Most likely you’re aware that Software as a Service is fast becoming a viable alternative to traditional, on-premise applications.What you may not know is that users and providers alike are praising the platform because of its flexibility, strong security backing and, since its Web-based technology is supplied by a third party, its ability to tap into a broader labor pool.

The theory being that, if the application is online, it means that there is access to more employees outside of your geographic area, as opposed to being tethered to hiring decisions based around a computer and its server. With SaaS, you can work from anywhere, ultimately giving employers more choice in who they bring on board.

“There have been tremendous cost savings to us and the client because you don’t have to have specialized equipment, you don’t have to have an onsite data center, you don’t have to have your own servers. You just have to have access to the Internet, and bam — you’re in business,” said Tom Tripp, a partner at Tripp, Chafin & Causey LLC in Marietta, Ga.

Tripp, who uses San Mateo, Calif.-based business software provider NetSuite for its enterprise resource planning function and offers his clients the option to as well, said that one of the key advantages is that it eliminates “swapping files” and allows both clients and staff to work from the same place.

“You’re not having to deal with your own hardware where people dial in,” he said. “Clients want to do some aspects of their accounting and they want us to do some aspects and we’re all working out of the same file. That’s how we got started, that’s why we use it and that’s why we continue to use it.”

Chris Cabrera, founder and chief executive of Xactly Corp., a San Jose, Calif.-based online sales performance management provider, explained the application’s advantages this way: “The economics of SaaS are powerful enough during good times, but can be even more compelling during tough economic times. Specifically for those SaaS applications that provide real productivity enhancements, the benefits during a down-turning economy can be axiomatic in order to weather the storm.”

DIFFERENT CAN BE BETTER

“The core thing about Software as a Service that is so different from other accounting packages is people don’t have to be in the office because everybody is using these products over the Web in real time,” said Daniel Druker, senior vice president of marketing and business development for Intacct, a San Jose-based financial solutions provider that delivers over the Web. “Think about that traditional difference of the way CPAs used to work with customers. What the CPA firms will see is that they can extend their practices to include both customers who are not in their geography and it can also include employees who are remote.”

Among the advantages of SaaS, supporters say, is the ability to replace costly in-house software with a subscription-based model that can be cancelled, in most cases, at any time.

“SaaS is absolutely the future, there is just no question,” said Ridgely Evers, who was one of the original creators of Intuit Inc.’s QuickBooks, and who recently founded NetBooks, a Rohnert Park, Calif.-based company that targets very small businesses or those companies with typically less than 50 employees. “It doesn’t make sense, particularly for our market, to allocate scarce resources to managing information technology. They’re not going to be able to do it well. SaaS levels the playing field relative to big companies.”

That theory is catching on.

Intuit, a personal finance, small business and tax software provider based in Mountain View, Calif., has seen a dramatic jump in its SaaS and hybrid offerings. The company reports that its QuickBooks Online product has more than 110,000 subscribers, with more than 270,000 individual users, representing a more than 400 percent increase since 2004.

AccuFund, a Needham, Mass.-based company specializing in nonprofit, government and municipal software, launched its first SaaS offering last summer and since then has signed on five customers — a number the company is happy with.

“When we looked at the market a year-and-a-half or so ago, we found people were seriously looking for Software as a Service,” said Peter Stam, president of AccuFund. “We found a lot more companies offering it and we looked at the other side of the not-for-profit business — the fundraising side — and saw people being successful, and we figured if the fundraising side of the house was interested in this, then clearly at some point the accounting side of the house would be interested in it. People are becoming more comfortable with the concept of having their data housed outside of their office. They’ve realized they can get a reasonable amount of security and very good support in a hosted environment.”

Fears regarding safety and security are often what hold people back from taking advantage of SaaS, but those concerns are usually put to rest after potential adopters realize that the backup is better than what a small or midsized company with on-premise software could afford on its own.

