SAAS appeal, with a catch

Software-as-a-service has its attractions for SMEs, but some worry about being caught out by business data security concerns.

Small to medium-sized enterprise (SME) information technology managers are torn between the perceived cost benefits of an on-demand application business model and the potential lack of data security in such offerings.

The majority of Australian IT managers that Fairfax Business Research polled for a recent survey on their future software-as-a-service (SaaS) or hosted application plans regarded security issues posed by online intruders as an obstacle to

further adoption.

Collaborative document systems and related tools lend themselves to the external hosting environment, but IT managers are acutely aware of security concerns about using hosted financial applications: most believe sensitive data can be usurped

in transmission.

Seventy-nine per cent of survey respondents say one reason they may not sign up to use software hosted by a third party is because the security behind such applications is very important. Almost half the respondents say the reason they do not subscribe to a third-party-hosted application already is that their data could be either illegally hacked into or accessed in transmission. Also, 32 per cent say the control of software used by their organisation, and the information it holds, are too important to store and host offsite; and 35 per cent believe software-as-a-service is an application bottleneck and that if the internet were unavailable for any reason, they would not be able to access their applications.

The survey, which was commissioned by Telstra, polled 100 IT staff working in organisations of various sizes and found that 27 per cent of respondents saw cost savings as a benefit of the SaaS model.

Some respondents say they are confident of their ability to measure the total cost of ownership of their hosted software assets but not so certain of their ability to calculate return on investment.

Despite confusion in the costing estimates and a perceived lack of overall security, there is a warming attitude towards using SaaS in the SME space. Smaller businesses are considering this model because it reduces the complexity of their IT and removes some of the headaches of day-to-day application management.

Cricket Australia, the governing body operating from the site, has been considering the hosted model to collate, rank and eventually post weekly summer scores for suburban clubs, schools and states nationwide. Webcentral will host all applications. Cricket Australia wants to use the SaaS route because of the ease of access a central repository for applications would give regional and suburban clubs.

The sporting body is keen to use a hosted application, rather than spend money on multiple products and subsequent support problems. Cricket Australia says it does not have concerns over security because it would not be using technology to trap or send any data overseas or even to a third party.

This year, the governing body will launch a national participation portal hosted on the Cricket Australia website, so schools and suburban clubs can upload weekly match information. The organisation will also outsource the hosting of a customer relationship management (CRM) site, where people can download a form for match results, upload it to the site and compare run rates and bowling averages against clubs around the country.

The IT manager for Cricket Australia, Sheldon Dyer, has been looking into the SaaS model for the past six years. He says having wireless broadband at cricket events, both in lazy Saturday afternoon park cricket and during the professional summer series matches, requires the organisation to deliver a realistic IT strategy where people at any type of cricket event, regardless of level, can connect to their website, download a standardised form and submit their results.

"Volunteers scoring cricket matches have to use paper and pen to collect scores ," he says. "These volunteers are getting harder and harder to find, and using paper puts more workload on them. If we were to use a centralised software platform, we could remove this administrative burden.

"The younger demographic want to see their results online and compare statistics, so we're going to offer a community toolset. ... Cricket is so traditional, with so much history, and the rules have been developed over time, so a central repository for consistent rules was also important.

"We would also like to use technology to follow attrition and growth rates, identify talent early in the piece and easily develop high-performance programs."

At the moment, Cricket Australia's data on suburban clubs is collated from an annual census, which is conducted manually. Dyer says the organisation will release the on-demand application in time for the 2008-09 cricket season - and go to market for an appropriate CRM package early in 2008.

For anything from democratising internet services and cutting administration or application management costs to enabling quicker go-to-market strategies, an on-demand or SaaS approach as a means to a commercial end is being lapped up in select pockets of small to medium-sized businesses. It is also being pitched as the answer to the lack of availability of specialised skills and a way of saving on software purchasing costs.

