Jeff Fantalis, InterDyn AKA comments on ERP and SaaS
There has been a lot of discussion over the last year or two about ERP solutions and SaaS (Software as a Service). Many people are touting SaaS as the replacement for on-premise software. Yet when you look closely at it, the ROI just does not add up in many cases.
Let’s break down what a SaaS solution is:
- ERP Software Implementation and Ongoing Maintenance.
Does having a solution run in a SaaS environment make it any easier to implement and maintain? It still needs to be installed, it still needs to be customized to meet your needs and it still needs to be maintained. You often hear about how much easier implementations are with a SaaS solution. Why? The reason is, in a SaaS environment, you are often getting an out of the box implementation with little to no customizations. That does not work for most ERP clients (if it did, couldn’t you do the same for on premise?). As for maintenance, if it is right out of the box then the SaaS provider can usually provide support. Once you customize it, most often you are on your own.
- Software Purchase
For a SaaS solution part of your monthly fee is for the use of the software (also called Term Licensing). Typically the breakeven on the software is about 3 years. After 3 years the solution will cost you more. Do you plan to run your ERP solution for more than 3 years?
- Infrastructure Software
You can get a little savings in that the SaaS provider usually uses the exact same environment for all their clients so infrastructure software can be setup very quickly. This is likely to be negligible.
If the software can run in a multi-tenant environment (allowing more than one company to have the software run on the same piece of hardware), some money can certainly be saved.
- IT Support of Infrastructure and Hardware
Assuming your company already is supporting these type of environments, how much more work is it to throw another couple of servers into your server farm?
Many of the costs above are not direct to the client. The SaaS provider is lumping all these costs into the monthly fee but think about it…if it costs money to do something on your behalf, don’t you think you are paying for it? In fact, let’s take infrastructure maintenance. If we assume you have a server farm you are supporting and they have the same, it will cost them about the same amount to maintain your environment. Let’s even say it costs them less because they are managing more. Now you have to add their profit for providing that service to you. In all cases, everything they are doing for you is going to be based on their cost plus their profit.
There is the argument that the up-front costs for SaaS are much less. You don’t have to put out the money for hardware and software up-front. That is certainly true but of course you could take out a loan for the project and spread the payments over 3-5 years and get something similar.
Just so you don’t think this is only one man’s opinion on SaaS, Gartner recently did a survey with SaaS users. They summed up the response as the clients were “underwhelmed”. I think they were underwhelmed because they went in thinking that SaaS was somehow going to magically make software better, faster, cheaper and easier to use.
Another thing to consider with SaaS is the loss of control of the environment. What happens when the SaaS provider has an outage?
So is SaaS just a mirage? Is it always going to cost more over the long run? No, there are situations when I think SaaS can be a good choice:
- A small company that does not have the IT staff to support this “new” platform. In this situation, the small company cannot afford a full time person for just one system so they get great value.
- A larger company that has decided to SaaS out all the technology in a particular platform so they don’t need any IT staff to support it. This works because the company can have no IT support for that platform.
- When you think you are only going to run the solution for a short period of time (although if you are only going to run an ERP solution for a very short time, you might want to rethink doing anything)
For non-ERP solutions you can find some additional scenarios that provide value and I am sure I am missing some within the ERP world. The bottom line is this…consider whether the SaaS provider is able to have major savings over what it would cost you to run the software on premise. They have to be able to save enough to add in their profit and still have some good savings left to pass on to you for it to make sense. Otherwise you will purchase the SaaS solution and get a call from Gartner in a couple of years and tell them that you are underwhelmed.