Tipping Points in Enterprise SaaS

Proving the Promise
A core tenet of SaaS has always been that it is a lot cheaper than on-premise software.  This is based on the fact that there are no upfront license fees, and no hardware, maintenance or upgrade costs. As with all technology shifts, this promise has been met with healthy skepticism and not a little FUD from the incumbent on-premise vendors.

But I think we’re at a tipping point. Why? Because now that customers have a year or two under their belt with enterprise-class SaaS solutions, they are proving the promise. My conversation with McKee foods this week is a great example.

Another recent example is from industry analyst firm Forrester Research, which recently published a paper entitled “The ROI Of Software-As-A-Service,” in which they evaluated SaaS in a number of scenarios, including CRM and HR.

The report goes beyond the basic traditional economic analysis of SaaS (hardware, IT costs, etc.) I took away 2 other vital points:

  1. SaaS is a lot better than on-premise in the critical dimensions of time taken for, and pervasiveness of, user acceptance
  2. SaaS is not only cheaper up front, but it also cheaper over time

The key analysis, based on real customer experience, is that SaaS for Human Resources showed a 26% ROI over a 5 year period.  That analysis is very impressive, but it important not to overlook the other two points.

The reason to make multi-million dollar investments in enterprise applications is so they have a significant, positive impact on the way you do your business.  So cost savings is important, but the fact that end-users are more quickly and more broadly adopting these solutions has the potential for major long-term impact.  Enterprise applications that are actually used by the enterprise. What a concept!

The Enterprise Call for SaaS
The Forrester report represents a shift from their analysis just a couple of years ago that indicated SaaS was less attractive for larger companies.  Clearly it appears you don’t have to be small to be interested in cost effective business solutions.

That’s certainly the message from CIOs at Fortune’s Infotech 40 this past week.  In a discussion about cloud computing, the CTO of one of our big, on-premise competitors explained their ongoing efforts to introduce SaaS products for smaller companies and positioned cloud solutions as “add-ons” to their on-premise cores.  This sparked a lively discussion about the general need for more cost effective enterprise solutions, as three CIOs (from big, global brand-name companies I might add) in a row questioned whether the software giant “gets it” when it comes to the high cost of current on-premise solutions and the cost savings possible with the cloud. I’d call that a tipping point.