Pros and Cons of SaaS

SaaS Advantages

Among the most important SaaS advantages the following items are mentioned:

• Low upfront costs
• Ease of launch
• Ease of scalability
• Ease of upgradeability
• Resilience (backups)
• Fewer staff requirements

SaaS Disadvantages

Among the disadvantages the following factors are listed as important:

• Security
• Hidden costs 
• Long-term costs
• Outages
• Compliance
• Performance (remote data centers)
• Data mobility
• Integration
• Customization

I would like to add another important disadvantage: dependence and lack of control.

If one looks at these lists, one would quickly notice that even ZDNet listed more disadvantages than advantages for SaaS. Then why is SaaS so popular?

The Hidden Reasons Behind SaaS Popularity

In our view, low upfront costs and ease of initial launch are the two main factors that account for SaaS popularity.

But in addition, there are other, not so obvious, factors that push the popularity of SaaS more than anything else. One of these factors is insufficient level of technological education among business decision makers and another one is lobbying from IT departments.

Business decision makers rely on IT departments to recommend "make" or "buy" decisions. In case of SaaS, it is much safer and easier for IT support to have all main responsibilities "outsourced" to a third party and simply serve as a liaison between the service provider and their company.

Furthermore, mid-level decision makers in larger companies, those with the title of a Director, for example, oftent feel that swimming against the current can cost them in terms of their careers, so it is safer for them to follow the crowd. 

Moreover, in practice, people reply on a standard project management practice of deciding between "making" or "buying". They juxtapose SaaS to an alternative of having to develop everything in house. They assume that an alternative to SaaS is having all applications developed from scratch in house, which entails hiring a development team, etc etc. This is an expensive assumption, in our view.

There is no need to develop all applications from scratch to avoid SaaS' disadvantages. The solution is rather simple: it is a mix of both: buy some, make some. In case of software needs, the most cost effective solution is to acquire a set of plug-and-play off-the-shelf party components and integrate them together to create a custom turn-key application. More about this solution later in the post.

Lets Get Specific, Shall We?

Before we talk about an alternative solution to SaaS, lets examine what happens when companies sign up for a SaaS service of one or several of its important business functions. SaaS can be a good decision if a business only outsources a small portion of its operations. For example, you are a non-profit company that sends emails to its members once a month. In this case, it might be convenient to rent a SaaS email marketing service. Another example is website analytics. Most companies use a SaaS service Google Analytics to monitor their website traffic. But outsourcing a large part of your business infrastructure or several of your key business functions is an entirely different matter.

Here is what we observed happens in practice with the SaaS model:

1. If you outsource several of your business needs, and each to a different SaaS provider, tracking and managing data quickly becomes a challenge. You will end up hiring an Excel guru who would export all the data from your various SaaS locations and would run custom reports for your various internal needs - in other words, you would end up doing things in house anyway.
2. For complex applications like salesforce.com, for example, training wil become a big part of the whole project that will take many months to complete. You will end up hiring staff to do just that: provide training.
3. If you need a SaaS application to follow a specific flow or perform some specific functions, you might never be able to get it done exactly the way you want it. If you do get customization enabled, your low upfront costs will quickly be overwritten by the costs of the customization.
4. There is a wide spread opinion that SaaS software is bug free. We believe that this opinion is based on another assumption and not on the actual analysis. In practice, you are not guaranteed to have a bug-free software with SaaS. Software is software. Bugs always creep up. But with SaaS, interestingly, there are studies that show that software companies purposefully plant bugs into their software in order to secure lucrative "professional services" annual contracts. And those contracts run to 17%-20% of the total annual costs of "renting". Now things begin to add up, don't they? Alternatively, if you own a piece of software, you will eventually clean up all the bugs. This is what they call "mature" software. In addition, over time your internal IT staff will gain knowledge adn expertise that will enable them to support your internal business need with remarkable speed and ease.
5. The seeming ease of management with SaaS is also wishful thinking for the most part. Whether you have an in-house application or a SaaS application, you would still need to manage those application. But with an in-house application, a person responsible for its quality is more likely to want to keep their internal clients happy. In other words, your internal IT staff is more likely to care about quality than support folks at a SaaS provider company. And what's more important, you can find ways to influence your internal IT whereas if your SaaS support is useless, you will end up spending a lot of time on the phone, creating support tickets and following up on them. I used to give this advice to my marketing students: when you become marketing managers, always make sure to hire a "consultant" for large projects. This way you will have a "defense" mechanism against potential criticism from within the company. Blame the expert! 
6. The security disadvantage is so painfully obvious that it does not even need a separate discussion. Businesses are practically giving all their data away to companies located in foreign jurisdictions. How can you be sure they are not selling your business data to your competitors? It may not be the official SaaS company policy to trade their customers' data (but in some cases it is!! read the fine print), but how can you be sure that some unfortunate tech support soul who got in financial trouble gambling or smoking too much pot will not secretely sell your data to your competition? Even if you find out about this, just imagine the legal costs of sueing someone in a foreign jurisdiction. And even if you win the law suit (many many months later) or settle out of court, the actual loss of data cannot be undone.
7. If something goes wrong with the SaaS provider's servers (and even Google's website went down for 5 minutes recently), then your business is automatically affected. You will have no control over how to manage the issue, how to restore the server, etc etc. You might never know if your data got compromised or even stolen. 
8. If you get a SaaS service that you are not happy with and if you decide to move elsewhere, data transfer will NOT be an easy project, and the larger your company, the harder this migration will be.
9. To conduct a proper cost analysis, you need to add all costs to come up with a total cost of ownership (TOC): cost per user, number of users; monthly and annual costs per total  number of users;l annual professional services costs; training costs; cost of money (credit card charges); as well as penalties for breaking the contract. You should also add your internal IT time/costs and your own time/costs for managing the SaaS relationships. Plus, you would need to estimate fees for consultants and temporary help that are always required for data-intensive projects. 
10. Before singing up for a SaaS service, because you are signing up for years and years to come (it is very troublesome to move!), it is very important to create a detailed rsk matrix. Identify all risks, come up with risk score, and then prioritise your risks by selecting the top 10. When we created our own risk matrix, the risks associated with SaaS were too high for our business to be a wise business decision. And we are a website design and development agency, we don't have patents or sensitive customer data.

