Software as a Service: Uncertainties Revealed

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1 Software as a Service: Uncertainties Revealed Robert DeSisto Vice President and Distinguished Analyst Notes accompany this presentation. Please select Notes Page view. These materials can be reproduced only with written approval from Gartner. Such approvals must be requested via Gartner is a registered trademark of Gartner, Inc. or its affiliates.

2 SaaS Is The Future of IT Not So Fast The Facts: On-premises software spend is 13 times greater than Software as a Service spending SaaS does Not eliminate shelfware One vendor, salesforce.com represents 14.6% of the total enterprise software as a service spend CRM SaaS is 20.4% of Total CRM Application Software Spend, removing salesforce.com drops the percentage to less than 9.9% Only 3 publicly traded pure play SaaS applications vendors have demonstrated sustained profitable on a GAAP Basis

3 Key Issues 1. Will SaaS really be the technology deployment disruptor it is hyped to be? 2. How will SaaS providers meet or exceed the business and technical needs of user organizations? 3. What will be the best practices user organizations should take for leveraging Software as a Service?

4 The Vendor Case for SaaS Vendors claim SaaS total cost of ownership is less than on-premise software Vendors claim SaaS provides more rapid innovation Vendors claim SaaS provides only what you need functionality on a pay for use basis SaaS vendors claim they have an attractive business model Vendors claim SaaS is quicker to implement and adapt than onpremise software

5 Evaluating Whether SaaS is Less Expensive than On Premise SaaS will be less expensive if you can answer Yes to the following: Will you Reduce or avoid Hiring new head count for functions such as software engineering, database administration, back-up, patch management, and system infrastructure upgrades if you use SaaS? Will you Reduce or avoid Purchasing additional hardware (servers, storage) if you use SaaS? Will you avoid Buying additional database or application server licenses if you use SaaS? Will the SaaS offering provide must have functionality Not Available as part of your ERP suite?

6 Traditional SaaS Evolutionary Release Process Puts Vendor in Control SaaS Incremental Releases Deployed Regardless of Your Schedule Deploy On Your Schedule Year 1 Year 2 Year 3 On Premise Patch/Minor Releases On Premise Major Releases

7 SaaS Does Not Prevent Shelf-ware Assumption: 2000 users at $60 Per User Per Month (2 Year Contract) Subscription Accrual Rate: Users Users Subscription Shelf-ware Time Added Deployed Expense Rent 6 months $720,000 $720, months $720,000 $612, months 1, $720,000 $432, months 0 2,000 $720,000 $0 Total Shelf-ware Rent: $1,784,000

8 The Verdict Software Regardless of Delivery Model Is Challenging SaaS TCO is not guaranteed to be less than On premise alternative 90% of SaaS offerings are not pay for use SaaS provides a more evolutionary approach to functional enhancements but will be challenging for some organizations to absorb SaaS vendors take longer to achieve sustained profitability SaaS is quicker to implement and configure for less complex problems

9 Key Issues 1. Will SaaS really be the technology deployment disruptor it is hyped to be? 2. How will SaaS providers meet or exceed the business and technical needs of user organizations? 3. What will be the best practices user organizations should take for leveraging Software as a Service?

10 Hype Cycle for Software as a Service, 2009 Visibility Social CRM: Customer Service HRMS (SaaS) On-Demand Sales Incentive Compensation Management Enterprise Portals as a Service Cloud-Enabled BPM Platforms SaaS: Business Intelligence SaaS-Related Professional Services Lead Management on Demand Data Quality as a Service Cloud-Based Services Campaign Management SaaS Multienterprise Business Process Platform Application Platform as a Service SaaS/Cloud-Enabled Application Platforms SaaS Tools for IT Operations Policy Administration SaaS Options for Life Insurers Technology Trigger Social Networks for Sales Customer-Centric Web Strategies Cloud Computing/ SaaS Integration Peak of Inflated Expectations Years to mainstream adoption: Communications as a Service MRM on Demand Project and Portfolio Management (PPM) SaaS E-Commerce on Demand SaaS for Contact Center Customer Service On-Demand Partner Relationship Management Database as a Service Performance Appraisal/Assessment On-Demand Financial Management Applications SaaS India Distributed Order Management Virtual Assistants Trough of Disillusionment time Business Process Hubs E-Recruitment Integration as a Service Security as a Service Mobile Enterprise Applications on Demand SaaS Sales Force Automation Supply Chain Management (SaaS) E-Service Suites As of July 2009 Slope of Enlightenment less than 2 years 2 to 5 years 5 to 10 years more than 10 years SaaS Web Analytics SaaS Procurement Applications Plateau of Productivity obsolete before plateau

