But not all applications are equally well suited to SaaS, users say. The best candidates are those applications that are fairly straightforward and require minimal support and virtually no customization, like e-mail or scheduling. Others see SaaS as a viable way to reduce system complexity and dramatically cut costs.
Of course, there are still plenty of skeptics. As Angelo Valletta, CIO at Sun National Bank in Vineland, N.J., sees it, SaaS is a little like old wine in new bottles. "The whole cloud thing and SaaS thing is nothing new. It's been around since time-sharing," Valletta says. "It's just rebundled and repackaged with a sexier name."
But that doesn't mean it's not valuable. Far from it. In the financial services business in particular, SaaS is what enables small and midsize banks to offer some of the services, such as Internet banking, that big banks most likely developed in-house and got to market with first, Valletta notes.
"SaaS allows midtier [banks] on the same playing field as the large institutions," he says. Sun National, for example, uses SaaS for Internet banking services and wire services. Some banks even run their core banking applications as SaaS, Valletta says.
SaaS also enables companies to test new markets with minimal risk and upfront investment. For example, Intrax Cultural Exchange, a San Francisco-based au pair placement service that also offers internships and other cross-cultural programs, used Salesforce.com's Force platform to create what CIO Mark Schwartz calls a "quick launch" package of services. Those services can be used to get new products to market without delay and to get new overseas offices up and running quickly and inexpensively. The package includes a preintegrated set of Salesforce.com applications, a Web site template in a content management system, an accounting system and other components.
"The goal is to push to the extreme where we can try out new things with very little upfront investment," Schwartz says.
But new users shouldn't make the mistake of assuming that SaaS is cheaper than using on-premises software, says Phyllis Koch, director of IT for the Boynton Beach, Fla., city government, which is in the process of migrating its ERP system to a SaaS model. The other option was to replace an aging AS/400 computer system and continue running the ERP software in-house. The hardware alone would have cost at least $100,000, and the city didn't have that kind of money, Koch says.
Koch struck a deal with Sungard Data Systems Inc. to host the ERP system for the same amount of money that had been budgeted for AS/400 maintenance. Sungard, she says "will give us better disaster recovery, flat operational costs, and we avoid capital costs, so it's a win-win." But it's not necessarily cheaper. "Operating costs are the same," Koch says. "But we could stop worrying about a big capital cost."