So what is it about software-as-a-service (SaaS)? Does it deliver the killer cost advantages as presented in a recent Hurwitz & Associates study or should organizations reevaluate their use of SaaS as Gartner suggests? The answer, like so many IT questions: It depends.

What it depends on is the organization’s size, its IT capabilities, the particular software category, the specific product under consideration, and more. The concept of SaaS certainly makes sense: software delivered on demand over the Internet as a service. The organization pays only for what it uses or adopts a pricing model that allows a predictable monthly or yearly cost. And there is no investment in IT hardware required; the SaaS vendor takes care of that. (In truth, the organization actually needs, at a minimum, enough IT in-house to ensure that it has a sufficiently fast and reliable Internet connection to the SaaS provider and interoperability with whatever other systems it may use.)

Hurwitz, which focused mainly on midsize organizations, found that the cost advantages of SaaS solutions are significant across all deployment sizes evaluated, ranging from 10 to 100 users. Gartner, despite its recent reservations about SaaS, expects it to likely penetrate every company at one level or another, and advises organizations to take a few precautions.

Gartner’s concerns arise from the many bad practices of the on-premises world that it sees moving into SaaS. The worst culprit is shelfware, which in SaaS means paying for subscriptions that are not being used. This most commonly occurs in large organizations, but it could happen to any company, especially those that have downsized their workforce or have oversubscribed to trigger a volume discount, according to David Cearley, Gartner vice president.

The solution is to monitor usage and cancel subscriptions not being used. It can’t take too many unused subscriptions to undermine any volume discount gained. One of the benefits of SaaS is the ability to scale usage up or down as needed. If you downsize, cut subscriptions; if you grow, buy more — but only when you need them.

Gartner also advises organizations to develop a SaaS policy and governance strategy. The resulting document should be a collaborative effort between the business and IT units, resulting in a corporate SaaS governance plan. Then, make sure that your SaaS provider is willing and able to comply with the plan.

Finally, Gartner recommends developing an integration road map laying out how SaaS applications will integrate and interoperate with on-premises applications and other SaaS products being used. Most organizations will run a mix of SaaS and in-house or on-premise licensed applications.

While the Hurwitz report focused on the total cost of ownership (TCO) benefits of SaaS, it notes other benefits beyond TCO savings. These include decreased risk, faster deployment and productivity, increased flexibility, and improved reliability.

SaaS clearly is not a panacea for all that ails an organization’s IT efforts. Think of it as one piece of an overall IT mix: bigger in some cases, smaller in others — depending on the organization. ###