Despite the fact that this seems to be the focus of Microsoft's, SAP's, and even Salesforce.com's software as a service (SaaS) initiatives, surveys conducted by renowned analyst houses suggest that the more widespread use of technology accessible services through a Web browser is not necessarily centered on customer relationship management (CRM) or sales force automation (SFA) solutions, which focus on sales leads and customer targeting. Rather the technology is being used to share information and collaborate. The fact is that most enterprises have thus far invested tremendously in information technology (IT) support for administrative processes, whereas there has hardly been any investment in support for non-routine, cognitive information, which is of paramount importance for business decision makers, service and product innovators, and other staff members, who increasingly create the competitive advantage for the business. The tasks performed by these people require a mix of technologies, not just new technology. Users need access to unstructured data, unstructured content, and collaboration support. Yet, most collaborative teams have e-mail as the only mechanism of information exchange among knowledge workers. This is incredibly inefficient and can become increasingly overwhelming—to the point of becoming a negative productivity tool. For example, for anyone trying to collaboratively design a new aircraft and source its parts and assemblies, or manage a thousand scientists around the world working on a new drug, e-mail is a far cry from being an ideal tool for knowledge worker collaboration. Also, many smaller enterprises may need as much functionality as their larger brethren, making offering enterprise-level functionality via the SaaS model necessary, but also even more challenging. Given their enterprise resource planning (ERP) or accounting origins, the recent successes in the market of NetSuite and Intacct might vouch for this need.
In fact, applications are more often outsourced than infrastructure, and this is increasingly done through SaaS. These applications include travel services, human resources (HR) management (personnel, benefits, and payroll, from vendors like Taleo, Employease, Kronos, Ultimate Software, etc.), and billing and payment processing. Business to consumer (B2C) e-commerce and product catalogs are also delivered through SaaS. This includes dynamic pricing models, customer loyalty groups, targeted sales promotions, and other sophisticated sales tactics, as well as integration with other supply chain applications, those which do not necessarily need a large internal team of sales support people. Financial, tax, procurement, and customer service management have also followed suit. Companies are choosing to promote SaaS-based strategic sourcing and procurement applications ahead of well-publicized CRM deployments for a number of reasons, including, globalization, Web-based collaboration, manufacturing outsourcing in far-flung regions, and distributed order management (DOM).
Quiet SaaS Leaders
Given this focus on information and collaboration, WebEx may very well be a leader in SaaS. Many of us have used the services of this on-line conferencing pioneer many times, but would not identify it as an SaaS leader. However, it should be straightforward to see how the multiple aspects of Web conferencing lend themselves well to the SaaS model. It moves well beyond shared presentations, workspace, and applications, and is supplemented by instant messaging (IM) and integrated with video and audio conferencing, often using voice over Internet protocol (VoIP) technology to bring the whole experience to the personal computer (PC). All of these features and benefits are available without purchasing, implementing, or managing a stack of hardware and software that is only used on occasion. Aside from e-meetings and presentations, another important use of WebEx is remote training, for example for regulatory compliance or IT support, as this reduces travel and increases business productivity.
WebEx uses a multi-tenant architecture, and the same core application serves every customer. Consequently, it is a far more stable business model than first-generation application service providers (ASP), which hosted specific instances of applications for each customer. The vendor also lets partners self-brand its WebOffice collaboration service, which offers group calendaring and scheduling, bundled with messaging, white boarding, and IM. WebOffice can also be billed directly from WebEx, typically for $10 (USD) per user, per month. It is thus not surprising that WebEx reportedly served its 14,000 customers with 2.2 billion on-line minutes in 2004. Moreover, approximately 60 percent of those conferences involved people from more than one organization.
