Eat As Much As You Like : A Service Management Perspective on Software On-Demand By Adam Marland - Service Management Consultant, icore Ltd Introduction According to Forrester s Forrsights Software Survey, at the end of 2011, about 30% of companies were using some software-as-a-service (SaaS) solution; that number is predicted to grow to 45% by the end of 2012 and 60% by the end of 2013. The public cloud market for SaaS is the biggest and fastest-growing of all of the cloud markets ($33 billion in 2012, growing to $78 billion by the end of 2015). SaaS, aka software on-demand, is a software delivery service where the software is provided to the customer (typically over the internet) as a service. In the software ondemand model, the provider gives customers network-based access to a instance of an application created specifically for SaaS distribution. The benefit of such is that the customer will only pay for what is consumed and the features required, avoiding the cost of more traditional software purchasing and perpetual licensing agreements, where software is purchased for and installed on individual clients (software as a product). Aside from the benefits of a simpler and more cost-effective licensing model, organisations that subscribe to SaaS may hope to realise other benefits such as easier administration and potentially reduced support costs, assurances regarding compatibility and consistency of software versions across the organisations user-base, easier collaboration, and automatic updates and patch management. The objective of this article is to offer an insight into the service management organisation s perspective of software on-demand particularly with regards software licensing, to assess the potential impact on the service management organisation, and offer some conclusions around the benefits and potential drawbacks of this approach to software provision and license management. Types of Software On-Demand Licensing Models There are number of different types of software on-demand licensing models emerging in current software vendor markets. Briefly, they are as follows: Type Description Subscription Annual or multi-year software licence that combines the right-to-use software with the right to obtain software updates and service Term Software licences available in a variety of pre-configured terms and price points. This allows the enterprise to establish a budget and purchase products when needed. Remix The enterprise has access to an identified set of software for a term such as a year, but can change the quantity or a percentage of the software periodically (e.g. 25 percent of the list price value can be changed
Token Workbench Debit Card Peak Usage quarterly) to phase out software that isn t being used and replace it with software that is in high demand. Maintenance is typically included. A token is a granular unit of measure, either in currency or activity (e.g. one transaction) that can be applied various products in a supplier s portfolio. An organisation will typically buy X number of tokens, which will then be counted and consumed as the software is used. Tokens are typically purchased in advance of usage and counted down until exhausted. Again, typically maintenance is included. A defined set of software is licensed as a unit based on the role of the user of the software (e.g. basic accountant, expert accountant). There is a billing event if any of the software is used during the course of a period. Since the software is sold based on a user s role, there doesn t tend to be a huge amount of usage variance among different types of users, but some variance is tolerated and built into the licence model and price structure. Maintenance is typically included A financial arrangement and a fulfilment mechanism to deploy predefined term licences or tokens. The customer pre-pays a money or token amount, and then draws down against the cash amount, as the software is needed, in the quantity and timeframe required. Maintenance is typically provided Peak usage licensing enables peak periods of high performance computing by the creation of virtual machines that run in the cloud for burst periods Cost and Consumption Paying for features not used or needed makes traditional enterprise software customers eager for vendors to adopt pay-per-use models that better align cost with the customer s individual consumption. In theory, these models appear to provide a convenient and costeffective proposition to enterprises: pay only for what you use eliminating large upfront licence costs and on-going maintenance and upgrade fees. This may not suit vendors looking to maintain the consistent and predictable revenue stream of upfront licensing. However, there is a growing presence of software-as-a-service providers, such as Salesforce, Google and Amazon.com, keen to capitalise on organisation needs for a flexible yet reliable and consistent service through the adaptation of some of the models described in the previous section. Architecture The vast majority of SaaS solutions are based on a multi-tenancy architecture, i.e. a single instance of the application with a single configuration (hardware, network and operating system) is used for all customers or "tenants". In some cases a second version of the application is set up to offer a select group of customers with access to pre-release versions of the applications for testing purposes. This is in contrast to traditional software installations where multiple physical copies of the software, potentially of different versions and with a different configuration and often over-customised, are installed across various sites. There are some pitfalls to be aware of, namely you may find the formality of the process you need to go through to change the configuration of the on-demand software a little bureaucratic; and you need to be clear on whether you are using your own free-standing
