Analysis of SaaS and On Premise ICT solutions for SMEs

Graduate School of Social Sciences

Department of Business Administration

Analysis of SaaS and On Premise

ICT solutions for SMEs in Turkey

e-MBA Graduation Project

Salih Blent zkr

101112127

Project Advisor:

Yrd.Do.Dr. Levent Aksoy

stanbul, Ocak 2012

T.C. MALTEPE NVERSTES

e-MBA BTRME PROJES ONAY FORMU

Proje Konusu : Analysis of SaaS and On Premise ICT solutions for SMEs in Turkey

Projeyi Yapan rencinin;

Ad Soyad : SALH BLENT ZKIR

renci Numaras : 101112127

Maltepe niversitesi e-MBA yksek lisans programnn Proje dersini Baarl olarak

tamamlamtr.

Bu form ile birlikte 2 suret ciltli bitirme projesi ve Bitirme Projesi dosyasn ieren CD ile

Sosyal Bilimler Enstitsne teslim edilecektir.

20 / 01 / 2012

Yrd.Do.Dr.Levent Aksoy

Proje Danman

TABLE OF CONTENTS

PREFACE ..................................................................................................................... i

ABSTRACT ................................................................................................................. ii

LIST OF ABBREVIATIONS ..................................................................................... iii

LIST OF TABLES ...................................................................................................... iv

LIST OF FIGURES ..................................................................................................... v

1 INTRODUCTION ............................................................................................... 1

2 DEFINITION AND TAXONOMY ..................................................................... 4

2.1 Overview of Cloud Computing ..................................................................... 4

2.2 Definition of Cloud Computing .................................................................... 6

2.2.1 Deployment Models ............................................................................... 7

2.2.2 Service Models ....................................................................................... 8

2.2.3 Essential Characteristics ........................................................................ 9

2.2.4 Illustration of NIST Cloud Definition .................................................. 10

2.2.5 Differences in Scope and Control among Cloud Service Models ....... 11

2.3 Conceptual Cloud Reference Architecture .................................................. 13

2.4 Possible Services Available to Cloud Consumers ....................................... 16

3 PROBLEM DEFINITION ................................................................................. 20

4 METHODS ........................................................................................................ 24

5 SaaS MARKET AND VENDOR ANALYSIS .................................................. 27

5.1 Changing Sources of Firm Software ........................................................... 27

5.2 Evolution of SaaS - Yesterday, Today, and Tomorrow .............................. 28

5.3 Forrester Research SaaS Maturity Model ................................................... 30

5.4 Key Technology Considerations for SaaS Providers .................................. 33

5.5 In House or SaaS ......................................................................................... 34

5.6 Advantages of SaaS Service Model for Turkish SMEs .............................. 35

5.6.1 Hardware, Software, and IT Staff Cost Savings .................................. 38

5.6.2 Easy To Adopt ..................................................................................... 40

5.6.3 Less Problematic Software Updates and Patches ................................ 40

5.6.4 Scalability on Peak Times .................................................................... 40

5.6.5 Pay per Use Financial Model ............................................................... 43

5.6.6 Improved Release Management and Testing of New Releases ........... 43

5.6.7 Rapid Resource Provisioning ............................................................... 44

5.6.8 SLAs .................................................................................................... 44

5.6.9 Security ................................................................................................ 45

5.6.10 Few Technical Skills Required for New Technology .......................... 46

5.7 Disadvantages of SaaS Service Model for Turkish SMEs .......................... 47

5.7.1 Cloud Computing Knowledge and Understanding .............................. 49

5.7.2 Security ................................................................................................ 50

5.7.3 System Integration Capability .............................................................. 51

5.7.4 Ability to Move Among SaaS Providers and Ability to Change

Deployment Models When Necessary ............................................................... 51