While the market might have heard of Arena Solutions, which has long been offering an on-demand product lifecycle management (PLM) solution (see On-demand Product Life Cycle Management: Not Just for Small to Medium Businesses Anymore), a lesser known SaaS provider is Webcom, Inc. Webcom offers software solutions that simplify the quote-to-order process for the sale of complex products and services, such as those offered by Rockwell Automation, Motion Computing, Cray Computer, General Electric Industrial Systems, and ABB. Requiring only a browser, its solution, WebSource CPQ, allows customers to configure, price, quote, and ultimately propose their offerings across multiple sales and distribution channels, including customer self-service in a B2C setup, virtually at any time and anywhere. The software not only handles the traditional bill of material (BOM), routing, and diagram generation tasks frequently associated with product or engineering configurators, but also addresses the guided selling, proposal generation, and multilevel channel management tasks associated with sales configurators (for more information, see CRM for Complex Manufacturers Revolves Around Configuration Software).
Webcom touts that its software solutions provide the same level of depth as the on-premise peer products from Cincom Systems, Oracle, Trilogy, Selectica, Firepond, Big Machines, Access Commerce, etc., but without the highly involved and lengthy implementations typically associated with implementing these products on the customer site. One should, however, note that some of these competitors have been AppExchange participants, which indicates they also have SaaS prowess. The CPQ product, nevertheless, represents one of over thirty new partner-developed applications available via Salesforce.com's AppExchange (and linked by Web services), and it lets customers augment the base Salesforce.com functionality for more complex configurable product sales processes. Earlier in 2005, Webcom also joined the Siebel Alliance Program as a CRM On Demand Software Partner.
The Apple of the SaaS Market?
Another vendor has also caught our eye recently. MCA Solutions, the provider of the Service Planning and Optimization (SPO) suite of solutions, which helps companies in industries ranging from aerospace and defense (A&D) and semiconductors to industrial and medical equipment improve asset utilization and customer support, made a notable announcement in November 2005. It announced the availability of its SPO On-Demand solution, offering user companies one more way to gain access to its best-of-breed service parts planning solution. Generally available, the on-demand version is reportedly already helping some MCA customers across the high technology, telecommunications, and semiconductor industries reduce inventory, increase fill rates, and improve customer satisfaction.
As MCA recently closed a couple of hosted deals, interest in the vendor does not appear to be waning, as it has for many other prospects. This is no surprise, given the hosted software is faster to implement (in several weeks only), reduces the upfront hardware and software capital expense, and minimizes IT resistance to new software solutions. The announcement also means that smaller companies like Tellabs can now enjoy the benefits of software capabilities that larger companies like Cisco Systems are also using.
MCA's original, on-premise SPO suite is a Web-based suite of advanced inventory planning, forecasting, and execution solutions that gives companies the ability to manage and monitor inventory levels of mission-critical materials by providing global, real time visibility throughout the extended service supply chain. As commercial software devised to optimize assets in a multi-echelon service supply chain network, it supports these collaborative processes by linking the ERP and CRM systems of a user's company.
Simply put, the software supplies inventory forecasts based on the customer installed base, provides contract coverage analysis, and determines where to position spare parts most effectively to meet customer service requirements (i.e., it suggests the optimum stock levels and location for spare parts while balancing the required level of customer service with the allowed inventory investment). SPO is able to provide that level of information by using sophisticated risk-based algorithms specifically designed to handle the uncertainty inherent in knowing when or where a particular piece of equipment may fail, and a spare part will be needed. For more information, see Lucrative but "Risky" Aftermarket Business—Service and Replacement Parts SCM.
Filling the Execution Gap
The SPO suite has two major modules, including SPO Strategy for longer-term forecasting and positioning of service inventory levels. In addition to forecasting and optimization, the module has a what-if capability that can be used as a decision support tool to analyze service network scenarios, such as expected inventory growth from new stocking locations and increased service levels, and the cost per service impact of differentiated service strategies. However, once the strategic inventory levels are set, user enterprises have to maintain the planned stock levels for all individual items and locations that were required to close the gap between the actual fill rate and the target one. This tactical execution gap is often a direct result of a traditional ERP or legacy planning system's inability to prioritize supply chain decisions based on the predicted service impact of each decision. This requires excessive supply chain rebalancing in the form of non-value-added order change or cancellation and inventory movement transactions, resulting in so-called system nervousness. However, the objective of a service supply chain tactical planning system is to achieve the optimal deployment of resources throughout the network on an ongoing basis to meet the target investment levels established through strategic inventory optimization.