11 SaaS Support For Core End To End Enterprise Business Processes Will Continue to Lag Packaged Application Core Functionality Target Audience Size Enterprise Spanning Role- Specific 90% of Large Enterprise Spanning End to End business processes will rely on premises software for automation Long Tail Industry/ Enterprise- Specific User Specific Application Functionality SaaS, Custom Development, Ecosystem, Systems Integrator Domain

12 Key Issues 1. Will SaaS really be the technology deployment disruptor it is hyped to be? 2. How will SaaS providers meet or exceed the business and technical needs of user organizations? 3. What will be the best practices user organizations should take for leveraging Software as a Service?

13 Four Actions You Can Take To Get In Front of SaaS Curve Step 1: Determine Value Action Evaluate and Understand the Trade-Offs of SaaS Outcome SaaS implementation drivers and inhibitors Step 2: Develop Governance Step 3: Evaluate Vendors Step 4: Integration Roadmap IT collaborates with business for creating internal and external SaaS governance model Evaluate SaaS vendor for specific application needs as Applicable Develop on premise integration roadmap Corporate SaaS Policy and Governance Document Vendor Short List Process and data flow integration diagram

14 Determine Value: Evaluate and Understand the Trade-Offs That SaaS Presents Upside Fits in an operational budget Optimized for core functionality Limited platform "heterogeneity" Limited infrastructure overhead and management Lower short- to medium-term TCO Faster implementations Potential for increased innovation Downside Potential for shelfware as a service No asset value/cost management Possible governance issues of application portfolio Release management dictated by the provider Third-party application tools limited Vendor management (including oversight of operational management) Security concerns Longer-term TCO uncertainties OP2OD (on-premises to on-demand) integration

15 Components of a SaaS Implementation and Governance Policy Business IT Relationship Configuration change management ownership New release validation Technical integration Budgeting allocation System Administration Vendor Management Communication protocols Internal Contract ownership Risk Mitigation Strategy for vendor going out of business SaaS RFP Template Data Center Operations Architecture Security and privacy Disaster Recover Capabilities SaaS Contract Requirements Uptime and Reliability Clauses Data ownership provisions Security and privacy assurances Disaster Recover guarantees Renewal price caps

16 Evaluating a Vendor s SaaS Strategy Support SaaS Definition Business Model On Ramp to Nowhere Customer Base and User groups Configurability and Customization Preproduction Testing and Staging Integration Capabilities Platform and Architecture Provisioning Upgrade Strategy Latency Support and SLAs Security and Risk Management Data Center Disaster Recovery Plan Recommended Reading: How to Evaluate a Vendor's SaaS Strategy

17 Customer Example of Integrating SaaS With An Existing Application Portfolio SaaS Provider A SaaS Provider B Sales Force Automation Customer Data Incentive Compensation Oppty Info. Quote Info. (Web Service) Opportunity Sales Forecast 2-Way Data Synchronization Customer Data Enterprise Firewall SaaS Product Browse and Search Products (one-way data integration) Quoting Performance Management ERP on-premises Sales Configuration Order Management Customer Master Data Best-of-Breed on-premises Custom Application Account Receivables

18 Your Action Plan Develop a corporate SaaS policy to stay in front of the SaaS curve Validate SaaS delivery model benefits before committing to them Conduct due diligence on a vendors operational capability Come See Me At Gartner Symposium/ITEXPO Orlando, Florida October 18-22, 2009

19 Recommended Reading Essential SaaS Overview and 2009 Guide to SaaS Research Robert DeSisto Hype Cycle for Software as a Service, 2009 Robert DeSisto Shelfware as a Service: Paying for Unused SaaS Subscriptions Robert DeSisto SaaS Contracting Guide: Avoid Costly Mistakes Alexa Bona

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