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Software as a Service: The data center killer app

A midmarket CIO takes a pass on on-premise applications.

Build an IT shop without servers.

It's a novel idea, more a suggestion than a reality. But it is -- albeit to the extreme -- the concept behind the long-past-budding Software as a Service (SaaS) industry.

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Why, the SaaS vendors ask, should CIOs burden themselves with hardware, maintenance and in-house headaches? Why not have someone else do it for you? You can log into your applications from the Web. And you could save money.

Doug Harr subscribes to that. As CIO at Ingres Corp., which makes open source database management software, Harr is a SaaS true believer. His stated goal: an IT department built 100% on SaaS and open source applications.

"This is something that I started to anticipate years ago in my last job when we went through the last economic downturn," Harr said. "We were looking for ways to make IT spend more flexible. At the same time, we were noticing new software offerings coming to the market [that were] better than legacy counterparts."

"We found in each application there were viable SaaS alternatives on the market," he said.

After moving from the lead IT position at Portal Software about two-and-a-half years ago, Harr huddled with his new management and got to work on his master plan.

"I found that the others on the management team were very amenable to utilizing SaaS and open source as a 100% goal," he said. "I think everybody agreed that this was a good way to go. It needs to be in partnership with the business, so we set about starting with"

And off he went. Next came an Intacct Corp. product for financial management. Then human resources applications were switched out for SaaS. Next was hosted email, using BlueTie Inc., hardly an industry heavyweight.

Meanwhile, the rest of the IT world was catching on. SaaS may have been just a buzzword a few years ago, but the success of Inc. made the model appear more realistic. SAP AG put a lot of effort into Business ByDesign, the company's hosted ERP product for the midmarket. The company drew back some after Business ByDesign ran into problems early on, but SAP publicly committed itself to success. Dell Inc. purchased MessageOne, an SaaS email continuity application. Microsoft now pushes its Live series of Windows and Office products, which incorporate a heavy SaaS presence.

The list goes on, and to top it off, major tech companies are banding together to take advantage of the SaaS onslaught. In July, Yahoo Inc., Hewlett-Packard Corp. and Intel Corp. joined forces to further cloud computing research that could expand the capabilities and reliability of SaaS applications.

And a survey this year found that midmarket CIOs are more in love with the SaaS model than their enterprise-sized counterparts are. Researchers at Westport, Conn.-based Saugatuck Technology Inc., which conducted the survey, say midmarket CIOs are attracted to the quick deployment and potential cost-savings of SaaS programs.

"The move to SaaS seems pretty incontrovertible," said John Brody, vice president of marketing at TriCipher Inc., from which Harr recently purchased a SaaS single sign-on service.

"I would say five or six years ago the model was looked at dubiously: 'Can I trust it?'" Brody said. "I think people are rapidly getting over their concerns because the model works for them."

Harr said employees at Ingres have taken to the SaaS applications he is using. And he waves a dismissive hand at two major concerns about SaaS: security and connectivity.

"The people that tend to be afraid of it are people that are sometimes, I think, much more focused on their masterful running of their data centers and their infrastructure than they are on the solution itself," he said.

I think people are rapidly getting over their concerns because the [SaaS] model works for them.
Jon Brody
vice president of marketingTriCipher Inc.
Liz Herbert, a senior analyst at Forrester Research Inc., said other CIOs are attempting to implement a large number of SaaS applications. A 2007 Forrester survey found 47% of small and midsized businesses using three or more SaaS applications.

How well a multiapplication SaaS strategy works depends on a variety of factors, Herbert said. Chief among concerns is integration. Business unit leaders will sometimes go around IT to make a SaaS purchase. But if the product doesn't mesh properly, it could lead to disaster or, at the least, a lot of point-to-point coding.

Security remains a concern, Herbert said, and due diligence is in order there. Of course, some SaaS vendors might offer better security than a company would conduct on-premise, she pointed out, adding that Forrester has not come across any "serious" security problems with the SaaS model.

Total cost of ownership, though one of the major reasons CIOs look to SaaS, is not a given. With the SaaS market so fragmented -- some tools may handle only a single task -- CIOs need to plan ahead lest they be left with a tangled mess of applications and service contracts.

"At a higher level, when you're thinking about this SaaS strategy, given the state of a lot of SaaS applications you could end up having to cobble together potentially more SaaS applications than you would in the on-premise model," Herbert said.

The still-developing concept of a Platform as a Service could bring a number of applications together and simplify some of the integration and management hassles, she said. But don't count on that as a sure thing.

"In theory, you could think the space might evolve that way," she said. "In reality, it's pretty immature."

So where can't SaaS go? Harr said he would ideally run a business where "roughly, the infrastructure of the office is a wireless router and connection to the Internet." But he would continue to host his own intranet and internal report writing applications. "[But] it doesn't go much further," he said.

All said and done, that could leave Ingres with, in Harr's words, "one rack in a closet."

Let us know what you think about the story; email: Zach Church, News Writer

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