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The Business Case for
Software as a Service (SaaS)
Written by
Don Jones
Co-founder, Concentrated Technologies,
Microsoft® MVP
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White Paper: The Business Case for Software as a Service (SaaS)
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Contents
Abstract ...........................................................................................................................................................3
Introduction: What is SaaS?............................................................................................................................4
Why Consider Software as a Service? ...........................................................................................................5
SaaS Reduces Planning and Development Costs....................................................................................................... 5
SaaS Minimizes Deployment Cost and Time .............................................................................................................. 5
SaaS Dramatically Saves Operational Costs .............................................................................................................. 6
SaaS Reduces Overhead Costs .................................................................................................................................. 6
SaaS Provides High Availability of Services ................................................................................................................ 6
SaaS Offers Rich Functionality .................................................................................................................................... 6
Is Software as a Service Right For Me? .........................................................................................................8
Determine the Reliability of a SaaS Provider ............................................................................................................... 8
Request a Service Level Agreement ........................................................................................................................... 8
Check the Provider’s Reputation and Industry Position ............................................................................................... 9
Ensure that the Service Meets Your Expectations....................................................................................................... 9
Security ....................................................................................................................................................................... 9
Conclusion.....................................................................................................................................................10
About the Author ...........................................................................................................................................11
White Paper: The Business Case for Software as a Service (SaaS)
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Abstract
Software as a Service (SaaS) is increasing in popularity. It has a number of benefits over more traditional
software models: it can speed deployment, reduce capital and operating costs, and provide enhanced and
highly available services. Of course, it also introduces a number of concerns as well. This paper explains
SaaS and explores both its benefits and its challenges.
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Introduction: What is SaaS?
The ability to use SaaS for more than just very basic functionality did not exist until recently.
Advancements in software platforms, the reduction of technology costs, and improvements in computer
and Internet speed and reliability have helped make SaaS more functional. Today most types of business
software can be delivered as a service. As SaaS’s capabilities increase, its adoption will continue to grow.
You might be surprised at the simplicity of the SaaS operating model. Basically the software runs, either
partially or entirely, somewhere else, usually on web servers. Word processors and spreadsheets that run
in a web browser are great examples of this model. They often provide rich functionality and reliability with
no software installed on the local computer, and may even provide an integrated location to store and
share data.
Consider your e-mail infrastructure. You probably have a set of dedicated e-mail servers in your data
center. Your data center is most likely in your corporate headquarters or nearby in an offsite hosting
environment. Remote buildings connect to your e-mail servers through Ethernet, and remote users
connect through virtual private networks or dial-up networking.
In a SaaS model, your e-mail servers are run by your SaaS provider. You specify what software and
services you require (in this case, your e-mail infrastructure) and connect your network to the provider’s
network. The SaaS provider now supplies your e-mail as a service, including hosting your servers,
verifying network connectivity, maintaining your software, repairing failed components, and other tasks
associated with e-mail server management. Please note: this is not the same as e-mail "hosting." Hosting
has a different business model and implementation. We'll cover both of these later in this paper.
There are several different SaaS variations based on the software’s functionality, its efficiency when
implemented as a service, its ability to scale, and more. In general, software written specifically to be
implemented as a service is more efficient and provides greater functionality and flexibility.
In some ways, SaaS is similar to traditional software deployment and use models; applications and
services are installed on individual computers, such as a backup software suite on a storage server or an
office productivity suite on desktop computers. SaaS typically offers the same functionality; in fact, a
number of software titles are available today in both traditional and SaaS implementations. And SaaS
software often provides network and Internet integration, as does most modern software packages.
But SaaS is distinct from traditional software models in a few key ways. These include:
You have flexible licensing options, often including per-use and per-month billing. This
allows you to select software providers whose licensing model works best with your business
model. For example, your business may be more concerned with monthly expenditures than
capital investments; many SaaS providers support this by charging per-use or per-month
instead of a large up-front investment. You may also have employees that need expensive
software, but use it rarely; a per-use licensing model might be more cost effective than
purchasing a traditional license.
Your applications can be optimized for distributed operation and scalability. SaaSspecific applications are typically designed to operate in a distributed data center environment.
They take advantage of server and bandwidth scaling to provide access to more users, run at
a higher performance level and handle more data. There is no need to redesign the software
or redeploy installations. This means you get the same service regardless of how many users
you have and you don’t have to provision new hardware/systems. The provider will
dynamically provide the scale you need.