The traditional approach to this problem has been to establish business rules that prioritize locations or customers and define fair share logic. This is adequate when a sufficient supply exists, but in a more dynamic supply chain with constrained supply resulting in frequent temporary shortage situations, business rules typically lose out to customer commitments. This leads to frequent exception management, special expediting, higher logistics costs, and most detrimentally, unhappy customers. To that end, SPO Tactics approaches the allocation, replenishment, and transshipment (ART) problem by calculating the service impact for each below level part-location stock target. SPO Tactics can recommend and prioritize supply chain decisions to optimize the balance between service impact and supply chain cost, thereby achieving a minimum gap between the theoretical and actual fill rate and a reduction in emergency freight costs, yet it is not dependent on static user-defined business rules or manual prioritization of orders.
MCA Solutions and some of its peers like Baxter Planning Systems deserve praise for realizing that user companies are demanding greater flexibility and fewer up-front costs. Other vendors, like Click Commerce, which recently acquired Xelus, will likely soon follow suit, especially given Click Commerce's SaaS pedigree in other areas like trading partner relationship management.
SaaS offerings enable companies to add capacity as needed, and only pay for the resources and functionality that they need and use. In addition, companies can concentrate IT resources on vital projects, instead of on mundane application maintenance and support. Nonetheless, looking at the MCA SPO On-Demand solution, one again realizes that the notion of SaaS and on-demand is still evolving, and that these terms are still open to different interpretations. SaaS is a model of software delivery rather than a market segment. In fact, many types of software can be delivered to many different market segments, including home consumers and small, medium, and large businesses.
For instance, SPO OnDemand features some of the key characteristics of SaaS software, such as Internet-based access to, and management of, commercially available software. Activities are managed from central locations rather than at each customer's site, enabling customers to access applications remotely via the Web. Still, its application delivery is not a pure SaaS model, given that it is a one-to-one or single-tenant model, including architecture, pricing, partnering, and management characteristics. MCA also illustrates the possible variations of multi-tenancy. For example, the vendor could have multiple customers running on the same physical servers, but it would be a separate software instance of SPO. Thus, there are some hardware efficiencies, but not the risk of mingling databases, and for such application, there are really not efficiencies in sharing an instance of the software.
In other words, MCA's solution is still closer to the ASP model, where a customer purchases and brings to a hosting company a copy of software (or the hosting company offers widely available software for use by customers). The hosting company then makes it available across the Internet to the customer who pays a fee per month for access to the software. Although users do not necessarily realize it, a licensing fee and a monthly fee in an ASP arrangement are separate, as fees are paid to the maker of the software and the hosting party as appropriate (unless the vendor is the ASP too). In the SaaS model, however, there is no division between licensing and hosting fees, but there is also little to no customization of software for each customer.
Again, no one is trying to imply that one method of hosting is better than the other. Each customer will have to conduct its own value analysis. What matters is that MCA's SPO On-Demand can be up-and-running in as little as four weeks, with minimal configuration. There is no IT infrastructure required (other than the Internet connection), and, in the case of MCA, the hosting service provides the hardware (though there are talks about SunGuard taking over if a critical mass of customers is reached). Also, fewer IT resources are required, since setup, administration, and upgrades are part of the service. A monthly subscription fee allows companies to access SPO and related services over the Internet, and leverage all of SPO's features and functionality without the added investment in IT infrastructure. But, the MCA SPO On-Demand pricing is still not necessarily uniform across-the-board, but rather emulates the on-premise model, where each customer gets a specific deal based on its inventory-level situation, or based on what MCA projects its products can provide to the customer.