The research Fairfax commissioned shows that 45 per cent of respondents say one benefit of the SaaS model is that their organisation's IT staff would not have to install and look after the software.

More than a third consider it an advantage of SaaS that someone else looks after the software upgrades and 7 per cent say using it allows an organisation to get something that they cannot afford to buy for themselves.

Only 27 per cent identified cost savings as a benefit of subscribing to a hosted service. It is not clear whether those cost concerns are related to paying for the subscription to access hosted applications, or the price associated with re-engineering business processes to allow one application as a service, thus removing it from the books as a capital expense and instead pitching its use as an operational expense.

Cost savings, in terms of hiring specialised staff to look after particular applications, was one of the reasons the Victorian government's urban property development agency, VicUrban, signed up to use an on-demand software package.

ICT director Sam Sangster says using hosted applications has also cut down the time sales staff waste following dead or dying leads.

Sangster, who is also VicUrban's financial controller, says using the on-demand system means the only different work-flow process for sales staff is that they access applications through a browser. For the 10-strong IT team (VicUrban employs 200 people) it also means no one has to specialise on any particular application. Sangster says the group's initial interest in SaaS was driven in part by its existing skill set.

"Size matters in these things, so the ability to support all applications in-house is one of the critical things in my consideration," he says. "If you already run a couple of hundred applications and add one more, then you're not making the environment that much more complex."

He says that the approach works well in a smaller outfit because of the simpler architecture and applications, compared with a typical enterprise firm.

"A lot of people don't like the idea behind SaaS and there needs to be a clear need to buy into it," he says. "You need to understand what you're trying to deliver to the business, and if you think you can customise such a tool, you're dreaming."

Selling SaaS packages may not be done through traditional outlets or even through the IT department, Sangster believes.

He warns that the IT department may have the SaaS idea foisted onto it by advertising or marketing staff, as vendors are pitching the hosted-application approach at them as a way to keep field or remote workers productive without the cost of a laptop and supporting infrastructure.

Key points

* Don't redesign business processes to suit an SaaS model.

* Consider your customers and other users and how they wish to use your applications.

* Don't consider SaaS solely from a cost point of view.

Enterprises don't buy cost savings

Players at the big end of town believe introducing an externally-hosted application - or SaaS model - into their existing infrastructure has the potential to disrupt concrete business processes.

Although enterprise firms have few qualms about using the SaaS model, some strongly believe the perceived cost benefits are of little or no consequence when software rental or licensing costs are weighed up against overall purchasing expenses.

The chief information officer for listed infrastructure services provider United Group, Liz Latham, says SaaS costing can be approached from two areas, either as a capital expense depreciating over time or through general operating expenses.

Although United Group uses only in-sourced applications, it is continually examining the SaaS model.

Latham says the SaaS model is appealing in some instances and that it does allow for rapid product or service releases, but she is concerned about how the SaaS functions would be integrated with existing business processes and their supporting applications.

"The advantage of SaaS, if you could call it that, is it does take away large, upfront capital investment, but there is always the implementation cost, which is an upfront investment," Latham says. She adds that whether you pay someone else to host and manage your applications or do it yourself, you have to pay somewhere.

Latham suggests that interested organisations think seriously about their core staff application competencies before even considering outsourcing the applications that they use.

In small and medium-sized enterprises, she says, the lack of application and business process complexity, when compared with unwieldy enterprise firms, allows enough flexibility to make something like SaaS work.

But as with any technology, application or IT approach, the tool itself is only a small part of it.

"People sit around any application and I think consideration needs to go over the whole impact of using or removing an application in an organisation," she says. "And you also need to look at internal costs, in terms of retraining staff.

"Deciding on using SaaS is no different from any application you would implement and you need to go through all the steps you would when acquiring other software, such as looking at how business processes will sit and regular change-management procedures.

"Even if you go to a hosted-application service provider, I don't think it changes the fundamentals."

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