SaaS vs. Licensed Software

“On Demand” Is More Than Just SaaS

Software-as-a-Service has been getting a lot of press and buzz over the last couple of years. In fact, SaaS has been around for over a decade (we’ve been researching and writing about it since we were founded). However at ChainLink, we often use the term On Demand which we define as having three key characteristics:

· Pay-as-you-go: In order to keep getting paid, the vendor has to keep their customers satisfied and using the system successfully. Some SaaS vendors charge large up-front “startup fees” and require long (e.g. 3-5 year) minimum commitment. Those practices are counter to the pay-as-you-go philosophy.

· Instant deployment: Here we don’t mean merely instant deployment of the application hardware and software (nearly all SaaS solutions provide that).What is important is how long it takes to get customers to full production usage (not merely a pilot). Just because a solution is SaaS doesn’t mean full implementations are rapid. For an offering to be called On Demand (in our book) the time to full production use must be dramatically compressed.

· Single Multi-tenant Instance/Single Release: This means all customers are on the same release, and multiple customers may share the same instance of the software. This is key to the lower development and support costs of On Demand. Some firms that have hosted versions of licensed software (the so-called ASP model, with one instance per customer) tout them as SaaS solutions, but their higher support costs are inevitably passed on to the end user.

How to Decide Whether SaaS/On Demand vs. Traditional Licensed Software is Right for Your Firm

There are a number of things to consider about your unique situation:

1.Value of the Network: In some applications, such as transportation management, the pre-integration of a large number of your carriers, government agencies, and trading partners can provide a lot of value. These networks are more common in SaaS solutions than in licensed software.

2.Need to attract users and customers from the web vs. preset or corporate user base: This is why Marketing Automation is mostly a SaaS solution, for example.

3.IT Backlog: If your IT department has a multi-year backlog of projects, SaaS/On Demand can get you up and running much sooner.

4.Capital Availability: True On Demand (pay-as-you-go) solutions, require much less up-front capital. A lack of capital may push you towards On Demand/pay-as-you-go.

5.Continuous Operation: some applications, such as Manufacturing Execution Systems (MES) or Warehouse Management Systems (WMS) need to keep running even if the network goes down. For these types of critical applications, pure SaaS, which depends on the network being available, may not be appropriate. One WMS SaaS vendor (SNAP Fulfil) addresses this issue by taking responsibility for the network service, incorporating service redundancy and other failsafe measures.

6.Speed of Implementation: SaaS has an advantage in getting the platform up and running. But often that is not the biggest time-consumer in a project. It’s things like cleaning, normalizing, and importing data, integrating with other information systems, setting up the business rules, implementing process changes, training users, and on-boarding trading partners that usually take the lion’s share of the implementation. For these elements, a specific licensed software package may (or may not) have significant time-to-implementation advantages over a specific SaaS offering. We explore this issue in depth in our report “On Demand Now.”

7.Security: Many people understandably express concern over having their confidential data on the same system as their competitor. In many cases though, the security technology and procedures of an SaaS vendor may actually be quite a bit stronger than the in-house systems and safeguards. Nevertheless, it’s prudent to audit a SaaS vendor’s security before trusting them with confidential data and systems.

8.Customization Requirements: If you have many unique requirements, you should first question whether you really need them. If you do, then customizability will be important to evaluate. Pure SaaS (single instance) vendors will not give you the option to modify code, but some providers offer rich customizability via configuration options.

9.Total Cost of Ownership: It is very important to understand the true total cost of owning and supporting your own systems. The true cost of licensed solutions is often underestimated, making them look unrealistically lower in cost than SaaS. On the other hand, if you have idle or underutilized assets (data center and IT personnel) then licensed software may have an advantage.

Examples of SaaS vs. Traditional Vendors in Specific Sectors

SaaS has taken off more quickly in some sectors than others. We touch on some of these sectors and give you examples of key players in Table 1 below. Note: Many vendors offer a mix of SaaS, ASP, and licensed models; we put them in the category and delivery model they most heavily sell into.