The Hydrid Open-Source/COTS Solution

To get the best of both worlds and minimize risks, most businesses can do very well by acquiring certain IT infrastructure and then purchasing ready-to-go software components that can be quickly integrated together to enable a highly customized solution. This is what is known as a COTS (Commercial Off-The-Shelf) solution. Only we recommend to mix COTS with open-source components.

An alternative business model to SaaS is what we call a hybrid open-source/COTS mode. For software applications, one can use certified open-source technologies (open-source does NOT mean poor quality or poor features, but actually quite the opposite, read this article why) mixed with some commercial components and pay a 3rd party to integrate them together and provide training to your internal IT and key end-users. For hardware, most companies can afford to create their own "cloud". These days, buying a couple of HPC (high-performance computers) servers and putting them in several different locations is not a big technical or financial challenge for mid-sized companies, and it is definitely not a problem for large companies who already have HPC servers in place. Their IT staff can support this home-grown cloud the same way they will "support" managing the relationships with a SaaS provider.

In most cases, companies can compliment all this by renting a cloud to store non-essential documentation as a backup and for convenience.

Within 2-6 months, your hybrid application will get cleaned up from all bugs, your staff will know how to use it, and your IT department will be able to manage and provide IT support practically in the same way they would work with the SaaS model. Granted, there is more stress for IT guys here, but it does not mean they have to work longer hours. Eventually, the stress will level out, so the only real draw back in this model is the time spent on the itegration and the adjustment period. But note, there will be an adjustment period with getting SaaS up and running as well. 

Note that training will be required in all cases, so this factor can be taken out of the equation for the purposes of our discussion. 

In this hybrid mode, scalability and upgradeability will be looked after by internal IT teams, who will become more and more competent with time.

I'd like to emphasize, with this model, even the initial costs are not high. While they may be higher than with the SaaS model, they are still very low if compared to a complete from-scratch development. But the long-term costs savings and benefits far outweigh most advantages that SaaS can offer. For businesses with sensitive Intellectual Property issues, what's really important is that risks are fewer and most of them are minor.

Why this is not the most popular solution, you would ask? Well, as I have already mentioned, the "crowd effect" and some political factors that influence business decisions are the main reasons behind what I call the irrational popularity of the SaaS model, in my view.

Conclusion

If you go over the specific advantages and disadvantages of SaaS and the way they would manifest in practice; if you add all costs to consider the total cost of ownership; if you identify all risks carefully and create a detailed risk matrix - you will quickly see that for the vast majority of businesses SaaS is not a good solution. 

For the vast majority of businesses the most cost-effective solution, both in the short and long terms, is the Hybrid Open-Source/COTS model. But few decision makers are aware of this route while IT "influencers" are not motivated to push for it.

Here at Joomla Bliss, we do not use any SaaS services, except for Google Analytics to monitor our website traffic. In fact, we only outsource hosting and even that we consider a risk, so we have been planning on acquiring our own HPC server. We use an open-source platform Joomla and its open-source and commercial extensions to enable all our key business functions: accounting, project management, customer support portal, and email marketing. We customized and integrated Joomla extensions to function as one turn-key software application. We use Google Drive (a cloud) as a backup to store non-essential business information. In our case, Intellectual Property is not an integral part of our business, we are a boutique web design and development agency in Ottawa, so using a cloud service is actually more appropriate for us than for other type of businesses, but we did some math and decided that we want to keep our costs low and avoid monthly charges that quickly add up, especially over the years, while having a better control over our applications and ability to tweak and customize them on the fly. We are more than willing to help other small and medium business do the same. Surely, we have an in-house expertise to do this type of an integration, and this allows for significant cost savings, but in any case, the integration and customization do not last forever. There is a point, usually within 2-6 months, at which you become fully satisfied with your system and don't require any additional work and begin to reap all the benefits of "freedom and independence". 

If you would like Joomla Bliss to create a risk matrix for you as well as a cost analysis of your projected SaaS services related to website functioning as opposed to the hybdrid open-source/COTS approach described in this post, please do not hesitate to request a free quote.