5.7.5 Availability and Reliability .................................................................. 52

5.7.6 Adaptability and Task Productivity ..................................................... 54

5.7.7 Regulatory and Compliance Issues ...................................................... 54

5.7.8 Impact on IT Roles and Responsibilities ............................................. 54

5.7.9 IT Governance Issues ........................................................................... 55

5.7.10 Different Cloud Computing Standards among Cloud Providers ......... 56

6 TURKISH ICT MARKET ANALYSIS ............................................................ 59

6.1 Analysis of Current IT Usage, Risks, and Issues in Turkish ICT Market ... 59

6.1.1 ICT in Turkey and SWOT Analysis of the ICT Market ...................... 59

6.1.2 Internet and FaceBook Usage in Turkey and Europe .......................... 63

6.1.3 OECD Outlook for SMEs in Turkey ................................................... 66

6.1.4 Report Stating Turkey's SMEs Lag in IT ............................................. 68

6.2 Turkey Cloud Computing Survey Results .................................................. 69

6.3 SWOT Analysis of Using SaaS for Turkish SMEs ..................................... 71

6.3.1 Strengths of SaaS ................................................................................. 71

6.3.2 Weaknesses of SaaS ............................................................................. 73

6.3.3 Opportunities of SaaS .......................................................................... 75

6.3.4 Threats of SaaS .................................................................................... 76

7 DECISION MODEL FOR SELECTING SaaS PROVIDER ............................ 79

7.1 SaaS Provider Qualification Checklist ........................................................ 79

7.2 Multi Criteria Based Cloud Service Provider Selection Scoring Model ..... 81

7.3 Total Cost Of Ownership (TCO) ................................................................. 82

7.3.1 IT Service Costing Model for On Premise .......................................... 83

7.3.2 TCO Calculation Examples ................................................................. 86

7.3.3 TCO of SaaS vs. On Premise Using Simple Approach ....................... 86

7.3.4 TCO Of SaaS vs. On Premise Using another Simple Approach ......... 88

7.3.5 The SaaS vs. On Premise TCO Calculator .......................................... 90

7.3.6 TCO Calculation Comparing SaaS With On Premise Solution ........... 92

7.3.7 TCO for Office 365 vs. On Premise .................................................... 93

7.3.8 TCO for CRM On Demand vs. CRM On Premise .............................. 94

7.3.9 TCO for On Premise and Office 365 online using Microsofts tool .... 95

7.4 Return On Investment (ROI) ....................................................................... 99

7.4.1 ROI Comparisons for Different SaaS Applications Using Complex

Approaches ...................................................................................................... 100

7.4.2 Forrester Researchs Total Economic Impact Model Analysis for

Office 365 ........................................................................................................ 102

8 DISCUSSIONS ................................................................................................ 107

9 CONCLUSION ................................................................................................ 109

10 REFERENCES ................................................................................................ 111

CURRICULUM VITAE .......................................................................................... 113

i

PREFACE

This study is written as the final graduation work of the Maltepe EMBA English

program.

First of all, I would like to thank my study supervisor, Yrd.Do.Dr. Levent Aksoy,

for lots of great inspiration, ideas, comments, and feedbacks.

I would like to sincerely thank Serdar Angn, Distance Education Coordinator at

Maltepe University, for his coordination, kindness, guidance, and professionalism

during my EMBA program.

I also want to express my utmost gratitude to my instructors at the program who

helped me to develop and improve my business acumen and skills.

Finally, lots of thanks are due to my wife, Yrd.Do.Dr. Vildan etinsaya zkr, for expertly proof reading this study. Hopefully she has tried to remove all the serious

errors, but any that might be left are wholly my responsibility.

ii

ABSTRACT

This study is written to provide guidance for evaluation SaaS solutions and

comparing it with on premise solutions by developing an integrated framework

which includes qualitative and quantitative aspects. The cloud computing is a fairly

new technology that has many facets that remain mysterious to the average person.

This study will seek to help familiarize SMEs and analysts with the SaaS concept

and why it makes sense to subscribe IT applications online instead of owning them

on premise. The variety of options and potential benefits of SaaS make it a

consideration worth making.

This study is written for SMEs particularly who want to use their IT budget and

resources better than their competitors in the future. Although written with SMEs in

mind, large organizations may also benefit from it due to hybrid deployment models.

There are a several options when it comes to SaaS. SMEs must understand the

nuances inherent in the different models they evaluate, along with understanding the

difference between SaaS, hybrid, hosted, and in-house.

If we make analogy such as most companies do not build their own electrical

generating plants or their own water treatment facilities. They purchase only the

utilities they really need without wasting any resources deliberately. Why not do that

with computing in terms of fitness for purpose and fitness for use.