Software implementation and upgrades are eliminated. Traditional, locally-installed
software is not only expensive to initially deploy; it is also expensive to update and upgrade.
For example, word processor updates may have to be continually and individually installed
across almost every computer in an organization. Even with software deployment automation,
the deployment process can be difficult and time-consuming. With a SaaS solution,
deployment, ongoing maintenance and solution upgrades are all managed by the provider.
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Why Consider Software as a Service?
Now, let's focus on the business case for SaaS, including return on investment (ROI), its impact on your IT
total cost of ownership (TCO), and other financial and efficiency benefits.
The IT budget can consume a significant portion of an organization’s operating costs, especially for
technology-centric companies that require high performing, feature-rich, and expensive software and
services.
SaaS can help manage these costs. It provides a holistic business solution to help reduce TCO. Industry
studies have shown that almost all IT executives are now considering the use of SaaS, and more than a
quarter of them intend to replace traditional software with SaaS to reduce TCO.
In a large-scale software deployment, planning, development, deployment, and operations each have
unique costs. There are also additional costs that can impact the overall deployment. Let’s look at both the
costs specific to each step, and describe how SaaS can reduce your overhead.
Throughout this section we'll use a common example: Suppose that you have a centralized Microsoft
Windows Server-based infrastructure that depends on Active Directory for user authentication and
authorization, as well as group security permissions.
SaaS Reduces Planning and Development Costs
A typical software project starts with an analysis and planning phase to identify and quantify the need for
additional functionality or services. Needs may include an initial business startup, unrealized productivity,
changing user needs, or even an independent audit.
For our example, let's say that a business continuity audit reported that you have no off-site backup of your
Active Directory data. You may have considered the data backup to be too time-consuming, expensive,
and complex to implement during initial rollout, and had been unable to justify the cost of implementing it
later.
A SaaS model can overcome these challenges. The planning cost can be greatly reduced by engaging the
services of a SaaS provider. The provider can identify a solution that meets the auditors’ requirements,
provide it as SaaS, and store and manage the data in redundant, available and accessible data centers.
This can be done with little or no impact on existing business processes; possibly without a visit to your
data center.
These SaaS-appropriate scenarios are becoming more common as the technologies develop. In this
example, all of the challenges raised by the IT staff are mitigated by the SaaS model:
The time required for implementation is minimized. The SaaS provider's expertise makes
up for the IT staff's lack of experience.
The cost for the software may be more affordable when it is purchased as SaaS, due to its
flexible licensing model. The entry cost can be amortized over the life of the license, or even
discarded, depending on the licensing.
The complexity is reduced; the SaaS implementation requires little work for IT and virtually
no changes to the existing IT infrastructure. In this case, the provider is given proper
credentials to access the corporate network and then handles the entire process.
You may want to see SaaS in action before committing to long-term contracts. With standalone software,
you would likely get a trial package, allowing you to use the software for a number of days, after which you
must either uninstall or purchase it. SaaS has a similar model, but it is even simpler because there’s no
deployment required and thus the trial is a much smaller commitment.
SaaS Minimizes Deployment Cost and Time
A large-scale software implementation is a slow and expensive process: an administrator must log in, copy
files, manually install software, reboot the computer, configure the software, and more. Deploying a SaaS
solution can be significantly faster and less expensive. Most SaaS providers and packages support a
completely remote, zero-touch installation and configuration, saving you considerable labor and delivering
the software very quickly.
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In our Active Directory backup example, the provider asks some background questions to understand the
environment and requests access to the corporate network. After that, the provider implements the solution
with little or no interaction other than status reports or confirmation that the tasks are complete.
SaaS Dramatically Saves Operational Costs
If your organization manages application and operating system patches, you already know how expensive
software operations can be. When new updates come out, they often must be implemented immediately to
prevent data loss or compromised security. In fact, new software releases occur so frequently that many
businesses simply skip one or two generations instead of incurring the license and labor costs of
upgrading to each new version. This sometimes means that new productivity or efficiency features go
untapped.
In a SaaS model, new releases are managed by the provider. The result is more consistent and timely
software updates, for both incremental patches and major version releases. Updates usually occur at no
cost to the SaaS consumer; it is in the provider's best interest to keep the software current and fully
functional.
