The purpose of this article is to provide an aid for decision makers evaluating service desk solutions, and specifically explores how the new Software-as-a-Service (SaaS) model compares to traditional on-site implementations.

ASP is not SaaS

Here at OP Software we are particularly concerned with evidence from analysts and industry bodies regarding the misleading way in which some vendors are jumping on the bandwagon and presenting their offerings as SaaS when in fact they are not. This article attempts to make clear the distinction between SaaS and other models such as outsourced hosting and ASP.

OP Smartdesk is available for both on-site install and as a true SaaS service.

Single tenant vs Multi tenant

The first and most important distinction to make between the two models is that traditional on-site implementations and ASP solutions are single-tenant whereas SaaS is multi-tenant.

A multi-tenant application has one shared interface and one instance of the application, with data securely separated for each customer. This enables the vendor to leverage economies of scale by sharing the back-end infrastructure, reducing support costs and upgrading all customers at once.

A single-tenant application has one implementation per customer. Back-end infrastructure is not entirely shared amongst customers. Each customer has to be upgraded separately. This is true whether the application is installed on the customer’s premises or at a data centre such as in an Application Service Provider (ASP) model.

ASP is not SaaS because it involves single-tenant applications and at least some of the back-end infrastructure is dedicated to individual customers.

Both the Service Desk Institute and analysts at Gartner have warned customers to be wary of vendors branding their solutions as SaaS when they are not multi-tenant.

Gartner define SaaS as “the delivery of multi-tenant service from a remote location over an internet protocol (IP) network via a subscription-based outsourcing contract.” They also warn that it is important to note the differences between SaaS and hosting or application outsourcing, observing that: “Because the SaaS/on-demand market is ‘hot’, many suppliers are rebranding their hosting or application management or application outsourcing capabilities as SaaS/on-demand.”

The Service Desk Institute also commented in a recent report: “It is very important to define what SaaS is not, particularly as many legacy vendors with Application Service Provider (ASP) models will try to persuade buyers that they are offering SaaS products, when they aren’t.”

Total Cost of Ownership and Return on Investment

Both TCO and ROI are underpinned by the vendor’s business model, which differs significantly between on-site and SaaS vendors, creating very different vendor/customer relationships.

A traditional software vendor charges a high upfront cost for the licences and consulting services, and a smaller annual fee for support. After the initial sale, they won’t get much from the customer. So they rely on customers upgrading every few years, or becoming dissatisfied with their existing vendor and switching.

Compare this to SaaS vendors. Because the business model is based on ongoing revenue and continual upgrades, they can gradually introduce changes to their application to maintain compatibility with new platforms. They never have to “encourage” customers to upgrade every few years. And because there are no inflated upfront costs, high levels of customer service have to be central to what they do in order to retain customers.

The traditional model benefits from customer churn and relies on high upfront costs. The SaaS model relies on customer satisfaction and steady subscription fees.

Getting back to our original issues of TCO and ROI, we can see that in the traditional model there are high upfront licence fees for the customer and every 3 or 4 years they will be forced to purchase an upgrade or replace the system.

In addition, studies have shown that the cost of the software is typically a small proportion of the total cost of running and maintaining on-premise systems.

Gartner estimates that more than 75% of the IT budget is spent maintaining and running existing systems and software infrastructure.

Both Gartner and IDC found that customers spend up to four times the cost of their software licence per year to own and manage their applications.

Is SaaS Here to Stay?

It is tempting to think that SaaS is just another marketing trick but the evidence clearly indicates otherwise.

The Software and Information Industry Association (SIIA) predicts that 10 million companies will be using SaaS in the next 3 years.

Gartner have said that the SaaS market will more than double, reaching $14.8 billion in 2012, and 25% of all business software will be delivered under a SaaS model by 2011.

A recent Gartner survey also found that 9 out of 10 companies will be increasing their use of SaaS in 2009, citing cost effectiveness and ease of deployment as primary reasons.

IDC expects SaaS growth to rise by more than 40% in 2009.

OP Software’s own sales figures also make interesting reading. We offer our helpdesk system for both on-site install and as a SaaS service, with software costs (not TCO) breaking even over 3 years. We let customers decide which model suits them best and so far over 80% have chosen the SaaS model, again for reasons of cost and ease of deployment.

Conclusions

Software-as-a-Service is a viable and proven model which has sustainable benefits and there are some tangible differences which enable decision makers to objectively determine which model is most appropriate in a given situation.

In the service desk market, legacy vendors are confusing the issue by touting ASP and other models as SaaS. Customers should be careful to establish whether a vendor is offering a true multi-tenant SaaS solution, or risk missing out on some of the real benefits of the SaaS model.

Sources

Gartner
www.gartner.com

Service Desk Institute (SDI)
www.sdi-e.com

The Software and Information Industry Association (SIIA)
www.siia.net

IDC
www.idc.com