Coming back to the list of actual or perceived limitations of SaaS, two other major concerns are how integration between off-premise (SaaS) and on-premise data and content will be securely routed and managed, and what happens to the wealth of sensitive data and accumulated information when the customer cancels the SaaS arrangement with the vendor. Also, many territorial information technology (IT) managers will not be pleased with the idea of relinquishing parts of their "IT fiefdoms" and having to rely on an outside host's ability to impeccably run their data centers, even if the host is a viable business. At the end of the day, the major question remains whether SaaS deployments are really ready to support complex, global organizations around the clock and on stringent service level agreements (SLAs) or not.
These issues, combined with a new and growing market awareness, may explain the findings of some recent studies indicating that over 60 percent of enterprises currently still prefer the perpetual licensing model on-premise over subscription-based options. In fact, most of Salesforce.com's AppXchange partners still have sound on-premise businesses, and typically claim that only 10 to 30 percent (at most) of revenue comes from the Salesforce.com alliance. Also, most SaaS vendors are positioning themselves as software plays even though they are really blending software and consulting services, whereby the understanding of these services and their economics (both those of the master vendor and of its partner ecosystem) is still being devised. For now, this positioning is largely in the form of fixed set-up and consulting fees before the customer can embark on the pure subscription service. Accenture's relationship with Salesforce.com is both a blessing and a curse in that this partner represents a serious endorsement of the SaaS delivery model, but one should still expect some notable consulting price tags for certain implications even in the SaaS environment.
As for software licensing, the most common way today remains for the customer to pay a fixed fee according to the processing power of the machine (or machines) being used, or another widely used alternative whereby the user enterprise (licensee) pays a fixed fee according to the number of users (or seats) accessing the software (see New Approaches to Software Pricing).
To be fair, both approaches are relatively stable; the customer can budget using a formula while the vendor receives a big chunk of license revenue up front and a steady flow of annual maintenance revenue (usually 15 to 20 percent) thereafter. It is a steady, profitable model that customers and investors both understand, and habits are difficult to break.
Another downside of a hosted model is the long-term cost of "leasing" the service for the customer. One of the primary benefits of hosting is the initial negation of up-front costs associated with (since one still has to cleanse data, test and integrate systems, train users, etc.) more rapid implementation of a production system. SaaS does indeed cancel out the need for separate server hardware or hosting, and it reduces upgrade costs, as it does the cost of bug fix and patch application, tuning, and other maintenance and support traditionally done by the user enterprise's internal IT staff. However, after a certain period of time, the subscribed-to system will begin to cost more than an in-house production system would, and the customer has no ownership of anything at the end of the day. The appeal of SaaS is immediate gratification coupled with reduced initial financial pains, as would be the case with renting an apartment, furniture, or appliance as opposed to buying one.
These issues, combined with a new and growing market awareness, may explain the findings of some recent studies indicating that over 60 percent of enterprises currently still prefer the perpetual licensing model on-premise over subscription-based options. In fact, most of Salesforce.com's AppXchange partners still have sound on-premise businesses, and typically claim that only 10 to 30 percent (at most) of revenue comes from the Salesforce.com alliance. Also, most SaaS vendors are positioning themselves as software plays even though they are really blending software and consulting services, whereby the understanding of these services and their economics (both those of the master vendor and of its partner ecosystem) is still being devised. For now, this positioning is largely in the form of fixed set-up and consulting fees before the customer can embark on the pure subscription service. Accenture's relationship with Salesforce.com is both a blessing and a curse in that this partner represents a serious endorsement of the SaaS delivery model, but one should still expect some notable consulting price tags for certain implications even in the SaaS environment.
As for software licensing, the most common way today remains for the customer to pay a fixed fee according to the processing power of the machine (or machines) being used, or another widely used alternative whereby the user enterprise (licensee) pays a fixed fee according to the number of users (or seats) accessing the software (see New Approaches to Software Pricing).
To be fair, both approaches are relatively stable; the customer can budget using a formula while the vendor receives a big chunk of license revenue up front and a steady flow of annual maintenance revenue (usually 15 to 20 percent) thereafter. It is a steady, profitable model that customers and investors both understand, and habits are difficult to break.
Another downside of a hosted model is the long-term cost of "leasing" the service for the customer. One of the primary benefits of hosting is the initial negation of up-front costs associated with (since one still has to cleanse data, test and integrate systems, train users, etc.) more rapid implementation of a production system. SaaS does indeed cancel out the need for separate server hardware or hosting, and it reduces upgrade costs, as it does the cost of bug fix and patch application, tuning, and other maintenance and support traditionally done by the user enterprise's internal IT staff. However, after a certain period of time, the subscribed-to system will begin to cost more than an in-house production system would, and the customer has no ownership of anything at the end of the day. The appeal of SaaS is immediate gratification coupled with reduced initial financial pains, as would be the case with renting an apartment, furniture, or appliance as opposed to buying one.
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