Using SaaS to Save on IT Spending

By Michelle V. Rafter

As businesses adjust to the economic downturn, the IT budget is certainly not immune from cuts. Software as a service (SaaS) is one way to save on dollars but not skimp on functionality.

Could the current economic downturn be the nudge that pushes software-as-a-service (SaaS) into the mainstream? Some small business owners and software vendors think so.

With major economic indicators dropping and anxieties rising, business owners are looking for ways to cut back on spending, including what they fork over for computers, software, and IT services.

That new-found fiscal conservatism plays nicely into the strengths of SaaS products that are delivered over the Web on a pay-as-you-go, on-demand basis. “The appeal of SaaS is that you get 80 percent of the functionality for maybe 10 percent of the lifecycle cost. How can you argue with that?” says Andrew Hyde, CFO at Speakeasy, a Seattle provider of Internet phone and data services.

Small businesses are moving toward SaaS, says Ray Boggs, an analyst at IDC, the technology market researcher. “It’s a very real minority,” Boggs says. Historically, hardware accounted for a bigger chunk of small companies’ IT spending, but over time that’s switching to software and services, and SaaS is playing into that, Boggs says. Small business owners that Bogg surveyed for a March 2008 IDC report on SaaS aren’t particularly keen on moving applications “into the cloud,” but they are interested in having business functions handled remotely, he says. “It’s almost like a different person was answering the survey,” he says.

At Speakeasy, Hyde knows a thing or two about on-demand software. Previously, he was part of the management team that founded Salesforce.com, the pioneering SaaS provider. At Speakeasy, Hyde was instrumental in a decision earlier this year to replace the spreadsheets that the 330-person company used to calculate sales commissions with Web-based software from Xactly, a SaaS-only sales incentive management software vendor. The decision was a no-brainer. The IT staff at Speakeasy, was too busy working on higher-priority projects to build something from scratch, so commercial software was the only way to go. And software-as-a-service was the cheapest option, Hyde says.

The many faces of SaaS

In addition to sales incentive management software, Speakeasy -- which was privately held until a recent acquisition by BestBuy -- uses SaaS for sales force automation and some IT management functions, Hyde says. SaaS makes sense in any economic environment “for companies that are cash careful,” he says, “and it’s more appealing to companies today when there’s a little belt tightening.”

On-demand software has become an option for all types of business functions including:

• Sales and customer relationship management
• Accounting
• Videoconferencing
• Human resources
• IT service management
• E-mail
• Content delivery platforms

Besides savings on software costs, SaaS-delivered software can shave spending on hardware and staffing too since a company doesn’t need to own computer servers or hire an IT staff to run it. That’s significant because, while overall spending might be down, demand for competent IT professionals is still high, which is keeping salaries high, says Siamak Farah, founder and CEO of InfoStreet, an Encino, Calif., company that sells an SaaS-based suite of business productivity tools. “SaaS is a godsend for any size company. But for small businesses, finding good technical people has been more difficult than in years past,” Farah says, “and when you do [hire] people, they’re more expensive. So you get desperate and don’t get the best people.”

SIDEBAR: SaaS Resources

Want to find out more about SaaS? Here are a few resources:

• SaaS Showplace -- A resource center with information on SaaS applications, vendors and industry news run by THINKstrategies, an SaaS consulting firm.
• SaaSWeek -- A weekly digest of SaaS industry news and trends published by ebizQ, a business information website.
• SaaSCamp -- A website devoted to the SaaS industry that features news, blogs, and forums, and is run by a group of SaaS consultants and researchers.
• SaaSCon 2008 -- The virtual headquarters for Computerworld’s annual SaaS industry convention. Although the convention took place in late March 2008, check out the website for names of SaaS software companies and industry news.