Will That Be SaaS or Standalone?

Wynne Systems Inc.

An increasing number of application providers are giving their customers a choice in software deployment - Standalone or SaaS (Software as a Service) - even as they recognize there are no hard and fast rules for determining which deployment model is best suited for a particular business. The challenge for these providers and the companies they serve is to match user needs with the capabilities and features of both the specific application and the delivery model.

The recent movement toward SaaS-based deployments is indicative of a general trend within many industries and with many business applications. A natural next-step in business' expanding utilization of the Internet, which removes many of the collaboration, flexibility and scalability constraints of traditional in-house hosting, SaaS' value proposition is simple and universal - it allows companies to enjoy the benefits of a particular business application while minimizing infrastructure, implementation and maintenance costs, as well as Information Technology (IT) staffing requirements.

But while this deployment model is certainly attractive, it is only one alternative, and not the best for every company. Due in part to security, integration and control considerations, many businesses still opt for the "stand-alone" implementation, with the application residing on their in-house server and being managed by their company's IT staff.

Decision-makers need to consider many critical qualifying issues when making their SaaS or Standalone assessment. These issues include the size of their IT department, the degree to which the solution must integrate with other solutions, the core competency of their IT staff , and data security, access and portability.

Based on where they fall on these and other issues a company might "fit" what one would consider the profile of a SaaS customer, but may opt instead for stand-alone deployment for reasons ranging from their overall IT strategy regarding data accessibility and ownership to software integration or the critical nature of the applications and tasks under consideration.

Likewise, an enterprise large enough to have an IT staff dedicated to maintaining its current hardware, data and networks may want to outsource as much of its IT as possible, choosing to access their applications on a monthly subscription basis as a means of speeding application development, lowering its up-front costs or strengthening its overall control over long-term IT costs.

Generally, SaaS costs are structured as a one-time implementation fee and a base monthly charge - which includes maintenance and support. Businesses with multiple facilities may also be subject to an additional per-location outlay. Typical direct costs for a standalone solution are the application license, implementation and support agreement, as well as any cost associated with required hardware and infrastructure. Beyond that are the indirect costs associated with the increased training and support demands placed on the in-house IT staff.

Analyses of the total cost of owning software over a 10-year period have shown that larger companies -- in the 500-plus employees/250 software users category -- tend to see significant advantages in the standalone approach. Analyses for small and mid-size companies have shown that the actual cost for either deployment model tends to equalize over the mid-to-long term. But, again, the decision is a multi-faceted one, with cost being just one of several important considerations.

For example, businesses opting for SaaS deployments place significant value on the relative freedom they enjoy as the responsibility for support and upgrades to the application, hardware infrastructure and operating systems shifts to their application provider. Conversely, Standalone customers trade that freedom for the peace of mind that comes with owning their software and controlling it and their data on-premises.

From the application providers' perspective, there is near unanimous agreement that SaaS as a deployment model is not a passing trend. It represents a profound and permanent technology shift, which has already drastically changed the business landscape for application providers of straightforward solutions, like Accounting, HR or CRM. However, a strong debate rages on the SaaS model's future with providers of complex cross-enterprise, highly customized and integrated applications, like ERP.

Despite significant advances in SaaS scalability and customization, there is no guarantee it will replace standalone software in the ERP sector anytime soon. For ERP providers, SaaS implies not only a host of technological challenges (i.e.: reconciling the need to transform the application into one suitable for true SaaS multi-tenant hosting with the need to provide the high degree of customization customers require of their ERP solution) it embodies a dramatic paradigm shift from a financial perspective. Financial models must change from those that collect up-front license revenue to those that manage a smaller revenue stream generated by a pay-as-you-go subscription program. ERP providers must also examine how - or if - in an SaaS environment they can continue providing the customization required for every customer and still make a profit.

SaaS and Standalone deployments will co-exist for a long time to come, that much is certain. As large enterprises and small and mid-size businesses alike weigh the costs and merits of each approach, and as application providers grapple with the technical and bottom-line implications of reinventing their core products and business models to conform with SaaS or standing pat with their conventional Standalone solutions, there will be no wholesale shift in one direction or the other. But after all is said and done, the market will make the final decision.

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