The Software-as-a-Service (SaaS) delivery model is receiving significant attention as a surefire way to cut software acquisition and maintenance costs. Although SaaS can save enterprises money, SaaS solutions come with hidden fees, such as setup, training, and additional storage costs. The unsuspecting CIO can blow the budget if he or she is unaware of these extra costs.

SaaS - Sometimes More Sizzle Than Steak

Current industry buzz and vendors insist that SaaS is cheaper than either acquiring commercial off-the-shelf (COTS) software or building an in-house solution. This is a dangerous generalization. Typically, SaaS is a good idea that will, in some circumstances, save enterprises money. However, C-level executives that blindly adopt this delivery mechanism will invariably find themselves on the losing end of the deal.

In addition to being a software delivery mechanism, SaaS is also a form of software licensing. As with all licensing structures, there is no one-size-fits-all solution. This means that the rules have not changed. CIOs should assess SaaS solutions in the same light as standard delivery enterprise software, open-source software, and shrink-wrapped COTS software. Decision makers must ignore the hype and avoid the costly traps set by vendors when they oversimplify their SaaS offerings to get the sale.

The Six Pitfalls of SaaS

• Using the electronic versions of licenses and contracts. SaaS providers typically deal with their customers using electronic versions of their licensing agreements and contracts. These documents are long and difficult to read online. Unwary SaaS buyers usually get tired of reading these documents and click the "I Accept" button without fully understanding the nuances of the agreement. Salesforce.com, for example, has been criticized for its contract. Unwitting customers who increase their license count cannot decrease their number of licenses until the subscription period expires. This means that the customer may continue to pay for an unused seat.
• Setting aside purchasing best practices. Enterprises looking to SaaS tend to let their guard down when it comes to purchasing these solutions. Buyers can easily acquire and deploy these solutions without incurring any internal IT staffing costs. This leads to staff members, who are unaware of buying best practices and contractual issues, making the buying decision. As a result, vendor contracts are not properly scrutinized.
• Poorly defined Service Level Agreements (SLAs). SaaS vendors are inconsistent when it comes to providing SLAs. Some vendors include SLAs with their contracts. Others charge extra for providing SLAs and some vendors provide no SLAs at all. An SLA is essential, especially for business-critical SaaS solutions. Vendors usually stipulate that they provide 99.9% uptime and 24/7 support, but these terms can be nebulous. Vendors could refer to 99.9% uptime as "planned uptime." This means that SaaS vendors can have hours of planned system maintenance downtime each month. This leaves SaaS customers periodically vulnerable because they are without service and susceptible to potential loss of business in some circumstances.
• Assuming handheld and mobile devices are part of the deal. SaaS vendors focus on providing services for specific platforms and quote their prices accordingly. SaaS buyers with handheld and mobile devices have a tendency to assume that these devices are part of the SaaS deal. However, most SaaS vendors charge a premium for mobile and handheld device support. This additional charge typically doubles the monthly per user cost of the SaaS solution. Buyers unaware of this premium must quickly cancel their service or bear the additional cost until the contract expires.
• Unclear cost structures. Fees for user training, extra users, extra features, extra storage, and so on are usually buried in the contract, or in most cases, kept in a separate document altogether. Buyers commonly address training costs and extra user costs. However, they usually fail to realize that because SaaS is a narrowly focused product offering, everything else counts as extra. This means that any new feature, service offering, support offering, or management facility the vendor provides will mean an increase in monthly fees. A common practice in the SaaS market is for vendors to upgrade existing functionality and label the upgrade as a more expensive service - leaving the customer with the older functionality unless they pay more.
• Paying for bundled features. Vendors frequently provide one-time deals and bundle a number of features and support levels at a substantially discounted rate. When the promotion period expires, the customer must pay the full price of the service. This typically results in at least a 100% increase in their monthly costs for the SaaS solution.

Action Plan

1. Treat SaaS acquisition as a project. Although it is tempting to view the low cost of a SaaS solution as an expense, enterprises should avoid this approach. IT managers should treat SaaS as any other software acquisition project. Instead of planning for the solution's monthly fee, managers should budget for the annual cost of SaaS, which will force the enterprise to use established buying practices.
   • Enterprises that have established buying practices will already deal with the SLA, contract, and cost structure issues that affect SaaS buying decisions. Established buying practices also make it easier to track the SaaS vendor offerings and negotiate better rates when service upgrades are required. Enterprises without buying practices should adopt best practices before proceeding with SaaS acquisitions. As a starting point, use the Mclean Report research notes, "Strategic Procurement Part One: Maturity Assessment" and "Strategic Procurement Part Two: Process Overview."
2. Avoid bundles and promotional offers. Buyers should avoid letting the pressure of a one-time deal guide them into making a purchasing decision. The current list price of a product should never be the guiding principle. Vendors will often attempt to bundle features, promote them as must-haves, and claim that they are providing significant discounts. In fact, vendors tend to bloat the individual price of the features to make the bundle more appealing. Additionally, bundles contain features that are not needed and will not be used. Focus on buying SaaS services based on core business needs and look at additional features only as corporate requirements dictate.
3. Employ asset management techniques. Treat SaaS like any other software purchase. Adopt usage monitoring to ensure that the features ordered and the licensing structure in place meet requirements at a reasonable cost. Successful asset management practices go beyond making sure that the right number of license seats are available. Involve business partners to help identify future requirements. Changes in integration requirements, business processes, and workflow affect SaaS solutions. This means that enterprises might have to either renegotiate their agreements or change their SaaS vendor altogether.

Bottom Line

Although SaaS can save enterprises money, this is not a forgone conclusion. Treat SaaS acquisition like any other software purchase, and avoid the current hype and traps that affect the industry.