Software as a Service

23 April 2012

Cloud services have emerged as a genuine threat to established hardware and software providers as well as to the livelihoods of the many thousands of IT professionals who have made their living selling and supporting these products over the last twenty or more years.

This threat makes ICT investment decisions by businesses particularly challenging as we are encouraged by one group to stick with the tried and true and by another to throw away the old and bring in the new.

This three part series assesses the importance of cloud services to business by looking at whether a particular service reduces costs and/or improves businesses performance when compared to the existing way of doing things.

Part One of this series addressed Infrastructure as a Service – where traditional ICT services such as storage and processing power are provided.

Part Two addresses Software as a Service – where organisations access software tools via the internet.

Software as a Service represents the single biggest game changer in business IT since the personal computer made mainframes and mini computers a part of history.

Let’s look at email as an example.

Most businesses buy and run their own email services.  Associated with this is the need to buy and run a fileserver and email software, PC’s and laptops running a compatible operating system and  software client.

Once purchased, installed and put to work, email users and support staff experience risks from spam, computer viruses and malware attacks.  There is also the question of backing up and storing old emails and the associated mailbox storage sizes necessary to support this.

As we have become more used to mobile work styles mobile access to email and calendars has become an important issue. We solve this by buying specialised devices like Blackberries (with more associated software and charges) or by syncing our “compatible” devices to the email server – provided, of course, we can get the syncing software to work!

So we have a service that is expensive to run, insecure, hard to support, inflexible in its accessibility and limited in its scale and scope of devices.  While not labouring the point I think the reader can see how the cost in time, effort and money keeps rising for email despite the limited value being delivered.

Compare this to email delivered as software as a service.

Most of us use Xtramail, Google, Yahoo, Hotmail or similar as our personal email service.  These services just seem to operate – provided the network connection is available.  We can access it from work and home, via smart phones, in internet cafes, we can even access it from free internet services available in airports, banks and cafes.

These services rarely, if ever, notify us that our mailbox is full.  We never have to worry about backing it up or installing a new version.  We don’t even worry that the device we have chosen might not allow us to access our email, all it needs is a browser and a network connection.  Oh yes – and it’s FREE.

So what is so different about email at work?  The answer to that question is nothing at all.

It is possible to use free personal email services in small and medium size businesses and they work fairly well.  In reality, though, buying a commercial cloud based email service is a much better idea. Gmail for example offers a business email service for around US$50 per user per year.

This service comes with all the office applications you might require (word processing, spreadsheets, and calendars) plus dozens of others that you might not.  New applications are being added constantly.  The service has enhanced, business quality security and back-ups and allows you to use your company name as part of your email address – for example my Gmail address is [email protected]

The service has mailbox size of GB25.  To give you a sense of the scale of this – I use email daily in my work.  So far in the twelve months since our company, TUMG switched to Gmail I have used 250MB of storage.  This means that for all intents and purposes my mailbox is 0% – yes zero percent – full.  If I was still working in my old job I would have exceeded my mailbox limit (100MB) by two and a half times and probably deleted a good number of emails that I will definitely regret not having kept at some point.

So what does this mean from a dollars and cents perspective?

This is a tough one but I can share some work we did for a mid-sized client recently.  This group had 50 staff using a self managed email service.  The cost to support this, according to our calculations, was around $20,000 per year.

Using Gmail, the cost to run this same service would have been around US$3,000 per year.  This, of course, does not include the network connection or the local firewall both of which are generally required anyway and so are not costed on either side of our equation.

Over a five year period we would have seen $100,000 spent on self managed email or $15,000 on cloud services – saving of $85,000 over five years a payback period of nine months.  This for a service that:


–        Has virtually unlimited mailbox size

–        Is accessible anywhere, on any device provided it supports a web browser and a network connection is available.

“Email is one thing”, I hear so say, “but what about business critical applications like customer relationship management (CRM) systems”?


Most businesses rely heavily on some kind of system for recording their client’s details.  This can be as simple as a Cardax or as complex as a database or spreadsheet.  For the small or medium business, however, a full blown CRM is just a dream. The cost, complexity, staff and support overhead of owning and running an Oracle database, Microsoft’s CRM or a similar system is just too much for the average business operating in a recessionary economy.

These self managed services also suffer from being overly complex, expensive, inaccessible via most devices and constantly in need of hardware and software upgrades to keep them running.

Compare this to web delivered products such as which costs a set fee per user per year, is relatively simple to use, is accessible anywhere, has loads of reporting built in and is easy to create specific reports into.

A recent example I dealt with was of a company that had been advised by its service provider that its old self supported CRM was now at end of life and needed replacing.

An analysis showed that upgrading their CRM required a new server, new laptops and PC’s, new software, improvements to the network, and migration of all the old data and redevelopment of key reports.

The company wanted its staff to be able to access the CRM from any location.  It  also wanted a great deal more detailed reporting and links to its email, finance, web and social media services.

In the end despite the initial cost of setup being similar and the annual subscription cost being roughly the same as buying their own software licenses this company chose to select a web based service rather than continue to own and support their own software.

There were four main reasons for this decision:

Location –  Applications could now be accessed via any device supporting a web browser and a network connection.  Thus the smart phone, iPhone, tablet, lap top, home computer or any other web enabled device now becomes a point of access.

Cost – Cloud based software services can simply be switched on.  There is no need for a server, operating system, clever geeks to support and maintain endless updates and three year cycles of replacement by the latest version.

These are real costs in both time and money and worse can sometimes be uncertain from a budgetary perspective.  How much was it the last time you had some guy in at three o’clock in the morning to fix your computer system?

Scalability – Under the old licensing regimes we purchased software when we needed it and then kept it forever – whether we needed it or not.  If we wanted more software we purchased and installed it onto our machines – provided of course that the new software was compatible with the stuff we already had and that our machines supported it.

Software as service providers on the other hand don’t usually sell licenses – they enable users.  Thus if you have 50 users today but acquire a competitor, all you do is enable more users and they too are on line, accessible and using the same system as their new owners.

If a few months down the road you shed a number of staff as efficiencies take hold – you just switch off the application for these users, paying only for the service you require.


Because licensing software is now such a mature product we are constantly being bombarded with the latest features and benefits being added. Let’s take spreadsheets as an example.  How many features in Excel do you use?

Most SaaS products are simple and easy to use.  The common mantra on the internet is “it just works”.

Even my technophobic brother in law is now a fan because most of the applications he uses privately and at work are web based and simple to use on his much loved iPad and iPhone.

So what does this mean for me?

This is a big question for small, medium or large businesses.

The simple fact is that we already have substantial money and skill tied up in the old licensing model and its supporting infrastructure. Migration to software in the cloud model is not simple for political as well as technical reasons. Have you ever asked the receptionist to change over to a new application and way of working?

Given the technical and political constraints it would be unwise for an existing business to go for a big bang approach. Having said that, new businesses will find SaaS a very effective way to extract value, sustain growth and manage costs.

Software as a Service offers a cheap flexible way to access business services that were previously either too expensive or too hard to maintain. Find those services that add the most value and where current cost and performance is unsatisfactory. These are your prime candidates for possible replacement with a SaaS product. Prioritise and then make the changes one at a time.

In summary

Software as a Service is a serious option for most businesses.  The products are of production quality, if a little clunky on occasions. Their flexibility, scalability and cost transparency make them as attractive to businesses in belt tightening mode as they are to those planning for growth.

Mark: PASS – a revolution in software that is transforming business and the IT industry.


David Spratt is an associate with TUMG and has held senior ICT strategy and technology selection roles in business for over thirty years – he can be contacted on 0275 749 141.