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For many years, most technology vendors and consultants have lived on the premise that “there is margin in misunderstanding”.  Each decade, the Enterprise Software industry reinvents itself, just as clients and users alike start to figure out exactly what value they are, or in many case they are not getting.  And so it begins again with SaaS (Software as a Service) or otherwise known and promoted as Cloud Computing, which sounds way cooler, and says way less.

Cloud Computing or SaaS, explained in human terms, is simply a software solution that is stored on somebody else’s servers, and your company accesses your data via the web.  There are some very superficial benefits out there that are promoted by SaaS vendors.  Some of which include; lower cost of I.T. Maintenance, greater accessibility to your data, and quicker deployment times for solutions. Why I say that these are superficial is simply put, that they do not tell you the whole story. 

Having a history in the ERP (Enterprise Resource Planning) industry, and experience with both SaaS and local software solutions, which includes today, our organization utilizing both models, I would like to share what I believe the reason for the promotion of SaaS and Cloud Computing, and some of the hidden (or not so much promoted) reason it exists, and things to be aware of.

A good part of the resurgence of Cloud Computing, and yes I said resurgence… It is not new

History

From the software industries perspective, the value in most of their organizations, outside of the technology itself, is the reoccurring revenue stream.  Historically, software companies had generated approximately 45-55% of their annual revenues from the reoccurring revenue generated by Annual Support Contracts.  Many companies had purchased these support agreements at anywhere from 18 to 22% of the cost of their software, and after years of paying them, started to question what value they were truly getting from these agreements.   To most, it seemed, any time you made a call about the software, the support group would tell you it was a customization, and you would be billed.  Companies, in record masses, started to demand these contracts be renegotiated or cancelled all together.  After all, they owned the software, and it did most of what they needed, so why keep paying. 

Software companies began to lose revenues, and with no new customers to sell solutions to, what was the answer?  Change the game.  SaaS a.k.a. Cloud Computing, were a new way to create a dependency on the software organization.  After all, after a company had invested the time and monies into the new solution, and if change was hard, the companies were not likely to ever change.  And with the solution now being billed monthly, it would in fact replace the support contract, and the entire business model would be reoccurring revenue, the investors dream.

The Hype and the Reality

The SaaS and Cloud Computing industry continue to promote some key features:

Lower I.T. Maintenance costs – The idea being that since they have the servers, and not you, they will maintain them and it will cost you less.  While this is partially true, in many cases, most small and midsize organizations run on a single server, and don’t have to replace it weekly, or have somebody sitting over it.  In fact, it is usually the client machines that require the greatest amount of maintenance, and these don’t go away, and will still require the same maintenance.  Additionally, servers bought around a solution, don’t usually require changing through the life of that solution, and with many new more efficient applications are capable of running on nothing more than a powerful desktop computer.  Additionally, if there are issues with the servers (theirs), you are now left to their schedules to resolve.  If it is in your house, and something breaks, your IT guy, or somebody local, can usually have it resolved the same day, exactly when you need it, and it won’t require you depending on trying to explain your issues to an individual in another country, over the phone.  While the industry tries to say that there are no issues in the cloud, this is not the case.  See http://www.sitepoint.com/blogs/2009/02/25/gmail-dark-cloud/# for just one instance of the Cloud crashing.  If software giants like Microsoft and Google can have issues in the cloud, how does that fit with most small organizations?  Additionally, in the SaaS model, they schedule the system maintenance, which is usually done outside of 9-5, but they don’t consult you, they simply tell you when it will happen, and you are left to deal with it.  Many of our clients hold hours outside of 9-5, and can’t simply put their business on hold for somebody else’s update.

