Issues you need to know about software-as-a-service

12 things to think about before choosing a software-as-a-service application

Software-as-a-service is just about the most-discussed topic in software these days. It'll probably save you money and lead to faster implementation, but it's not always a no-brainer. Here are 12 things to think about before choosing a software-as-a-service application.

1. Mission critical.

Don't use software-as-a-service for any application your company cannot do business without -- unless you're sure the vendor can support it better than you. "You shouldn't get SaaS for any application where your entire company is depending on that application running successfully all the time, and you feel that you could not get the reliability or the performance that you require except by controlling it yourself," says consultant Amy Wohl.

A stock brokerage, for example, should keep trading software in-house. But a large company might have 100 applications that it absolutely cannot run the business without, she says.

Many customers are apparently confident in the ability of software-as-a-service vendors to support mission-critical applications. Saugatuck Technology says 49% of enterprises plan to deploy mission-critical software-as-a-service apps over time.

2. Pay as you go? You wish.

We all know software vendors are addicted to up-front licensing payments. A major selling point of software-as-a-service is that monthly payments force vendors to continually improve service and satisfy customers. But most software-as-a-service vendors are actually turning this model on its head and forcing customers to pay fees for as much as a year in advance, says Jeffrey Kaplan, who runs the consulting firm THINKstrategies.

"Traditional software customers are tired of parting with their money before they receive the benefit of the application," writes technology blogger Ken Boasso. "When SaaS vendors act like traditional ISVs by requiring up-front annual payment, even offering deep 'time-value' discounts, customers want to know how SaaS is different from the same-old, same-old and if there's something wrong with it."

3. Don't assume your data will be safe.

Make sure the vendor has a reliable way to back up data in case there is a disaster or the vendor goes out of business. If sensitive data is involved, you want the vendor to have contingency plans for backup and recovery and service agreements that include harsh penalties for losing or exposing data.

Ideally, customers should find a way to escrow the application itself so there is a copy, Wohl says.

Customers "really need to understand the SaaS infrastructure underlying the delivery of the SaaS solution," says William McNee, president and CEO of Saugatuck Technology.

4. But software-as-a-service could actually improve security.

Software-as-a-service allows companies to cooperate with business partners without exposing their internal networks. "A lot of companies don't want those people wandering around inside their firewall," Wohl says. Another beneficial side effect is that software-as-a-service can give companies the off-site backup of data required by various government regulations, Kaplan says.

"We need to have off-site backup of our data to be compliant -- lo and behold, software-as-a-service with its off-site hosting solves that problem," Kaplan says.

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5. Your software-as-a-service will run better on an SOA.

A service-oriented architecture and its emphasis on Web interfaces and interoperability will give you an IT infrastructure that takes advantage of the strengths unique to software-as-a-service.

"SaaS is able to leverage a lot of next-generation technologies to its advantage. This includes a service-oriented architecture that is providing a tremendous benefit as it relates to integrating back into enterprise applications," McNee says. "Companies going down the direction of SOA will find that their integration with SaaS-based applications will be much easier."

6. Single sign-on.

Look for vendors who offer single sign-on capabilities that authorize users to work on multiple computing resources. "This is particularly important with more complex SaaS systems that also include third-party add-ins, such as background checking SaaS applications and reporting SaaS applications," writes consultant David Linthicum.

7. Software-as-a-service integration is limited.

Software-as-a-service vendors have struggled to find a good way to integrate their apps with those made by other vendors, Linthicum says.

"As more enterprises move their applications to SaaS, there is a growing need for SaaS-to-SaaS integration," he writes. "Unfortunately, as customers are requesting this, many of the SaaS providers are stumped for an answer; beyond [hiring] a bunch of developers and hoping for the best."

Too often, this approach creates expensive and "cumbersome architectures that lack agility," Linthicum argues.

8. Don't expect too much.

A software-as-a-service application that works well for a small group of users may not be ready for rollout to your entire enterprise. "You need to find out 'what can I reasonably expect from using this application? Is it something I have to limit to a small set of people?'" Wohl says.

If more than one department uses a software-as-a-service app, set boundaries. "Explicit mechanisms . . . will be needed to determine who decides the level of customization of software and who pays for it when two departments want to use the software but only one requires modifications," states a McKinsey Quarterly report on software-as-a-service.

9. Beware the overhyped market.

Software-as-a-service is popular, so nearly every vendor wants a piece of the market. Unfortunately, many simply take existing software and place it on the Web without giving any consideration to ease of use.

"Some existing software vendors are bastardizing the term," Kaplan says. "All they're really doing is hosting the same old applications with all of their limitations. . . . SaaS applications are built to reside on the Web and therefore they ought to be easy to access. They ought to have an intuitive interface that's easy to use. Most importantly, they should have the ability to have multiple users collaborate in real time with that application."

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10. Is that "throat to choke" virtual or human?

Find out before signing up whether an application is "self-supported" via the Web or if the vendor makes live customer service reps available to users. "Some of the more simple, straightforward applications . . . where software is relatively intuitive, there may be minimal tech-support services available. Therefore, there could be a lag in response times," Kaplan says.

11. You still need in-house support.

Software-as-a-service expenses are often justified by vendor promises to deliver better services than customers receive with traditional software. But to get the full benefit of improved services, IT shops must match service-level guarantees and make internal commitments to business users and their own customers.

"For example, if a software-as-a-service vendor guarantees a service level on invoice-processing speed, the IT department must ensure the availability of the purchasing department's infrastructure system that supports this function," the McKinsey report states.

12. Size matters -- sometimes.

Software-as-a-service is often billed as a good solution for small- and medium-size businesses (SMB) who want to control costs and lack extensive IT staff. But many proponents that companies of any size can benefit.

"When you put software up on the Internet . . . who will use it depends on what the software does, how good it is and what it costs. The size of the company doesn't actually enter into the equation," Wohl says.

But software-as-a-service-shopping SMBs face a different decision process than large enterprises, one that should favor application suites rather than individual tools.

"NetSuite is very much of the belief -- and we agree with them -- that the suite-oriented approach for an SMB customer makes a lot of sense," McNee says. "SMB customers don't have a lot of IT staff, they don't have a lot of time and expense to integrate all these applications."