This morning at 8am I will participate in a discussion around the costs and benefits for small to mid-size enterprises (SMEs) from using Software-as-a-Service (SaaS). Here are some of my key thoughts:
Total cost of ownership (TCO) studies are highly suspect. The real cost of installed software has historically been an ossification of organizational structure around fairly inflexible offerings. With SaaS we are seeing more flexibility around what can be adopted by whom and how it can change over time. It is virtually impossible to put a meaningful number on that gain in flexibility (it represents some kind of “option value,” which is notoriously hard to get at).
We are still in the relatively early days of what SaaS will ultimately bring. The best analogy I have is that a lot of SaaS still feels the equivalent of Web 1.0 on the consumer web: the existence of other users of the same software is hardly noticeable rather than being a pervasive aspect (never mind across companies, even just within the same company).
The business models enabled for software providers by SaaS are similarly in their infancy. Most are still charging for the software, albeit now on a usage basis. But Freemium is beginning to make significant inroads and the final frontier is free SaaS (such as the PracticeFusion ERM) with money being made off transactions that take place through the system.
Offerings from different vendors are still too difficult to integrate. Maybe this is endemic to software because of incentives by vendors to try to remain closed, but I think the logic of web services suggests that leaner more focused offerings with more scale will ultimately succeed. SMEs won’t necessarily have the skills in-house to do the integration, which provides an opportunity not unlike the original vision for GrandCentral (which was a decade or possibly two too early and had to pivot radically before becoming GoogleVoice).
If there are any great insights that come out of the discussion, I will either add here or write another post in the near future. For now I have a train to catch to the city!
