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Demystifying the Link between SaaS and Expansion of Business Capabilities

By July 22, 2014Article

The urge to transform a business is driving SaaS adoption in organizations across the globe. From customer relationship management (CRM) and human capital management (HCM) to sales force automation and enterprise resource planning (ERP), Software-as-a-Service applications are seen as a means of expanding business capabilities. The integration of SaaS as a platform for enterprise applications is not a luxury anymore; it is a necessity. Right from small, mid-sized to enterprise-level organizations, all kinds of businesses are using SaaS to boost business growth. 

The fourth annual Future of Cloud Computing survey reveals that SaaS adoption rose from 13 percent in 2011 to 74 percent in 2014. What explains this popularity of SaaS among businesses? One reason that is clearly very evident is that SaaS adoption gives businesses the agility and flexibility needed to meet growing pressures and expectations of the market. 

But, let’s try and dissect the reasons a little further. 

1. Reduce on-premises IT infrastructure and associated maintenance costs 

SaaS is a good bet because of the low up-front investment to get an application up and running. Some would call it one of the biggest value propositions of this software licensing and delivery model, and it is. 

However, don’t wade into SaaS waters before taking into account the Net Present Value (NPV) of your subscription. For example, if SaaS subscription fees are $20,000/year and an on-premises license costs $50,000 with a recurring licensing cost of $5,000 per year, you might not think twice before choosing the former over the latter. 

But look a little closer. 

After three years, your SaaS licensing costs will add up to $60,000 as compared to the on-premises licensing cost of $65,000. While SaaS still might turn out to be a cheaper option, the licensing costs might not turn out to be significantly lower than on-premises licensing costs. 

This is why the NPV needs to be considered before you choose to go for SaaS. 

I prefer to look at the value proposition through a different prism, the prism of reduced risk. The pay-as-you-go model of SaaS means you don’t have to make a massive up-front investment, thus reducing sunk costs. This money saved can be used to invest in other avenues to improve top-line growth. 

As a business thinking of using SaaS, you also need to think of cost savings beyond licensing and subscription. 

The real cost benefit of SaaS is in the fact that you can limit your spending on internal IT infrastructure. You don’t have to maintain infrastructure that powers the software, e.g., servers and databases. You also save money on ensuring data security and uptime. SaaS vendors are also responsible for ensuring the software runs smoothly. This is where your Total Cost of Ownership (TCO) of a software system come down. 

2. SaaS ensures rapid scalability 

According to a ZDNet research study, 28 percent of businesses use SaaS to drive business scalability.  

The cloud-based service model of SaaS means your business has access to the most scalable database architecture. SaaS-based solutions are configured to remove the scalability limitations of your business. You get the benefit of the latest product innovation, upgrades and updates that help grow your business. 

Businesses don’t have to worry whether their software can keep up with expanding business capabilities. That part is taken care of by the SaaS vendor. Yes, you might have to move a step up as far as your subscriptions are concerned or add another SaaS-based solution to your business system. But, this is a frictionless process that takes place with minimal or no business interruption. 

SaaS ensures the incremental costs of acquiring, servicing and supporting customers drops as your business keeps gaining customers. This in essence is what a scalable business model is all about, where there is unmistakable rise in the growth curve, but the total costs of your business are relatively stable. 

The real challenge for businesses is to chart a growth map and ensure their use of SaaS strategy can be aligned with this map. It should walk in step with growth and support their expanding capabilities. 

I have addressed just two ways of how SaaS can act as a catalyst for business expansion, but let there be no doubt that the nature of SaaS means it can help trigger business growth in many different ways. Even if your business is able to scratch the surface of SaaS benefits, it still will be able to take its growth northwards. But the idea is to leverage its potential to the fullest to add that extra bit of competitiveness to your business. 

Stan Roach is the chief customer officer at Agiliron Inc., a SaaS solution provider for omni-channel commerce. He has over 30 years of experience with a track record of launching several B2C and B2B software products.  







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