - have been enabled, and the system is fulfilling its potential.

For a company with so many defence clients, was security an issue? 'Yes, but I'm more than happy that Salesforce.com is rigorous enough in its security checks that no rival can get access to our data.'

CASE STUDY 2: ON COMMUNICATIONS

'We don't have a server at all, and hardly touch Microsoft'

It's fair to say that Ian Roberts is an SaaS convert. As CEO of Sheffield-based telecoms firm On Communications, he has built the business from its inception 30 months ago to rely on web-based software for all its needs. 'A few years back, the start point for any new venture had to be a server room with Microsoft at the heart of it. Now we don't have a server at all, and we don't touch Microsoft except for Office on the client side.'

On Communications sells internet connectivity to businesses through a wireless network. It competes at the upper end of the SME market with the SDL and leased lines traditionally used to plug offices into the internet, and this model has allowed it to grow quickly: it now boasts coverage - and customers - in central London, Sheffield, Oxford and Manchester, with planned roll-outs in Birmingham, greater London and other cities.

Roberts' pick-and-mix suite of applications includes some familiar names - the SaaS flavour of Sage for finance, Salesforce.com for CRM and NetDocuments for document handling. The latest arrival is YouManage, an SaaS HR system that holds employee data remotely and allows managers to log in and carry out everything from hiring and appraisals to disciplinary procedures and goal-setting, all on-line. 'We had no HR system in the early days, because we were a start-up and didn't need one,' says Roberts. 'Not until we got to the point where we needed a proper HR system - about 10 employees, in our case.'

The search for a system was thorough and took in all the traditional names such as PeopleSoft. It was led by Bob Scott, On Communications' HR director, who has more than 30 years' experience in HR management, mostly at AT&T, where he was used to traditional client-server HR systems.

Says Roberts: 'In the end, YouManage was streets ahead. I believe HR should be manager-led, not top-down, and that's how YouManage works.'

The system went in at the end of 2007 and now covers all On Communications staff - 25 full-timers and 25 contractors. Does Roberts feel SaaS is the future? 'Put it this way,' he says. 'In the past five years, no Silicon Valley company has been funded that has not been SaaS.'

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