Greater accessibility to your data – This statement is true, only if you compare it to technology from 20+ years ago.  Under the SaaS model, you supposedly have greater accessibility; anywhere you have an internet connection…  Oh yes, the internet connection.  If your internet connection goes down for any reason to the outside world, you are left with no connection or access to your data even inside your four walls. We have clients in the mid-west, who on occasion, have been known to lose the internet for a day or two, due to tornadoes or other storms.  In this case, they would have no access to their critical business information for large lengths of time, putting their clients at risk.  In their case, they are working with OEM automotive, and if they can’t access their information, they can be out of business.  The reality is that technologies have existed for a while, and allow you to access your business information from anywhere in the world, without having to move the critical business data out of the security of your four walls.  So, you don't need SaaS or the cloud to access your local Solution.  The best part is, the use of this technology is already on most organizations servers, and is no additional cost.  The reality is that under SaaS, your data is not any more accessible, and in fact, may be less accessible at times.

Quicker deployment – Again, this is something that the SaaS industry benchmarks against old 20+ year technology.  They say, that it is easier to deploy, because you don’t have to install it on everybody’s PC, they simply open their web browser.  Once again, misinformation rules the day.  The reality is, many of the newer .NET based solutions out there have tools that automatically deploy the solution to both desktops and mobile computing devices, with the simple use of an email.  They are in fact, just as easy to deploy as any SaaS solution, and you don’t have to worry about the software being impaired because of updates to your web browser or its security. What they neglect to tell you, and which is what impacts most Business System implementations and updates, is the training time, and tailoring or customizations that slow things down.  Not simply installing the software. In our solution, we can actually send clients an email that is put in a folder, that can then automatically deploy new updates to all remote facilities, with no need for an IT person to do it, or ever get in a car.

Monthly Cost of SaaS vs. Upfront fees of local Solutions – The SaaS/Cloud Computing Industry tries to promote how much cheaper the SaaS model is, because you don’t have a large upfront cost.  What they also forget to tell you is that you also don’t own anything but your data.  And should you ever want to change, they will be very happy to turn off the switch and email you reams of spreadsheets containing your data, in its raw format.  With SaaS, it may be low cost up front, but you pay forever and own nothing.  It is the equivalent of renting a home vs. buying a home.  If you buy a Local Solution, then you own the solution, and should you ever decide to not want to continue with support, or you wish to sell your business, the local solution will be an asset of your business.  Additionally, even in a SaaS or Cloud solution, you still have to pay separately for any hardware for mobile computing, or for any training and consulting required to learn how to use, and to set up the solution with and for you.  If you look at a standard Enterprise Software Solution, you are only really looking at 1/3^rd of the true cost falling under the SaaS monthly billing, with the rest still having to be paid up front to consultants and hardware vendors.  To get the best of both worlds, we have found that many of our clients have gone the route of Leasing their Local Solution.  Many leasing companies have changed the rules, and now are willing and able to lease the Software, Services and Hardware, for up to three years, with costs being no more, and in many cases less than those of a SaaS solution.  And the best part of it, is that you own the product and the data, and on your terms.

Again, within our own organization, we actually use a SaaS CRM package.  We have found it to be a valuable tool to us, but more because of its design and functionality, and not because it is in the Cloud.  Additionally, if it were to go boom tomorrow, we would feel it a bit, but not cease to function, nor impact our clients.  Our own solutions that we have, can work under either model of SaaS or Local, but we simply believe that in our vertical of Third Party Logistics’ and Distributions that the Cons outweigh the Pros, and as such, do not promote it to our clients. 

There is a clever series of commercials out now by Ally Insurance.  These commercials focus on the misdirection and misconceptions created by the insurance industry.  Unfortunately these same commercials can be applied to the technology industry.  I think that SaaS and Cloud Computing have some good applications, but am challenged by the marketing of the perceived benefits in an Enterprise Solution, that are really no different than technology already available today in a Local Solution.  Simply put, while there are some benefits that are heavily promoted by those who choose to gain from Cloud Computing, don’t be swayed by the marketing of juggernauts like “big blue”.  Make an informed decision.

Anthony Allwood is President and Founder of Systems Logic (www.systemslogic.ca ), a leading provider of Warehouse Management Solutions to the 3PL and Distribution Industry.  With a long rich history in the selection and implementation of numerous mid-tier Enterprise Solutions, the success of Systems Logic, originates from their consultative and process centric approach to finding the best solutions for their clients.