Supply Excellence — SaaS Disrupts Old-School Thinking

SaaS Disrupts Old-School Thinking

March 6th, 2007 · by Tim Minahan · 1 Comment · On Demand/SaaS

It’s been a decade since MIT wonk Clayton M. Christensen coined the term “disruptive technologies” in his now legendary book The Innovator’s Dilemma. Professor Christensen defines disruptive technology as a “technological innovation, product, or service that eventually overturns the existing dominant technology or product in the market.”

In layman’s terms: every once in a while something comes along that shakes the very foundations what we previously accepted as fact. Consider this: Ten years ago, who would have guessed that we would be shelving film-based cameras for digital alternatives? (Certainly not Polaroid.) Or this: Five years ago who would have believed we would be downloading most of our music from the Internet? (Certainly not the record companies. Or Tower Records.)

There is mounting evidence that Software as a Service (SaaS) is shaping up to be the disruptive innovation for enterprise business applications. I’ll spare rehashing the total cost of ownership (TCO), innovation, or time-to-value benefits of SaaS. (Although, I’ve provided handy links to previous rants on these subjects.) Instead, I’ll point to recent market events that bust myths about SaaS limitations and demonstrate that the delivery of software as a shared, Web-based service is not only an acceptable but preferable method for enterprise application delivery.

In the latest Optimize Magazine, Credit Suisse Software Analyst Jason Maynard writes: “The conventional wisdom is that On-Demand software is appropriate only for small businesses. Nothing could be further from the truth.”

Maynard lists several factors that are driving “large, forward-thinking organizations” to adopt SaaS solutions. I’ve summarized Maynard’s findings below (but you can read his complete editorial here):

Large companies are realizing that purchasing [SaaS] leads to “faster time to value and better producitivity compared with the lengthy implementation cycles and high failure rate of enterprise software.”
In addition to lower licensing costs, SaaS offerings offer the biggest cost savings over installed software by eliminating the need for enterprises to install and maintain ”hardware, or high database, systems-management, labor, or ongoing systems-maintenance costs that can eat up 80% or more of most IT budgets.”
Many CIOs are using SaaS solutions to “avoid lengthy custom-development cycles and to get applications into the hands of the businesses much more quickly.”
SaaS vendors ”have more rigorous security audits than most” application vendors and have ”built-in capabilities that let customers comply with Sarbanes-Oxley Section 404, GAAP, FASB, SEC, and AICPA regulations.” A number of SaaS providers have even become SAS 70 Level II-certified, indicating that the provider has been audited for proper controls and safeguards in managing data.
SaaS vendors support all customers from a shared instance of the application “the advantage of having just one version of an application means that these companeis can focus their development dollars on new innovations versus supporting old [application versions].”

But don’t take Maynard’s word for it, just review the growing tsunami of announcements from SaaS vendors (including my employer) heralding long-term commitments from some of the world’s largest companies. While I make it a point to avoid referencing my day-job employer (or any vendor) in Supply Excellence posts, it is appropriate in this case to share some examples of large-scale SaaS deployments: Consider the major media company with 1,500 users using my employer’s contract management solution. Or the Fortune 10 conglomerate that has a global, multi-year subscription for more than 4,500 sourcing users.

But even these impressive enterprise-class examples are dwarfed by Salesforce.com’s announcement last week that Merrill-Lynch signed a subscription for 25,000 financial advisors.

Events like these bust misconceptions that SaaS is for small companies or is a short-term strategy until the ERPs catch up. And they signal the arrival of SaaS an industrial strength, preferable, and disruptive platform for enterprise application delivery.

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