Sold on SaaS

Software as a service has so delighted CIO Jonathan Earp at Informa PLC that he's positioning his company, and his IT staff, for the next step. That's a move to the broader concept of cloud computing, which provides other resources in addition to application software as Internet-based services. "Instead of buying another million dollars' worth [of storage], I'm asking my storage engineers to change their strategies to include outsourced storage as a service," says Earp.

He's sold on SaaS and on cloud computing. "I think this is revolutionary," Earp says. "I think the number of servers in our data center will drop significantly over the coming years. If you are a start-up now and you are buying a server, you haven't really done your homework."

Computerworld recently checked in with four companies that have done their homework. We found the typical pros and cons with SaaS, as well as some less obvious issues. But overall, enthusiasm among users was high.

SaaS to the Rescue

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    • Company: Nobel Learning Communities Inc.
    • Location: West Chester, Pa.
    • Business: Management of 160 preschools and elementary and middle schools in 13 states

Tom Frank is pretty, well, frank about what he found at Nobel when he got there in 2004. "The company wasn't in very good shape, and one of the things it lacked was any kind of IT infrastructure," says Nobel's chief financial officer.

There were 150 databases, and each school had its own systems and its own financial chart of accounts. "We had a hard time understanding what the heck we were selling," he says.

But there were systems -- if you count the backs of envelopes and DOS-based PCs. "We had to make the information more uniform, and we had to get control of it," Frank says. "We looked at software as a service. It was a way to quickly ramp up without trying to develop our own [software] or pick up a product and modify it."

Developing or buying systems would have required building or leasing a data center, he notes.

Instead, Frank contracted with NetSuite Inc. to provide financial and CRM applications via a Web-based service. He got them running in just 45 days.

Frank says he's thrilled with the results, but he acknowledges that SaaS has drawbacks. "You are pretty much subject to what they determine to be best for a large majority of their customers," he says. For example, NetSuite offered a report comparing actual to budgeted financial data but none that would compare current-year actuals and current-year budget against prior-year results. Nobel ginned that up with Excel spreadsheets, extracting the required data from NetSuite.

Scott Witmoyer, vice president of IT at Nobel, says SaaS users also sacrifice something in the way of flexibility. SaaS vendors tend to offer just one version of an application -- that's where the economies come from -- and when it's time to migrate to a new release, users generally must go along. "That could be a problem if you are midstream in an end-of-quarter close and you want your applications to be incredibly stable during that time," Witmoyer says.

Should users test these new releases? "Absolutely," he says.

Witmoyer adds that SaaS customers must live by the 90/10 rule -- "You'll get 90% of the functionality you need, but for the other 10%, you'll need to figure out another way."

Asked if forgoing that 10% is worth it in return for the other advantages of SaaS, he and Frank answer simultaneously, "Absolutely."

Frank sums up the argument for SaaS this way: "You want to allocate your scarce IT resources to advancing the business, not the IT infrastructure."

SaaS Showdown

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    • Company: Informa PLC
    • Location: London
    • Business: Scientific, academic and professional information services, databases, conferences and training
Informa has a diverse product line and is a decentralized organization, with offices in 40 countries and regional CIOs. The company's IT reflects that model, says CIO Jonathan Earp, who is based in Westboro, Mass. And therein was the problem.

Informa had centralized SAP systems for back-office functions like accounting, but each of the front offices -- where sales and marketing took place -- "was left to find its own solutions," Earp says. Even more diverse systems came in via a string of acquisitions, and by 2006, it was time to bring some order to the chaos.

So Informa standardized on a sales force automation offering from SaaS provider Salesforce.com Inc. Many of the old sales systems went away as a result. "Functions are more integrated now, more secure, robust and stable," Earp says. "They are also better managed, and that's an important point."

He says Informa was able to tailor the Salesforce.com services for each of its five lines of business.

But while Salesforce.com was the system of choice for Informa's salespeople, the chief marketing officer wanted to tailor a custom-developed marketing system that she had brought in with an acquisition. "We would have had all the problems you'd expect with a custom solution," Earp says. "It wouldn't scale, it was difficult to access remotely from sales offices, there were replication issues and quality issues.

"The chief marketing officer lobbied against Salseforce.com," he recalls. "She called it 'The McDonald's of CRM -- tastes great but has no nutritional value.' "

But Earp was adamant. "As the CIO, I have a buy-before-build mentality," he says. "I was going to go into building my own CRM system kicking and screaming." He finally got permission to go forward while the chief marketing officer worked on her custom system.