instance or whether you have an instance within a multi-tenant application. You also need to ensure that you have catered for all the environments that you may need, for example PROD, PRE-PROD and DEV-TEST. Characteristics of Software-As-A-Service Applications SaaS applications support customisation to a certain extent. A single customer can alter the set of configuration options or parameters that affect the applications functionality or even simply the look and feel. Each customer subscribing to a particular service may have its own settings (or parameter values) for the configuration options. The application can be customized to the degree it was designed for based on a set of predefined configuration options. SaaS applications are often updated more frequently than traditional software, in many cases on a weekly or monthly basis. This is enabled by several factors: The application is hosted centrally, so new releases can be put in place without requiring customers to physically install new software The application does not have large variations in configuration, making development and testing faster The application vendor has access to all customer data, expediting design and regression testing The solution provider has access to user behaviour within the application (usually via web analytics, making it easier to identify areas worthy of improvement WARNING: Beware SaaS solutions that are not specifically architected to be SaaS solutions, mainly old legacy applications that have been made web-enabled. Service Management Considerations In order to select the appropriate SaaS model, the Service Management organisation should look to monitor software usage at different periods in the business calendar to understand demand and consumption. This can be achieved through close alignment between IT and the business and the deployment of effective monitoring tools and incorporating monitoring activities into the appropriate processes or roles within the service management organisation. Examples include Demand Management and Software Asset Management. Monitoring demand and consumption of services should be an ongoing activity, in order to ensure that the software selection, procurement and licensing strategy remains appropriate to the needs of the organisation, whilst ensuring that costs are controlled and there is no wastage or over-subscription. Controlling the distribution of, and access to software, becomes just as important as in traditional software as a product models. Business justification should still be provided so that software is not purchased or subscribed to in an uncontrolled manner, but is selected to fulfil a business need and installed where it is required. Release Management may seem like less of a concern for services subscribed to ondemand with the vendor controlling configurations centrally. However, the Service
Management organisation will still look to ensure that any releases and software updates are subject to the same planning and controls, particularly where releases may be more frequent and may impact business customers. An organisation may look to what its application management objectives and requirements are and attempt to answer the question what are the functional and manageability requirements for the applications offered? Of course, you still need to be sure that any applications supporting business processes are well-designed, resilient and cost-effective, and the required functionality is needed to meet the business outcome for the use of the application. Your organisation must also have the adequate technical skills to maintain and support the applications, or be confident that this can be reliably sourced outside of the organisation. Service Design In the Service Design phase of the Service Management lifecycle, a number of fundamental questions should be asked before selecting the appropriate software and sourcing method. For example: What are the application workload forecasts at different periods? To what extent will customisation be required and what is the relative cost of insourced and out-sourced software solutions? To what extent can the required functionality be met by existing tools? What are the on-going operational costs? What are the organisation s requirements for data access, for reporting and integration into other applications? What skills are required to support the solution? What are the security requirements of the solution, and can these be achieved by an on-demand solution? What are the Service Level Requirements and can the solution deliver these? IT Applications and Support Tools This review has focused on applications supporting business processes, but there has also been a trend within the IT industry for suppliers to offer IT applications on demand. The types of tools which may be charged on an agent/activity basis are adhoc usage but specialist applications; survey and monitoring applications, or modelling and simulation software. These may only be used for a short period of time and at certain times, e.g. during solution design phases of projects. In such cases, full investigations of the licensing structure must be investigated and well understood during selection for procurement, so that the costs are fully understood.
Conclusions and Recommendations On-demand software and more flexible licensing approaches are growing trends that Service Management must absorb and consider in its planning and strategy. Service Management should, first and foremost, be interested in how software and applications for IT services which support business processes, and then whether they are developed in-house or purchased from a third party should be considered. Heavily customised applications already supporting business critical processes may be too engrained in the organisations operation to move away from; the process of selection is of primary importance. Such services should only be reviewed for replacement with a full business case and business impact analysis. In Service Management, the understanding of business cycles, demand and usage, in order to select the most appropriate software product and the most appropriate licensing strategy, is still the principle concern. This is not a new theme in IT Service Management. It is clear that Demand Management and Business Relationship Management are two processes that warrant specific focus to understand the business requirements of the solution. Where cost savings can be made by adopting more flexible licensing models, the organisation should look to exploit this. Service Management can assist by providing accurate and timely data to support the decision making process. The Service Management organisation would be advised to review and perhaps strengthen its request fulfilment, software approval, and access management processes to ensure that software distribution is controlled and installed where it is needed to meet a business requirement. The cycle of continual service improvement should be considered carefully in applications management and service management. This is to ensure that the organisation reviews whether the applications in use continue to be relevant and in support of requirements, and also that a return-on-investment is seen in the anticipated timescales. If you would like further details on SaaS, software on-demand, or eat as much as you like software licensing; or if you require further details on any of our consultancy services, please contact us: Telephone: +44 (0) 207 464 8883 Email: sales@icore-ltd.com