Cloud computing: SaaS move? Four key questions

CIO checklist for weighing up software as a service...

Uptake for SaaS is highest for low-cost commodity services such as email and productivity tools

Uptake for SaaS is highest for low-cost commodity services such as email and productivity toolsPhoto: Shutterstock

As the cloud's marketing machine cranks up a notch and targets CEOs and finance, CIOs have to resist the pressure and pose some fundamental questions about software as a service. Cath Everett reports.

Software as a service (SaaS) is the oldest and most mature of all the cloud computing options and its adoption is continuing apace - in some areas of the business at least.

According to analyst firm Gartner, the global SaaS sector grew by 14.1 per cent last year to $8.5bn. This higher than average growth rate in an otherwise difficult market meant penetration levels rose to a total of 10 per cent across all enterprise application sectors, with the figure expected to increase to 16 per cent by 2014.

In fact, Ray Wang, chief executive and principal analyst of the Constellation Research Group, indicated that as many as 56 per cent of new purchases in 2010 were SaaS rather than on-premise, although the figure dropped to more like 36 per cent in licence value terms.

This discrepancy was because uptake was highest for low-cost commodity services such as email, and personal and business productivity tools such as Google Docs. CRM packages particularly for salesforce automation and marketing were also popular.

But Derek Kay, director of cloud services at Deloitte, pointed out that in many application areas, SaaS delivery models are simply not available as an option. "There's still a fairly limited choice of applications that are truly sold and delivered as a service," he said.

"In some areas, such as CRM, it's pretty good. But there aren't many ERP systems that will scale, which is an important factor, and once you look at industry verticals, you've got a very difficult menu choice."

Nonetheless, awareness of the potential benefits of SaaS among C-level executives continues to mount as the industry's marketing machine cranks up beyond its more traditional IT audience. This awareness means questions are starting to be raised about promised cost savings, ease of implementation and the ability to wind capacity up and down in line with business needs.

But rather than cave into executive pressure and rush in to cloud computing where angels fear to tread, it is essential that IT directors plan carefully for any change just as they would for more traditional software implementations. As a result, has come up with four key questions that IT leaders should ask themselves before jumping in feet first.

Question 1. How can I manage the expectations of the business?

Before doing anything else, heads of IT have to establish a robust business case for adopting a SaaS delivery model, whether in terms of cutting costs or being able to provide new or improved services.

The idea is to understand where the model might fit comfortably into the organisation's commercial and technical strategy, and to evaluate what value it could bring to the business without opening it up to undue risk.

Deloitte's Kay said: "Managing the expectations of the business is important, even if you're saying, 'Yes, it's the right thing to do, but not yet', perhaps because you've just signed a five-year deal and it would be too expensive to get out of it. The problem is that...