System monitoring also incurs high operational expense in a traditional software model if done correctly. If
not done correctly, many organizations find that their backup system stopped functioning only when they
urgently need to recover something and see that a fresh backup does not exist. This is unfortunately very
common.
In a SaaS model, the provider does the monitoring and if a backup fails and the issue is on the application
side, they fix it; or notify the customer if the problem is with the customer environment.
SaaS Reduces Overhead Costs
SaaS reduces overhead costs by reducing or eliminating:
The initial cost of purchasing software
The time needed for IT to implement software
Any up-front investment in computer hardware
The cost of maintaining the application and service
Additional hardware or software purchases to overcome usage peaks
The time needed for IT staff to maintain software, including updates and patches
Additional investments for data redundancy
These overhead reductions can be short- or long-term, and in some cases, both. The reduced cost of data
redundancy impacts you both initially, (because you don't have to invest in expert staff or redundant
systems or software) as well as in the future (you don't have to maintain those systems or personnel).
SaaS Provides High Availability of Services
You’ve experienced network and service outages—you cannot connect to your e-mail or web site, or
perhaps the virtual private network between your branch and headquarters becomes congested, resulting
in slow communications. Even the largest, best-prepared enterprises experience occasional issues. The
key is to minimize the downtime that impacts your organization’s bottom line.
SaaS providers know that their clients expect dependability. For this reason, SaaS can be more stable,
secure, and resilient than the best on-premise infrastructure. We'll examine this in more depth in the
Provider Reliability section below.
SaaS Offers Rich Functionality
SaaS began in 1998 as a very basic delivery and subscription mechanism for a website-in-a-box called
SiteEasy. Its limited functionality severely restricted its usefulness to the delivery of a small set of services
and applications.
Today, SaaS often offers the same or better functionality than traditionally delivered software. Virtually any
type of application can be implemented as SaaS. On the desktop, SaaS applications range from common
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desktop productivity suites to complex workflow and design applications. In fact, many resource-intensive
applications, including image manipulation and video encoding, can work better as a properly designed
service that takes advantage of the provider's system scalability.
In the server space, SaaS solutions include infrastructure management, data management, and fault
tolerance without the need for a dedicated and highly-trained IT staff, specialized software, and dedicated
hardware.
One common SaaS feature that is not offered by most non-SaaS software is dynamic scalability. The
concept is simple: when more people use a service, you need to provide more resources for its use; when
fewer people use that service, you can remove the additional resources. Most on-premise software is
limited in its ability to dynamically scale. Your IT staff can add memory, storage, bandwidth, and servers,
but this work requires a significant amount of time and money. And should the need for the software
decrease, removal is usually unfeasible and always expensive. With SaaS, the provider designs the
service and software to dynamically scale. Your cost will be adjusted accordingly, giving you the option to
manage it by reducing the demand, or pay any additional charges until the demand has subsided or a new
SaaS agreement is reached.
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Is Software as a Service Right For Me?
You need to understand potential concerns before you can make an informed business decision about any
potential solution.
The business concerns about SaaS generally fall into three areas:
Provider reliability
Suitability of an offering to meet your current and future needs
Security
Determine the Reliability of a SaaS Provider
SaaS data centers today pride themselves on being highly available: they provide their services 24 hours a
day every day of the year. High availability also typically demonstrates that the provider has some level of
fault tolerance or disaster recovery in place to help guarantee availability in case of a major disaster.
Most providers consider availability to be the same as uptime. Uptime is the amount of time that their
services are online (up) as a percentage of time in a year. You'll see service providers advertise their
uptime heavily when they can show history and guarantee a number of "nines" in their uptime percentage.
For reference, here are my calculations of how availability numbers translate into annual downtime, based
on a 365-day year:
Percent availability
Downtime per year
99.5%
1.83 days
99.8%
17.52 hours
99.9% ("three nines")
8.76 hours
99.95%
4.38 hours
99.99% ("four nines")
52.6 minutes
99.999% ("five nines")
5.26 minutes
99.9999% ("six nines")
31.5 seconds
When you look at a provider’s availability figures, ask how the number is measured. Does downtime
include scheduled maintenance? The provider may also consider "intermediate" issues, such as Internet
routing problems, to belong to someone else and not count that time as downtime, even though your users
may not be able to access their data and applications. Your measurement should include the total impact
to your business.
