Debunking SaaS Myths

Gartner VP Robert P. Desisto has recently publish research entitled, "Fact Checking: The Five Most-Common SaaS Assumptions" to help people understand more about Software as a Service and debunk potential myths.  Of course, I couldn't let this one go without commenting on it.  So here it goes:

Assumption 1:  SaaS is less expensive than on-premise alternatives.  Gartner claims that this is true for the first two years, but may not be true from an accounting perspective after year two since equipment is depreciated over time.

From the SaaS perspective I found this interesting because while it may be true that depreciation reduces the accounting perception of cost of ownership, we need to remember why depreciation exists.  Depreciation reduces the value of the on-premise alternatives because of usage and obsolescence.  The only way to deal with usage and obsolescence with on-premise alternatives is continued investment to keep it running and not be obsolete.  SaaS infrastructure is continuously updated to keep up with usage and SaaS software is continuously updated to stay relevant and not be obsolete.  Any SaaS vendor worth their market cap operates in a way to ensure that you won't be on an "outdated" SaaS application or infrastructure at risk of breaking because of heavy usage.

Assumption 2:  SaaS is faster to implement than on-premise alternatives.  Gartner reminds us that large and complex implementations will reduce the gap between fast SaaS installations and longer on-premise installations.  This is in large part because the customization necessary is the same for both on-premise as well as SaaS implementations.

From the SaaS perspective I have seen some very large implementations that take time to integrate and tailor to meet the customers needs.  However, there is an important thing to remember.  When an on-premise implementation needs a new feature or something fairly significant that isn't already accounted for in the SDK or API, the development cycle to get that update is very long.  When a SaaS implementation needs a new feature or something significant that isn't already there, the development cycle to get that update is usually shorter since SaaS cycles release more frequently.

Assumption 3: SaaS charges you only for what you use.  The fact checking done by Gartner found that the vast majority of SaaS pricing actually requires a contract regardless of how much you use.

From a SaaS perspective I can say that the pay-for-what-you-use model does exist and it is available.  However, I have found that our customers are driving the demand for a pricing model that is more predictable and steady as well as contracts that bring the partnership together with terms as opposed to a month-to-month relationship.  SaaS vendors are happy to fulfill the customer's desires in both pricing scenarios.  Frankly, having a contract in place helps SaaS vendors with capacity planning and helps the customer feel secure in the long term viability of the solution.

Assumption 4:  SaaS does not integrate with on-premise applications or data sources.  Gartner found that this was simply not true.

SaaS is very capable at integrating with on-premise applications and data sources.  This is one of the significant reason why I believe that SaaS has had such a re-birth from the old ASP days and is winning today.  Integrating through batch processes or real-time web services are both viable and widely available solutions for tying SaaS directly into legacy on-premise applications.

Assumption 5:  SaaS is just for simple installations with basic requirements.  Gartner found that this is not true either.

SaaS applications are very strong and are usually happy to compete head-to-head with even the most mature on-premise alternatives.  In fact, SaaS vendors are keenly aware that the sustainable SaaS applications are those that meet the needs of even the most complex customers and can fit into business processes that involve more than just the SaaS application, but also integrating into other SaaS and on-premise applications.

Have you found any of these assumptions to be true or false for yourself?  I would love to hear your story.  Drop me a note at greg.smart@incontact.com

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