“Security was probably the main fear for us and our clients at first,” said John Wooldridge, a principal in charge of outsourcing at LarsonAllen in Arlington, Va., who partners with Intacct. “But we toured the Intacct data center and went through — pretty rigorously — their backup plan and once we got a look at their actual security, internally [we] realized it was far superior to anything that we have.”

FINANCIALS ONLINE?

SaaS is perhaps best-known in terms of customer relationship management, but more companies and firms are seeking out this online option for their financials as well.

Recently, the American Institute of CPAs ranked Web-deployed applications No. 14 on its annual list of top technology initiatives. “In the corporate side in the world, it is a big issue,” said Barry Melancon, president and chief executive of the AICPA. “On the public accounting side, I think it goes back to merger and acquisitions. I think we’re seeing firms grow and so the adaptation of management tools like ERP systems inside of firms is happening and will continue to happen aggressively in the larger firms.”

Though Gartner Inc., a technology-related think tank based in Stamford, Conn., does not break down its statistics for the financial services industry, analysts there predicted that the SaaS market is “poised for strong growth through 2011, when worldwide revenue [from SaaS] will reach $11.5 billion.” Gartner reported that SaaS adoption varies across the software market. For example, within enterprise content management (technologies used to capture, store, preserve and deliver content and documents and content related to organizational processes), SaaS is in the range of 1 to 2 percent of total software spending, while within e-learning and Web conferencing, SaaS accounts for upwards of 70 percent of total market revenue.

A June 2007 study titled ERP: The Last Bastion of Resistance to Software as a Service, produced by Aberdeen Group, a technology research firm based in Boston, reported that SaaS is “accelerating companies’ return on investment, enabling them to make automation enhancements and making it possible to solve business problems in much shorter time spans.”

In the manufacturing sector — the focus of the study — a growing number of companies are willing to consider alternatives to the preferred on-premise software, according to Cindy Jutras, vice president and group director at Aberdeen Group and author of the report. “The first time we asked that question was about a year ago, and then we asked it again mid-year,” she said, explaining that companies were far more likely to be looking at SaaS for extensions of ERP than for ERP itself. “We saw the numbers grow from somewhere around 10 percent to something just short of 30 percent that would actually consider SaaS from an ERP perspective.”

WHAT’S IN STORE

NetSuite has been busy promoting its new business operating system, NS-BOS, which is a development platform for software developers, independent software vendors and resellers. The focus is on customization within vertical industries that third parties can develop for their customers.

“If I had to say one thing we’ve done in the past couple of years ... verticalization,” said Sean Rollings, vice president of product marketing for NetSuite, adding that the company is also focusing on increasing its global reach. “That’s taking and delivering industry-specific capabilities and really being able to deliver that in a standard basis that is still highly customizable to the individual company, but be able to deliver the capability that they need to be able to operate to their trading partners within that industry.”

Intacct plans to continue focusing on integration. It currently partners with Salesforce.com to offer CRM functions to customers, and hosts similar relationships with payroll vendors as well. “Our vision is to be able to offer the chief financial officer a complete, best-of-breed way to run his front office and back office all SaaS, but where he can choose all the individual applications,” Druker said, pointing out that small and midsized businesses often purchase one software system at a time. “The huge difference from the old software world is that we take it upon ourselves to make sure the applications work together. In the old days, it was the customer’s problem.”

Sage Software, which offers its Accpac and CRM product lines as SaaS, recently rolled out a new CRM strategy extending to 2010, in which it will develop an SaaS business platform including Sage CRM Solutions, as well as new services that will “allow for the development, testing, deployment and management of SaaS applications.”

NetBooks will shortly unveil two new core features, according to Evers: a point-of-sale system for retailers and a fully bi-directionally integrated Web store that will allow customers to control everything from a “single pulpit.”

Xactly’s Cabrera said, “The SaaS model ... mitigates the risk of failure. Since the customer never makes a huge up-front investment, they are able to tiptoe into the pool to make sure they like the temperature before going in a little deeper. In the on-premise model, they have to jump into the deep end and hope for the best.”

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