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Software as a Serpent

Renting business applications may be all the rage, but it can also come back to bite companies.

Gartner analyst Robert Desisto recently predicted that by 2011 fully a quarter of new business software will be delivered as a service. That’s a startling percentage given that the current generation of on-demand software has been around for just four to five years. But that’s long enough for some to regard Desisto’s forecast as a threat rather than a prediction.

You won’t find a trendier concept in corporate computing these days than SaaS (Software-as-a-Service) — the enterprise application answer to the iPhone. The early success of Salesforce.com and NetSuite, among others, has inspired a host of recent entrants into the SaaS sector, including business-intelligence specialists LucidEra and OnDemandIQ and corporate performance management mainstay Adaptive Planning.

In fact, it’s almost impossible to find a software vendor that isn’t offering its product in some subscription-based model or another. That list includes some heavy hitters; antivirus specialist Symantec recently rolled out its own SaaS platform, and Microsoft plans to challenge Salesforce.com with its hosted Microsoft Dynamics CRM Live, scheduled for release later this year. Even longtime SaaS critic SAP is readying an on-demand suite of apps, dubbed A1S.

Yet despite its current caché, subscription-based software may not be right for every company. Many business managers believe they can do better with applications that run on in-house servers. Some of that thinking is born out of less-than-satisfactory experiences with hosted software.

Covalent Technologies, an open-source software developer in Walnut Creek, California, embraced SaaS, going live with a hosted CRM application in December 2000. Ryan Lindsay, chief operating officer at Covalent, says the company’s previous CEO and CFO bought into the usual SaaS arguments — the approach lowers upfront capital costs, streamlines maintenance, and scales easily. But things didn’t turn out exactly as planned. “There was a lot of expense and cost, and some painful learning curves,” says Lindsay. “It failed pretty miserably for us.”

Computer Says No

Indeed, hosted software is hardly a panacea for every corporate computing ill. While some SaaS purveyors claim the outsourced approach takes most of the hazards out of running enterprise software, that’s a bit of a stretch. “SaaS doesn’t eliminate IT risk,” a recent Gartner study noted. “Rather, it changes the nature of the risk.”

One of the biggest problems: in-house applications don’t always play well with outsourced programs. At Covalent, there were serious problems getting existing apps to share data with the hosted CRM program. “There was always a disconnect, there was always a time delay,” says Lindsay. Covalent has since switched to an onsite application from SugarCRM. “By bringing everything back in house,” says Lindsay, “I was able to put everything under one nice, neat, clean environment.”

Even when connectivity and compatibility are not at issue, many managers simply don’t like the idea of relinquishing control of key applications. And with reason. In December 2005, Salesforce.com suffered an hours-long service outage, and has reportedly suffered several minor outages since then, as have some other SaaS providers.

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