Why SaaS will probably beat Enterprise IT (when it comes to non-core apps)

clouds for blog post.jpgAs enterprises adopt cloud services , you may have heard the advice that IT leaders need to focus on what is core versus non-core in their organizations. But what does this mean?

 

Non-core applications are those applications that don’t differentiate you. Typically, everyone in your industry will have these applications, and – provided your version of these applications run to a certain level of performance, compliance and security – they don’t offer you any differentiation. Non-core application usually include payroll, expenses, email, travel, collaboration platforms, social media platforms, and video platforms.

 

(photo : Karin Dalziel, flickr.com)

 

Many, like famed Crossing the Chasm author Geoffrey Moore, recommend having SaaS companies provide such non-core application functionality.  I become a convert to this concept only recently. I was on a panel discussing cloud at an online gaming conference in the UK. On the panel was the CEO of a European online gaming company. In my intro, I tried to present a taxonomy of cloud - public and private; IaaS, PaaS and SaaS. I said that people like Geoffrey Moore like SaaS because it would allow IT organizations to focus. The CEO on our panel nearly leapt out of his seat and shouted, “Yes, yes, yes. Every new hire is key to me. I don’t want to hire people for roles that don’t differentiate me. If I’m going to hire someone, I want it to be a brilliant game designer or a person who is amazing at creating an app to do the statistical calculations. I don’t want someone who does payroll”.

 

I find this really interesting - this was a CEO talking. It was the CEO who wanted his IT department to focus on things that would differentiate his company. He instinctively knew that hiring people to do non-core IT things would defocus his IT organization. The question becomes, does SaaS allow you that focus? Here’s a look at the advantages and disadvantages.

 

The advantages for a SaaS provider

 

Operating expense: SaaS companies charge on a per-use basis. Business or IT can thus pay for their services as operating expenses (OpEx) rather than having to use capital expenses (CapEx). A key advantage of OpEx is that it tends to move in line with business revenue: growing as the business grows and flexing down if the business shrinks. In addition, the business or IT can sign off OpEx at a lower level than is required by CapEx.

 

Commitment: An SaaS provider lives and dies by the service it offers. SaaS providers’ management will be focussed on their service offerings and that’s where they will put their best people. Not so for enterprise IT when it comes to a non-core application.

 

The power of scale: A successful SaaS, like Salesforce.com, has millions of users and hundreds of thousands of unique customers. So, any engineering they do gets spread over millions of users. This makes it extremely hard for a home-grown IT application to compete. In addition, this scale brings real advantages when it comes to automation (the setup cost of creating automation scripts is not that high when you’re only automating one thing) and performance spreading (being able to dynamically adjust resources over the entire customer base).

 

Agility: The combination of the “cloud” service delivery model, scale, and the focus that SaaS providers have on their offerings means that they tend to be very responsive to customer requests. Their client support is much more responsive and extensive than that offered by the IT department operating an ISV application or their own application. Also, SaaS providers can quickly and readily put up data analysis packs. And as creation and modification of business processes gets easies, I believe SaaS suppliers will provide integrations into the top business process management tools and cloud services thus allowing IT departments to readily create and modify business processes created out of SaaS services.

 

PaaS around the SaaS: Salesforce.com is a SaaS. And it’s a PaaS - you can create applications around a Salesforce.com installation. I believe the key SaaS suppliers will all allow the creation of applications around their SaaS applications. Facebook is another example of this - there are hundreds of applications created around FaceBook. Even iOS 6 has FaceBook integration!

 

The disadvantages of a SaaS provider 

Now let’s look at the disadvantages.

 

The cost of moving: The cost of moving from your IT enterprise operated application to a SaaS version will probably be high. There will be the cost of moving data and there will be cost of integrating the SaaS application into your existing business processes, data analyses and internal portals.

 

Security: When you were running your own, home-grown application you were a tiny, insignificant target to the hackers. But successful SaaS providers are nice big, juicy scalps to have on a hacker’s belt.

 

The synchronization of actions between the enterprise and the SaaS provider are also a possible source of security breach. Let’s imagine the enterprise finds out that Fred Badboy has been up to no good and they terminate his employment. Fred goes straight to the SaaS applications the company uses and does as much damage as he can. (These kind of problems are being addressed, however by services such as Ping Identity.)

 

Less control over functionality: If your IT department has created a non-core application for you, then you theoretically have lots of control over its functionality. (I would suggest, however, that over time the SaaS provider will probably give you a richer set of functionality over time than internal IT would - for a non-core application.)

 

SaaS can be more expensive: SaaS is “pay as you go,” whereas the internally operated application is front-end loaded.  If you grow very quickly, so do your SaaS costs and you may find in retrospect that it would have been better to have purchased a product and run it yourself.

 

What do you think about SaaS?

For me, the most compelling argument in favour of SaaS for non-core applications lies in the idea of focus. As someone who has spent 30 years in the business, I’m sure that the majority of products the world over would benefit from better and more innovative use of IT. This requires that IT focus management attention and its best and brightest on helping the business beat their competition, not on running non-core applications that I don't care about. 

 

Do you have a view on the future use of SaaS for non-core applications? Join us on the HP Enterprise 20/20 site where readers, community members, academics, partners and customers are contributing their insights into where IT is headed. We’ve started the discussion off with chapters about particular aspects of IT that we’ll then revise based on everyone’s input.

 

Related links

 

  *   How savvy IT leaders will go from adopting cloud computing to becoming SaaS providers themselves

  *   Cloud and Victorian Power Generators

  *   Which applications shall I own, and which shall I SaaS?

 

 Author : Mike Shaw

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About the Author
Mike has been with HP for 30 years. Half of that time was in R&D, mainly as an architect. The other 15 years has been spent in product manag...
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