The limits of SaaS

Software as a service is an excellent option for IT and business units to pursue. But there are times when the on-demand approach falls short.

5 Myths About SaaS
5 SaaS myths busted

One of the primary reasons that users cite for adopting the SaaS model is cost. "Cost management is a given as part of the CIO's role," says Doug Harr, CIO at Ingres. "And SaaS is cost-effective."

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Software as a service is an excellent option for IT and business units to pursue. But there are times when the on-demand approach falls short.

5 Myths About SaaS
5 SaaS myths busted

One of the primary reasons that users cite for adopting the SaaS model is cost. "Cost management is a given as part of the CIO's role," says Doug Harr, CIO at Ingres. "And SaaS is cost-effective."

Research firm Gartner Inc. validates that view, with certain caveats. For example, if acquiring a packaged application wouldn't require hiring full-time workers or adding hardware, a subscription-based software service might not make long-term sense. Gartner advises users to estimate ongoing operational costs of a SaaS offering for at least three to five years and compare them with the projected investment in a packaged application for the same period, including depreciation on capital expenses. It's important to look at SaaS's long-term budget ramifications, even in these glum economic times, when short-term thinking can be tempting.

"SaaS is just a sourcing decision," says Harr, a strong advocate of the SaaS model. "At the end of the day, a CIO is trying to bring capability to the company, and sourcing should not be the first criteria."

John Strother, director of merchandising at REI, agrees. While acknowledging that the recreational equipment retailer "wants to own as little IT as possible," he says, "SaaS is a risk-reward model. There are things you need for your core business that are [too risky] to put outside the company."

A good rule of thumb, says Strother, is that it's OK to use SaaS if a service failure "would not prevent our getting the product to a customer." Otherwise, keep the software in-house.

Gartner analyst Ben Pring warns that three-fourths of SaaS deals have no service-level agreements. That's because many of the deals are struck by business units with no IT vendor management experience.

He says IT managers need to work with business units to ensure that data handled by on-demand providers is secure and that application availability will meet end users' needs. Pring says there's plenty of competition in the SaaS market, and IT departments can help their companies get the best deals.

Next: LiveOps moves from outsourcer to SaaS provider

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