Estimated reading time: 2 minutes, 21 seconds

SaaS-based Models Are Not Too Close for Comfort

saastaxIt appears, based on’s recent survey of SaaS-based solutions for EDI and supply chains, that there’s some trepidation about software-as-a-service. So much so that more than half (56 percent) of the survey respondents said they aren’t comfortable using SaaS for their ERP services, and almost half (45 percent) said they aren’t comfortable with SaaS for their supply chains.

Frankly, I was a bit surprised. SaaS isn’t new, and according to market research, it’s growing. The idea that SaaS can deliver services much in the same way utilities deliver water or electricity and lets companies subscribe only to those software applications when they need them (paying only for what they use) is appealing to many companies.

SaaS has its roots in the Application Service Provider (ASP) model, in which service providers hosted and maintained applications for customers at the vendor-owned and operated data centers. The poster child of the ASP model is, of course, The ASP model didn’t pan out, largely because ASPs relied on high-cost delivery mechanisms such as private networks and the applications were proffered via traditional licensing models. Today’s SaaS offerings are more than just hosted offerings. They leverage the Internet as the development and delivering platform and use a pay-as-you-go subscription structure (and it’s important to note that, which took the CRM world by storm back in the day and grew quite rapidly, is still around and now leverages a SaaS-based and even more evolved cloud-computing platform).

Plenty of folks must be using SaaS-based services, because according to market research firm Gartner, worldwide SaaS revenue within the enterprise application software market is forecast to surpass $8.5 billion in 2010, up 14.1 percent from 2009 revenue of $7.5 billion.

The promise is that SaaS is a cost-effective and robust model for applications. Many offerings are based on multi-tenancy architectures, meaning a single instance of the software runs on a server and can serve multiple client organizations (tenants). Typically, the vendor takes care of the support, training, infrastructure and security risks in exchange for the recurring subscription fees. Thus, support costs are reduced, as are maintenance costs. And the need for excess capacity, such as on-hand server capacity to handle high transaction volumes during a sales promotion, can be eliminated.

It’s hard for me to pinpoint exactly why the respondents to our survey aren’t comfortable with SaaS models. My guess is that many are still concerned with security and privacy issues. After all, ERP and supply chain data is data that most companies like to keep under lock and key. And when looking at the survey responses, the application that garnered the least amount of uncomfortable feelings for SaaS models was sales and marketing (about 34 percent).

I’m interested. Let us know what’s holding you back from SaaS.

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