This method nonetheless lowers the upfront cost. Users can also consider the pay as you go (PAYG) model, which can help justify a new implementation from a budget perspective and can reduce IT resistance. At the end of the day, hosting can be converted to a perpetual, on-premise licensed arrangement. As a matter of fact, the complex nature of the product still requires some user involvement and thought processes to determine inventory policies for all the items and stock locations. So far, only the SPO Strategy module has been hosted, given that it takes fewer customizations and user interactions than the tactical component. Namely, the module "spits out" the recommended stock level figures, every week or so. Users can then integrate these numbers with the back-office via extensible markup language (XML) or flat files, or even just manually re-key the suggestions into the system. Conversely, the SPO Tactics module requires much more system tweaking, frequent rules-based process orchestration, and user interaction or intervention. While this is doable as a hosted solution, it will likely require much more thinking and preparation.
Ariba's Contribution to the On-demand Supply Chain
Last but not least, Ariba, the e-commerce pioneer, has lately been developing spend management solutions to help companies optimize the money they spend, and it now makes all of its technology and services available over the Internet on a subscription basis via an on-demand delivery model. The vendor's specialty is spend management, for which it provides a suite of pre-integrated solutions, such as spend visibility, strategic sourcing, and procurement, to ensure effective management of the full procurement process from analysis to pay.
While still likely trailing the traditional on-demand supplier relationship management (SRM) vendors like Perfect Commerce (in terms of the on-demand functional scope or install base) or Frictionless Commerce and Ketera Technologies, Ariba, for its part, started down the on-demand path about four years ago when users increasingly said they wanted access to individual components in the Ariba eProcurement module. Over the past year and a half, Ariba has gone to a single instance, multi-tenant architecture for all of its solutions. This option has been optimized for the lowest possible total cost of ownership (TCO) and for the quickest time to go-live and get results. Nonetheless, there is a trade off—configurability versus customization. On the other hand, the hosted (dedicated instance) deployments have been optimized to deliver maximum value to the customer's bottom line, since the integration and customization approaches are in the "behind the firewall" model so as to gain control and customized fit, but with inevitable trade off of time to results and cost.
Recognizing that successful spend management requires more than just technology or tools, Ariba's solutions combine technology with the expertise and knowledge of its more than 30 category managers, 400 sourcing professionals, and 700 spend management global experts and process engineers, with the supporting services needed to ensure spend management savings get to the bottom line. Offered on a subscription basis and delivered in flexible packages, Ariba's on-demand offerings make spend management more affordable, easier to get started, and scalable for companies of all sizes. Namely, a company of any size can broadly deploy the basic on-demand package for an entry-level price per user per month. For large enterprises that prefer a perpetual license relationship, Ariba maintains its traditional license pricing model as well.
The three on-demand Ariba Spend Management solution packages are as follows.
- Ariba Spend Management Basic Package. This package aims at enabling small and mid-sized companies to rapidly, easily, and cost effectively begin to benefit from the software, domain expertise, and best practices the world's leading companies have been using for years. Ariba Spend Management Basic Package solutions include all of the Ariba Spend Management core functionality, such as basic support and basic empowerment, delivered through an on-demand shared, multi-tenant delivery model.
- Ariba Spend Management Professional Package. This package will deliver more sophisticated spend management capabilities in an on-demand delivery model. Professional Package solutions include all the capabilities of the Ariba Spend Management Basic Package option, with the addition of advanced functionality and flexible configuration capabilities, advanced support, project support, and training services.
- Ariba Spend Management Enterprise Package. Also with on-demand delivery, this package aims at opening the full power of spend management to large enterprises that wish to achieve competitive advantage through comprehensive spend management. This level should logically deliver the maximum value from Ariba Spend Management solutions, and it includes prioritized support twenty-four hours a day, sevens day a week; interactive training; expert services; and extensive customization capabilities.
As issues of Internet security, privacy, and multi-vendor product interfaces are addressed, the number of vendors adopting SaaS and other business models will undoubtedly grow. In fact, while security is often mentioned as an issue, as far as we know, there have been no security problems with the Salesforce.com models, and sales data is certainly an area of high risk. In addition to requiring user sign on, there could be virtual private network (VPN) access, which is as protective as internal security. For diverse mash-up deployments, Jamcracker Service Delivery Network provides an array of related services, like single sign-on, provisioning, billing, support, etc.