Also, you should remember that not every service or data set needs to have “six nines” of service
availability. You might choose to use SaaS for line-of-business applications, data backup, and basic
productivity suites, but you probably are not equally concerned about the availability of all three. Your lineof-business applications could impact your company's revenue if they were down for an extended period,
or you could be subject to legal liability when data loss occurs. The loss of e-mail throughput, on the other
hand, might not be as critical for business, so a lower availability figure might be acceptable for that
application.
Request a Service Level Agreement
In general, SaaS providers will offer you different levels of availability and performance for different prices.
Discussing these levels and their corresponding prices is a key component of negotiating a provider
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agreement. The performance and availability metrics and thresholds are often specified in a service level
agreement (SLA).
The SLA could be a standalone document or part of your overall SaaS provider agreement. It should
provide the details of your required availability level, including:
Definitions of availability and downtime
A complete list of services provided
The required availability for each service and acceptable downtime limits
Methods used to report any loss of service and downtime
Notification requirements
Penalties for noncompliance
Some of these factors may not be important to your business, and there may be additional ones you want
to consider. This list isn't intended to be all-inclusive; use it as a guide to discuss with your provider before
implementing a SaaS solution.
Check the Provider’s Reputation and Industry Position
Reputation is valuable in the service market. Because each provider strives for the best possible position
relative to its peers, the SaaS consumer can expect that they will differentiate themselves, as well as keep
their offerings strong and their prices competitive.
You should look for a provider that commands a strong industry position. You should also consider the
richness of their services, what the analysts say about them, and their financial solvency. All of these
factors will help you identify the right provider for you.
Ensure that the Service Meets Your Expectations
As discussed earlier in this paper, recent advances in SaaS applications and service technologies have
pushed the SaaS model forward very quickly. Not long ago, there were few SaaS-worthy features and
applications. You had to work hard to find a desktop application more functional than a primitive word
processor or web site creator, and few offerings were available for server- or infrastructure-based SaaS.
Many SaaS applications were merely older applications repackaged, sometimes improperly, to be
deployed as a service.
Today the market is rich with a variety of SaaS applications that not only work well as services but offer
richer features than traditional software. There are few IT functions that cannot be effectively implemented
by a SaaS solution. In general, the suitability of SaaS offerings is no longer a concern.
Security
Using a SaaS model means your data is stored elsewhere, processing is being completed by someone
else, and connectivity is through the Internet. Yes, SaaS solutions bring up a series of security and privacy
concerns that require careful planning. Security considerations generally fall into four basic categories:
Choosing a reliable provider
Adequate redundancy for data storage and fault tolerance
Technical security safeguards
Physical security safeguards
Because security requirements vary greatly depending on organization and industry, this paper does not
attempt to cover this topic in detail. The best advice is to ask questions of your prospective SaaS provider
to ensure they meet your specific security requirements.
** For more detailed information on SaaS security issues, read the Quest white paper titled: Addressing
Security and Data Ownership Issues when Choosing a SaaS Provider.
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Conclusion
You can now see why SaaS is rapidly increasing in popularity. In many cases, it offers more benefits than
traditional software models: it can speed deployment, reduce capital and operating costs, and provide
enhanced and highly-available services. SaaS can reduce both short-term and long-term IT costs in your
enterprise.
Despite the apprehension that businesses often have about using SaaS, SaaS applications are now high
quality, eliminating many concerns. However, it is important that you document your SaaS expectations so
you can discuss and agree on them with potential providers. This helps ensure that the providers
understand your needs, enabling them to appropriately provide exactly what you're looking for.
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About the Author
Don Jones is a co-founder of Concentrated Technology (ConcentratedTech.com), a Microsoft Most
Valuable Professional Award recipient, and the author of more than thirty books on information technology.
His consulting practice specializes in making the connection between technology and business, helping
businesses realize more value from their IT investment, and helping IT align more closely to business
needs and values. Don has been an IT journalist for more than eight years, and is currently a Contributing
Editor for Microsoft TechNet Magazine. He is also a sought-after speaker at industry conferences and
symposia, including Connections conferences, Microsoft TechEd, TechMentor Events, and others.
White Paper: The Business Case for Software as a Service (SaaS)
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