saahil goel technology analysis

8/14/2019 Saahil Goel Technology Analysis

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scale. Depending on the customer base that a vendor has, they will need to

invest equivalent amounts of dollars in hardware, maintenance personnel

and bandwidth capacity. Of course, it is only a matter of time when this

environment becomes competitive and then companies will have to think

about differentiating themselves and may incur heavy marketing costs as

well.

The technology is fairly mature in terms of the actual technology capability.

However, from an organizational and process perspective, the technology is

still fairly new. Because large corporations are setup with a certain culture,

budget, resources, people, processes from a traditional stand-point, it will

take very long before on-demand software makes a huge impact on the

software industry. However, the upside is that being a tried and tested

technology and having the backing of several large vendors make this

technology well supported and holds promise of future upgradability and

development. The technology has the potential to have large impacts on

SMB’s especially in Asia. These businesses lack the capital investment that is

required to maintain their own data-centers software systems. By making

enterprise software available to these companies, SaaS can capture a whole

niche market segment. Also, by taking away the management,

implementation, maintenance and support from the customers task list and

encapsulating it into an invisible box, SaaS makes ranks high on customer

adaptability.

However, some of the challenges faced by this technology application aredata security, need for high customization, dependency on a third-party and

availability of open-source low-cost substitutes. Since this service involves

hosting of all business data and an off-site location, data security is the

largest issue. With increasing litigation because of security breaches

organizations are more and more concerned about data-security. For

example: in the financial services industry, there are specific regulations

(SOX) around data security for customer and other company financial data.

These companies may not want to invest in SaaS. Also, often companies

need software that is customized to fully meet their needs. With the cloud-

computing model, extensive customization becomes difficult. Even thoughvendors offer some level of parameterization to accommodate differences in

customer business models, to some extent this limits the potential value that

the software can add to the customer’s business. Further, many customers

are afraid of “vendor lock-in” – being dependent for all their IT needs on a

single vendor. This has several consequences – namely the vendor going

bankrupt, the vendor being incapable and charging higher fees. The



availability of free open-source software and the ease of use of this software

is also a factor that makes SaaS less viable.

This technology has potential to be used in two kinds of industries:

1. Small to Medium Sized Businesses for all their computing needs

2. Large corporations for some of their needs

For large corporations SaaS can be (and is being) used successfully for some

business functions. For example, Email Spam Filtering is a service used by

many large corporations (such as Wal-Mart) by “outsourcing” it to a third-

party vendor. This way, the vendor can keep spam definitions up to date,

build expertise in that area and let the corporation’s IT organization focus on

their main task – maintaining business applications. Owing to the success of

email spam scanning with various companies, this may very well become a

leading SaaS model. The benefits clearly are the costs involved in building

expertise in email spam scanning in-house that would be waived by

outsourcing this activity. Also, responsibility of maintenance, resource

management and frequent upgradability of the service is pushed out to the

vendor – making is much more convenient for the corporation. The only risks

associated with this model are dependency on the third-party provider for

mail scanning and email security. Sharing email content with a third-party

provider can be a major decision for any organization. However, with

appropriate reporting and measurable controls in place, it can be (and has

been) done. Since these services will be hosted with the vendor, it is best tocontact different vendors which offer similar services and then evaluate

them on the basis of their maturity, reputation, history, upgradability, costs,

requirement-fit, scalability, usability and relationship with the company.

For small to medium sized businesses, this technology can add significant

value by eliminating the need for these businesses to own any resources or

software to run their IT shop. Data center outsourcing services are an

example of this. SMB’s can “buy” data-center hosting and services and then

maintain their enterprise applications remotely or could have personnel on-

site at the vendor’s data-center. This takes away huge capital investmentcosts that the SMB’s cannot afford during their start-up stage. Also, because

remote data centers offer uptime guarantees and agree to pay penalties as

per contract, the risk can be significantly reduced. Further, SMB’s can also

host all their enterprise applications with ERP providers such as SAP. They

can pay the vendor for consulting and for actually hosting the solution

thereby eliminating upfront capital costs (hardware, personnel) and also



significantly reduce on-going costs that the company would incur (human

resources, maintenance, licensing and utility). Risks associated with such a

service are mainly the dependency on a third-party vendor. If the vendor is

not reliable and causes the company system downtime, the company may

incur heavy losses for circumstances beyond their control. Further, vendors

may not have adequate security procedures in place leading to data breach

or leakage thus opening up the company to potential lawsuits or loss of

competitive advantage. Worst case scenarios, a vendor may go bankrupt or

close out leaving the company with no other option but to rebuild or migrate

their data to another provider – which may cause a company to take a

significant hit in its operational activities. In this case SMB’s should contact

vendors directly to know what capabilities are offered. Even though

consultants may be contacted for second opinion and for vendor selection, it

is best to utilize vendor consulting services since the software will be hosted

with the vendor.

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