Software-as-a-service Delivery: The Build vs. Buy Decision

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1 white paper Software-as-a-service Delivery: The Build vs. Buy Decision Introduction In order to deliver software on-demand, companies must either build and manage an infrastructure capable of supporting a secure, available, and reliable application themselves, or partner with a third party provider. Software-asa-service (SaaS) companies should consider a wide variety of factors when determining whether to outsource or maintain operations in-house. For the purposes of this whitepaper, the terms SaaS and web application will be used interchangeably.

2 The challenges of SaaS Delivery The complex nature of web application delivery presents unique challenges to application providers. The infrastructure and ongoing operations required to deliver software on-demand networking and connectivity, security, 24x7 monitoring, storage and backup, etc. can divert resources from a company s strategic objectives. Moreover, these activities tend to lie outside the core competency of most application providers, and over time it can become very difficult to keep up with evolving technology and scalability issues. The first challenge associated with SaaS delivery is the infrastructure deployment process, including procuring hardware, securing data centre space, hiring and training support staff, etc. Then, once the infrastructure is ready to support the application, it must be continually monitored and managed: new security threats must be evaluated, data must be backed up regularly and stored off-site, and equipment must be upgraded, among other activities. As a company s user base grows, the infrastructure must be able to scale to meet increased demand. Customer service is also an extremely important consideration for SaaS companies. Software providers have not traditionally had to offer the level of technical support and service required by today s consumers of ondemand applications, who possess high expectations regarding availability, performance, and security and can more easily switch between competing products. Addressing single points of failure is another challenging aspect of web application delivery. The 24x7 availability required for on-demand software means that redundancy must be built into the environment supporting the application, both from an infrastructure and a staffing perspective. Web application providers must also ensure that customer data can be retrieved rapidly and seamlessly in the event of a disaster by implementing a sound backup, storage, and recovery solution. The case for build (or DIY) Despite the challenges associated with building and managing an infrastructure to support SaaS delivery, there are reasons why companies choose to do it themselves. Some companies prefer to maintain 100% control over their environments and do not feel comfortable depending on a service provider. Other companies may have existing infrastructure that they can leverage to deliver their applications. Reasons to build in-house include: The ability to control all aspects of the environment versus depending on an outsourced partner. Some companies simply may not be comfortable giving up control, or may find it difficult to trust a service provider. There is already an existing infrastructure that can be leveraged. If the company already has some or all of what is required to deliver applications over the web, there is less need to partner with a service provider. The training of an outsourced partner takes time. As in any relationship, the parties must get to know each other. It takes time for a service provider to develop expertise on a particular application. Managing outsourcing relationships requires a special skill set. Although one of the most significant advantages to outsourcing is the ability reduce staffing needs, a special skill set is required to manage an outsourcing engagement, in order to maximise the relationship s value. There is value in building an in-house knowledgebase to support applications. Some companies may wish to invest heavily in building an in-house knowledgebase to support their applications. The ability to take advantage of tax breaks for depreciation. As equipment and other assets depreciate over time, companies can take advantage of tax breaks. Questions to ask when embarking on SaaS Whether your company is in start-up mode or firmly established, when you embark on a SaaS initiative, here are the questions to ask yourself: 1. Is building and managing infrastructure your core competency? 2. How much control are you willing to give up? 3. Are you open to trusting a service provider? 4. How well do you understand your requirements? 5. What are the costs to start up, and how do you scale as you grow? 6. What do your end users expect from your web-delivered application? 7. Do you have the technical resources in-house to run an application 24x7 or are you willing and able to find, hire and finance them? 8. If you have decided to outsource, how do you compare and select the best service provider? 01

