On Software as a Service

The other day I was talking to an acquaintance, discussing how the idea for Alef was born. Somewhere along the line we started talking about the Software as a Service (SaaS) model and its relevance to outsourcing. This acquaintance, an experienced person who has directly or indirectly been involved with various start-ups, asked me a very simple question: Why would a company want to own anything?

On its own, the question may not make sense, so let me elaborate on the context. We were talking about SaaS and the convenience that it provides, especially to mid-market firms in reducing the need to invest in IT infrastructure maintenance resources. But then, we were talking about the risks of not owning one's software and related infrastructure, when this question popped up.

To be honest, I was taken by surprise. Sometimes, in a conversation, when we are talking about issues that are fairly complex in nature that may have fairly complex answers, simple questions as this tend to take you by surprise. Switching back to think about a fundamental aspect of SaaS took me by surprise. I did not give a convincing answer apparently. It was evident by the way in which the conversation moved on to discuss the various intricacies of Japanese Sushi and its rise in popularity in this part of the world.

But that did not prevent me from thinking about it later on, usually when I ponder over such unanswered questions and other mysteries of the Universe during my "think time." Duh! It seems so simple. If SaaS gives an organization the choice of owning something without really committing to it to a long term, why isn't everybody onboard already? Why are technology marketers investing so much time and energy in educating the market about the benefits of SaaS?

At a fundamental level, I believe that an organization would want to own what it wants to protect. Intellectual property, for example. Will organizations want to own its payroll process? Not necessarily. Isn't that why we engage with companies like ADP to do our payroll processing for us? Moreover, it is a resource-intensive activity that does not generate significant value to justify the amount of investment to initiate and maintain it internally. At the end of the day, payroll is payroll.

So here's a keyword: value. Would an organization want to own anything that it values? Maybe. From a value perspective, does it make sense in owning and controlling a specific set of software infrastructure that contributes to increasing or maintaining our competitive advantage, thus creating value in ownership? Hmm... now we are getting close!

So, if I'm an automobile manufacturer and I use assembly line scheduling software, the internal workings of which creates significant competitive advantage for me, is it valuable? Maybe. Does it make sense to "own" that piece of software and related infrastructure? I guess the answer to this would be a resounding yes.

So, maybe, we should look at a SaaS option for all software and related infrastructure that may not offer significant value under complete ownership to the organization. For the automobile manufacturer, it could be an RFP management tool. Although I am not trying to say that the process of managing RFPs does not add value to the organization as a whole, the fundamental process of managing it may be so common and commoditized, it may not be very different from how its industry peers are implementing the process. It may not be of a proprietary nature -- as is the assembly line scheduling algorithm -- thus creating a significant reason to look for SaaS options. What is the point in owning a software that does not help in creating value to your organization when you can simply use it instead?

If the reasoning mentioned here were to be used as a basis for decided when to go SaaS and when not, what about outsourcing? Isn't the reasoning behind outsourcing also about creating value? The core versus non-core process debate? But enough for one post. Maybe that's a topic that deserves a post of its own.