Now, two years later, the custom system is still in development, he says. And although it might not have been possible two years ago, systems from Salesforce.com and its partners are now capable of performing the marketing functions as well as the sales functions that Informa requires, rendering the custom marketing system redundant.

Earp says that SaaS offers a huge advantage over both custom development and in-house implementation of a commercial package such as SAP's CRM software because SaaS tools are easy to roll out to users a little at a time in a rapid prototyping fashion. This is important, he says, because even a package implementation involves a lengthy period of requirements definition, during which miscommunications inevitably occur.

"With SaaS, you are showing users something to react to, constantly," Earp says. "We in IT talk about agile development, but it's very difficult to do that. Business managers are married to their processes until they see something better. And when you go in with a blank sheet of paper, they are not seeing anything better."

Culture Counts in the Cloud

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    • Company: eHarmony.com Inc.
    • Location: Pasadena, Calif.
    • Business: Online dating service and relationship advice provider

For a company like eHarmony, the Web site is everything. The company's success depends on how pleasant and useful the site is for its customers, many of whom are looking for help in times of emotional stress. That's one reason eHarmony decided to devote its scarce IT staff to Web site development and optimization while handing off some everyday IT functions to SaaS provider RightNow Technologies Inc.

But eHarmony had another job for RightNow. It wanted to automate responses to routine questions from customers. RightNow developed dynamic FAQs for eHarmony that improve with use through feedback from customers via surveys. That helped reduce e-mail inquiries by 30%. "Phone contacts went up, but that's what we wanted," says Scott Ackerman, vice president for customer care.

He acknowledges that this is counterintuitive, since most companies want to steer customers away from personal contact and to their Web sites to save money. But eHarmony is different. "Our product is very emotional. Some people are struggling and don't have a lot of confidence, and there's a lot of value in getting them on the phone, where we can give them much greater value."

Ackerman says the process of embracing SaaS can start with a "black-and-white checklist" of functions, features, prices and so on. But finding a vendor with a compatible culture is important, too. "Like us, RightNow has a culture aimed at providing world-class customer care," he says. "We plan on having a long-term relationship with them, and we wanted a partner that understands our culture. That's critical."

Ackerman says he considered 10 companies before settling on RightNow.

He cautions that just because an SaaS provider has a tried-and-true packaged application, don't assume that users can tap into it like an electrical utility. RightNow provided the plumbing for the knowledge base behind the FAQs, Ackerman says, but eHarmony devotes one full-time person to maintaining and improving them. "RightNow is a great product," he says, "but it's not going to do it by itself. You need to put man-hours into it, and you need to analyze your data. If you just put it out there, it will work, but you won't get the bang for your buck."

SaaS to the Max

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    • Company: Dreambuilder Investments LLC
    • Location: New York
    • Business: Mortgage resolution and investment

Dreambuilder buys "nonperforming" mortgages out of the subprime mortgage swamp, and business is booming. In fact, Peter Andrews, president and founder of the mortgage investment company, says he probably wouldn't have been able to keep up with the growth if he had traditional in-house systems. And it's fortunate he has no in-house systems, since he has no in-house IT staff.

His IT staff works for Salesforce.com. Andrews uses its Partner Relationship Management (PRM) system to manage and track the investment deals that flow through Dreambuilder's national network of partners. He says he uses PRM "out of the box, plus a ton of custom objects" that he wrote himself.

Andrews explains that, although users typically can't modify the software behind SaaS, even nontechnical users can "customize" the application with the standard user interface provided by the vendor. The user just builds and populates tables that become part of the application's database, he says.

"I have a custom object for my private investors, another tracks my deals, another tracks my interaction with the first mortgage, one tracks my note buyers, and so on," Andrews says. "We use PRM to run every aspect of our business, from A to Z."

In addition, Andrews uses another external party to host software for running complex analytics to score mortgages, and he uses EMC Corp.'s MozyPro remote service for data backups. The only IT inside his four walls is the Microsoft Office software running on employees' desktops.

Andrews says his company will do US$8 million in business this year and $50 million next year and will be at $200 million within three years.

Won't he want some in-house systems and staffers by then? "No," he says, "because I spend about $2,000 per user per year on Salesforce. So we are spending maybe $60,000 per year, but that's a drop in the bucket compared to what I'd have to spend for an IT infrastructure."

Still, SaaS comes with some built-in worries, Andrews acknowledges. "You are taking a very significant risk that if Salesforce goes down, my company goes down," he says. "But we have been down a total of two hours in two years."

As for security, he says, "they secure the data of some of the largest financial institutions in the world. If [Salesforce] can secure their data, I'm not worried about my data."

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Copyright © 2008 IDG Communications, Inc.

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