3 What s required to build it? When determining whether or not to pursue an internal management strategy, companies should consider that web application delivery requires the following: Hardware (such as servers, network equipment, and UPS, and associated maintenance contracts) Software (such as operating systems and backup software, and associated service contracts) Data centre/networking (e.g. racks, bandwidth, power) Recoverability (e.g. backup solution, disaster recovery planning Consumables/inventory (e.g. spare parts, tapes, cables) Tools (ticketing system; monitoring; reporting) People (management; technical: DBAs, network engineers, systems engineers; plus continued training) Documentation (e.g. technical documentation of environment, diagrams, reports) Service level agreements (SLAs) to guarantee uptime, performance standards Companies should create a scorecard that factors the costs of each component, and the labour required to manage it, to compare outsourcing versus in-house management. The case for outsourcing (Buy) There are numerous ways in which partnering with a service provider can be advantageous for SaaS companies. Companies choose outsourcing over inhouse management in order to: Take advantage of lower costs due to economies of scale The most obvious reason to choose a service provider is to take advantage of lower costs due to economies of scale. Given the complex technical requirements of web application delivery, in many cases it is simply not financially feasible for a company to invest in building the infrastructure that supports the application. Companies that do have existing infrastructures to leverage may find that, over time, the costs of upgrades and scalability issues make it difficult to continue to justify in-house management. Enhance ability to focus on strategic objectives One benefit made possible by outsourcing is the ability to focus more resources on strategic objectives. The problem with web application delivery is that it requires companies to become proficient in operational disciplines that lie outside the core competency of most software providers: networking and connectivity, security, disaster recovery, etc. By freeing themselves from the burden of infrastructure deployment and management, companies delivering software on-demand can focus on developing, marketing, and selling their applications. Offer better services to end users Working with a third party can also enable companies to offer better services to their end users. For example, on its own a web application provider might not be able to staff and operate an aroundthe-clock call centre, but through an outsourcing relationship, 24x7 technical support becomes possible. Oftentimes, by leveraging an outsourcing relationship, a more robust level of service can be achieved. Closely related to this is the fact that the service provider s focus and expertise is generally going to result in a higher quality of service in that particular area (e.g. managed security). SaaS companies that have already invested in building an infrastructure to support software on-demand may still find it beneficial to work with a service provider as the application grows and becomes more difficult and costly to manage in-house. Companies like SAP, Adobe and others have taken this route. Accelerate implementation time Companies that choose in-house management may find that it takes months to procure equipment, hire and train staff, etc. which can seriously hamper competitiveness. With a service provider, implementation times can be reduced significantly; depending on technical requirements, a company could be offering its application to end users in as little as 72 hours. Guarantee application performance and availability Service providers typically offer SLAs to guarantee performance and availability levels (such as 100% uptime). Significantly reduce staffing requirements and take advantage of expertise To successfully deliver applications over the web, companies must hire, train, and manage staff such as systems administrators, network administrators, security experts, technical support, etc. It can be challenging for companies to build the internal redundancy necessary to achieve the availability, performance, and security levels that end users expect on a 24x7x365 basis. Relying on one or more key employees to keep an on-demand application up and running is not a scalable strategy. Leverage third-party vendors certifications Companies face a myriad of challenges and issues regarding the compliant delivery of SaaS applications. Clients delivering applications through the a third-party can sometimes take advantage of the vendors certifications to help them comply with their own internal controls and regulatory requirements. 02

4 Increase flexibility to meet changing business conditions A company that outsources the management of its SaaS delivery infrastructure will likely be better prepared to handle growth and/or unexpected spikes in usage. Conversely, by avoiding costly investments in infrastructure companies can be better positioned to deal with adverse business circumstances. Mitigate the risk of web application delivery The investment required to build an infrastructure that supports an on-demand application is significant. By working with a service provider, a company can lessen risk and position itself more effectively to capitalise on new business opportunities. Acquire innovative ideas and access to partner ecosystem Because service providers work with many other companies, they can often share valuable information and expertise that can help solve challenges, improve applications, and deliver the highest quality service. Service providers can also help connect companies that may have complementary products, thereby facilitating shared business opportunities. Turn capital purchases into expenses No more spending money on buying and maintaining equipment. Ensure rapid recoverability in the event of a disaster It s essential that companies delivering applications over the web implement a sound disaster recovery strategy to ensure the availability and security of customer data. Data must be backed up regularly and stored offsite, and, most importantly, data that has been backed up must be quickly retrievable if there is an outage or loss. This is an area that is particularly well suited to outsourcing. How do you choose an outsourcing partner? Companies should look for the following characteristics when evaluating service providers: Proven solution. There are many outsourcing options available. It s essential to research the different providers. Look at a provider s client base, case studies, etc. Comprehensiveness. How complete is the solution? Does it include the application infrastructure, application management, 24x7 monitoring, database support, any value-added services? Reliability. What type of SLA does the service provider offer? Is the service provider committed to guaranteeing 100% uptime? Also look for certifications, compliancy with standards, etc. Focus. Is the service provider focused on SaaS delivery? Does the service provider offer tools and services that enable customers to achieve success? Affordability. Does the solution require any costly upfront investments in people or equipment? What is included, and what must be purchased as an add-on? Once a short list of providers is assembled, companies should create a detailed spreadsheet that breaks down each component of the competing solutions, which may be very different in terms of what is included and what, if any, valueadded services are available. Conclusion When determining whether to outsource or manage operations in-house, SaaS companies need to understand their requirements and the gaps between build vs. buy. There are many options for outsourcing, and companies that select the right partner can take advantage of cost savings, increased flexibility, guaranteed service levels, enhanced customer support, and more. CS / DDMS-1084 / 10/12 Copyright Dimension Data

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