Cloud Computing

pecial White Paper from Royal 4
Cloud Computing
Demystifying Cloud Computing and SaaS

Cloud Computing
SaaS, explained in lay terms
"Cloud Computing or SaaS, explained in lay terms, is simply a software solution that is stored on somebody else?s remote servers, and your company accesses your data via the web. There are some very superficial benefits out there that are promoted by SaaS vendors. Some of which include; lower costs for I.T. Maintenance, greater accessibility to your data, and quicker deployment times for solutions. Why I say that these are superficial is simply put, they do not tell you the whole story.

Having a history in the ERP (Enterprise Resource Planning) industry, and experience with both SaaS and local software solutions, includes today, where our organization actively utilizes both. I would like to share some thoughts on what has brought about the resurgence and promotion of SaaS and Cloud Computing, and some of the hidden (or not so much promoted) reasons it exists, and things to be aware of.
From the software industry?s perspective, the value in most of their organizations, outside of the technology itself, is the recurring revenue stream. Historically, software companies had generated approximately 45-55% of their annual revenues from the recurring revenue generated by Annual Support Contracts. Many companies purchased these support agreements at anywhere from 18 to 22% of the cost of their software, and after years of paying them, started to question what value they were truly getting from these agreements. Often it seemed, any time you made a call about the software, the support group would tell you it was a customization, and you would be billed. Companies, in record masses, started to demand these support contracts be renegotiated or cancelled all together. After all, they owned the software, and it did most of what they needed, so why keep paying.

Software companies began to lose revenues, and with no new customers to sell solutions to, what was the answer? Change the game. SaaS and Cloud Computing, provide new ways to create a dependency on the software organization. After all, once a company invested the time and monies into the new solution, and if change was hard, the companies were not likely to ever change. And with the solution now being billed monthly, it would in fact replace the support contract, and the entire business model would be recurring revenue, the software companies and investors dream


The Marketing and the Reality
Do you Lower I.T. & Maintenance costs ? The basic principle is that since they (SaaS companies) have the servers, and not you, they will maintain them and it will cost you less. While it is true that they host the information on their server, in many cases, most small and mid size organizations, run on a single server already, and don?t have to replace it weekly or monthly, or have somebody sitting over it. In fact, it is usually the client machines that require the greatest amount of maintenance and these computers don?t go away, and will still require the same maintenance. Additionally, many new more efficient applications are capable of running on nothing more than a powerful desktop computer. In a SaaS model, if there are issues with their servers you are dependent on their schedules for resolution. If it is in your house, and something breaks, your IT professional can usually have it resolved the same day, when you need it, on your schedule. The SaaS industry tries to combat this by telling us that they have the highest quality data centers, and built in redundancies to ensure nothing is lost. While the industry tries to say that there are no issues in the cloud, this is not the case. See http://www.sitepoint.com/blogs/2009/02/25/gmail-dark-cloud/# for just one instance of the Cloud crashing. If software giants like Microsoft and Google can have issues in the cloud, how does that fit with most small organizations? Additionally, with the SaaS model, they schedule the system maintenance, which is usually done outside of 9-5, but they don?t consult you, they simply tell you when it will happen, and you are left to deal with it. Many of our clients hold hours outside of 9-5, and can?t simply put their business on hold for somebody else?s update.

Greater accessibility to your data? ? Under the SaaS model, you have accessibility anywhere you have an internet connection? This is one of their strongest arguments, but at the same time one of their strongest weaknesses. If your internet connection goes down for any reason, you are left with no connection or access to your data even inside your four walls. We have clients in the mid-west US, who on occasion, have been known to lose the internet for a day or two, due to tornadoes or other storms. In this case, they would have no access to their critical business information for large lengths of time, putting their clients at risk. The reality is that technologies have existed for a while, and allow you to access your business information from anywhere in the world, without having to move the critical business data out of the security of your four walls. The best part is, the use of this technology already exists on most organization?s servers, at no additional cost. The reality is that under SaaS your data is not any more accessible, and in fact, may be less accessible under the SaaS model should you lose internet connectivity.

Quicker deployment ? ? The SaaS industry markets that their solutions are faster and easier to deploy, because you don?t have to install it on everybody?s PC, they simply open their web browser. This statement is a half truth. While it may be fast and easy to deploy a SaaS solution, many of the newer Local Solution companies based on .NET technology now available have tools that automatically deploy the solution to both desktops and mobile computing devices, with the simple use of an email. They are in fact, just as easy to deploy as any SaaS solution, and you don?t have to worry about the software being impaired because of updates to your web browser or its security. Something often left out of the SaaS deployment equation, and possibly the most important component of any solution is the systems implementation, training and tailoring or customizations that are of equal length whether it be SaaS or a Local Solution. It is only considered a solution after the entire organization has been trained, and the solution has become to deliver benefits. Not after the software is installed.

Monthly Cost of SaaS vs. Upfront fees of Local Solutions ? The SaaS/Cloud Computing Industry tries to promote how much cheaper the SaaS model is, because you don?t have a large upfront cost. What they neglect to tell you during the sales process is that you also don?t own anything but your data. And should you ever want to change solutions they will be very happy to turn off the switch and email you reams of spreadsheets containing your data, in its raw format. With SaaS, it may be a perceived low cost up front, but you pay forever and own nothing. It is the equivalent of renting a home vs. buying a home. If you buy a Local Solution, then you own the solution (perpetual use licenses), and should you ever decide to discontinue support, or you wish to sell your business, the Local Solution will be an asset for your business. Under the SaaS model, if the Cloud Computing company fails to exist, so does your solution, and possibly your data. In a Local Solution, should your ISV (Independent Software Vendor) fall to the same fate, escrow agreements will protect your investment and provide the customer with the solution and source code, allowing you to maintain it. Furthermore, in a SaaS or Cloud solution, you still have to pay separately for any hardware for mobile computing, or for any training and consulting required to learn how to use, and to set up or tailor the solution with and for you. If you look at a standard Enterprise Software Solution, you are only really looking at 1/3rd of the true cost falling under the SaaS monthly billing, with the rest still having to be paid up front to consultants and hardware vendors. To get the best of both worlds, we have found that many of our clients have gone the route of leasing their Local Solution. Many leasing companies have changed the rules, and now are willing and able to lease the Software, Services and Hardware, for up to three years, with costs being no more, and in many cases less than those of a SaaS solution.
In summary
Warehouse Execution, Supply Chain Management, Third Party Logistics and Distribution - If mission critical - Not the best option!
Within our own organization, we actually use Salesforce.com as our CRM package, one of the leaders in SaaS. We have found it to be a valuable tool to us, but more because of its design and functionality, and not because it is in the Cloud. Additionally, if it were to go boom tomorrow, we would feel it a bit, but not cease to function, and most importantly it would not impact our clients. Our own solutions can work under either model of SaaS or Local, but we simply believe that in our vertical of Warehouse Execution, Supply Chain Management, Third Party Logistics and Distribution that the Cons outweigh the Pros at this time, and as such, do not promote it to our clients. I think that SaaS and Cloud Computing have some good applications, but am challenged by the marketing of the perceived benefits in a complete Enterprise Solution, that are really no different than technology already available today in a Local Solution. Whether you choose the path of the Cloud or for a Local Solution, don?t be swayed by the marketing of juggernauts like ?big blue?. The most important thing is that you understand all the true costs and benefits to ensure that you make an informed decision for your organization. ?