Prospective SaaS customers should not be overly concerned with semantics and the vendors' marketing gimmicks, but rather view their SaaS or on-demand needs as part of the long-term strategy, bearing in mind requirements like mobility, collaboration, cross-functional process integration, compliance, etc. After identifying which parts of a business could be served well by on-premise, traditional hosting or outsourcing, or SaaS or on demand applications, SaaS should be piloted in an isolated part of the operation to test the features and identify any possible flaws. Where uptime is the issue, users might want to check out whether off-line replicating product versions can do the job while Internet service is down.
In general, using hosted arrangements will make sense, both as a solution and as a cost reduction exercise, for manufacturers in high technology and electronics, and similar, complex manufacturing segments that are already outsourcing portions of their manufacturing operations or are dispersed geographically with their own manufacturing and distribution centers.
As with any decision of strategic importance, the decision to use a hosted applications service requires due diligence. This is pertinent to both providers and potential customers. The promise of reduced implementation risk and time, lower upfront costs, etc. may justify the hosting model, but there is also an entirely new set of issues that a mid-market organization has to consider. Some of the issues that need to be considered include the technical capability of the provider to administer the program, its industry focus, applications customizability, the ability of the ASP to guarantee connectivity, the pricing model chosen, and the negotiation of the service level agreement (SLA). These issues need to be addressed in conjunction with evaluating the capabilities of the software package, and understanding whether the hosted offering differs from the traditional licensed offering at all. Clients should diligently and comprehensively evaluate the benefits, as well as the potential business constraints of the hosted option, and they should make assessments based on references.
Generally, the following types of enterprises should consider using hosting or ASP services.
- Those with limited investment capital and those that do not have an IT department
- Those that do not anticipate a high rate of change in the way they do business
- Those investing in an application to streamline costs rather than to enhance revenue
- Those that can jettison most of the organization's aged legacy infrastructure
- Those that lack resources for the rapid implementation of a distinct project that possibly does not require complex integration with existing applications (e.g., HR or payroll administration, e-mail, etc.)
Look for the following characteristics among the hosting vendor or ASP candidates.
- Amenability to reasonable customization and interfacing to legacy systems
- Service-oriented architecture (SOA) and Internet-based architecture, and standards-based interfaces
- Support for specific vertical industries or business processes
- Hybrid services that can coexist with on-site systems
- Sound policies for privacy and security
- A sound track record of SLA maintenance at originally quoted price levels and a quick payback
- Sound financial viability and geographic coverage
- The ability to track and provide key metrics for application and network availability
To recap, major potential hosting advantages include
- More predictable, fixed costs for the customer. With the on-demand setup, users will pay only for software that is actually used, which changes with variable demand.
- Reduced setup and configuration time, limited customization, and greater operational simplicity (Web-based applications are inherently mobile), which should be attractive to new, start-up businesses and business units, which will also be able walk away at will
- The fact that all upgrades are applied to the hosting provider or ASP site-based servers. There is no need for client or desktop upgrades.
- Reduced need for internal IT support, since the enterprise applications maintenance is performed automatically by external experts (i.e., the provider manages the servers, backs up the data, updates the application, etc.)
However, major potential hosting disadvantages include
- Potential security risk, since customers' confidential and mission-critical data reside off-site at the hosting provider's or ASP's location. There is vulnerability with regard to Internet security too.
- The fact that it becomes more costly over the long run, especially with declining traditional software license fees. Even if it is initially cheaper, it is not necessarily better, since there are ongoing expenses and the company will not own the software, which is problematic if the contract ends.
- It still offers little or no support for software modifications or customizations and integration to key legacy systems. Without major customization it might be hard to change business practices to match how the hosted solution conducts business.
- Decreased control over infrastructure and deployment, and dependence on the provider for the quality and prioritization of IT services.
This concludes Part Four of the four-part Software as a Service Is Gaining Ground series. Part One discussed the emergence of SaaS, and Part Two described key features of SaaS, while Part Three looked at some SaaS vendors.