This study covers the in depth analysis of SaaS service model and public deployment

model of cloud computing. SaaS is never one-size-fits-all, however. IT departments

should have a clear framework for evaluating and operating any new model, and a

detailed supply chain IT impact assessment should be performed to determine if the

SaaS model is a good match for the operation. Benefits such as rapid deployment,

lower cost, and scalability must be balanced by other key decision criteria particular

to an organization such as fit for use, fit for purpose, total cost of ownership (TCO),

return on investment (ROI) and risk. Evaluations should consider both long-term

ROI and short-term total cost of ownership.

iii

LIST OF ABBREVIATIONS

CAL : Client Access License

COBIT : Control Objectives for Information and related Technology

CRM : Customer Relationship Management

ESB : Enterprise Service Bus

HIPAA : Health Insurance Portability and Accountability Act

HR : Human Resources

ICT : Information and Communication Technologies

IaaS : Infrastructure as a Service

ISO : International Organization for Standardization

IT : Information Technology

NIST : National Institute of Standards and Technology

NPV : Net Present Value

PaaS : Platform as a Service

PV : Present Value

ROI : Return on Investment

SaaS : Software as a Service

SLA : Service Level Agreement

SME : Small Medium Enterprise

SWOT : Strengths Weaknesses Opportunities Threats

TCO : Total Cost of Ownership

TUBISAD : Trkiye Biliim Sanayicileri Dernei

iv

LIST OF TABLES

Table 2.1 Actors in Cloud Computing ....................................................................... 15

Table 5.1 Comparison Between In-House And SaaS Solutions ................................ 35

Table 6.1 SWOT Analysis of Turkish ICT Market ................................................... 60

Table 6.2 Internet Penetration in Turkey ................................................................... 64

Table 6.3 Internet and Facebook Usage in Europe, June 2011 .................................. 65

Table 6.4 Internet Usage and Population Statistics in Turkey ................................... 66

Table 7.1 A Scoring Model for SaaS Vendor Service Selection ............................... 82

Table 7.2 TCO Cost Components .............................................................................. 83

v

LIST OF FIGURES

Figure 2.1 NIST Cloud Definition ............................................................................. 11

Figure 2.2 Differences in Scope and Control among Cloud Service Models ............ 12

Figure 2.3 Seperation of Responsibilities .................................................................. 13

Figure 2.4 Conceptual Reference Model of Cloud Computing ................................. 15

Figure 2.5 Possible Services Available to Cloud Consumers .................................... 16

Figure 4.1 Integrated Framework for Filtering and Selecting SaaS Providers .......... 26

Figure 5.1 Sources of Software Expenditures ............................................................ 28

Figure 5.2 Possible Evolution Of SaaS from past to future ....................................... 30

Figure 5.3 SaaS Maturity Model according to Forrester ........................................... 31

Figure 5.4 Technology Considerations Regarding SaaS Provider Selection ............. 34

Figure 5.5 Primary Drivers for Considering Cloud Computing ................................ 38

Figure 5.6 Cloud Related Investments Can To Help Reduce ICT Spending ............. 39

Figure 5.7 Provisioning For Peak Load ..................................................................... 41

Figure 5.8 Underprovisioning 1 ................................................................................. 42

Figure 5.9 Underprovisioning 2 ................................................................................. 42

Figure 5.10 Malicious and Potentially Unwanted Software ...................................... 46

Figure 5.11 The Major Concerns And Barriers To Cloud Adoption ......................... 48

Figure 5.12 Key Concerns in Deploying Cloud based Business Solutions ............... 49

Figure 6.1 Breakdown of ICT Spending in Turkey ................................................... 61

Figure 6.2 Hardware Expenditure in Turkey ............................................................. 62

Figure 6.3 ICT Canada Projected Spending on Hardware, Software, Services and

Communications 2010 to 2013 (WITSA) Digital Plant, 2010, (Forecast in US$) .... 63

Figure 6.4 Top 10 Internet Countries in Europe, March 31, 2011 ............................. 66

Figure 6.5 Currently Leveraging Cloud Computing .................................................. 70

Figure 6.6 Leveraging Cloud Computing In These Areas Currently ......................... 70

Figure 6.7 Cloud Computing Initiative In Place Within The Organization ............... 71

Figure 7.1 A model for Calculating the cost of IT Services ...................................... 85

Figure 7.2 IT Service Based Costing ......................................................................... 86

Figure 7.3 The SaaS vs. On Premise TCO Calculator Comparison Data .................. 91

Figure 7.4 The SaaS vs. On Premise TCO Calculator Results .................................. 92

Figure 7.5 TCO For 100 Users SME, Office 365 vs. On Premise ............................. 94

Figure 7.6 TCO For 100 Users SME, CRM On Demand vs. CRM On Premise ....... 95

Figure 7.7 Microsoft Office 365 TCO Tool, Initial Page .......................................... 96

Figure 7.8 Microsoft Office 365 TCO Tool, Inputs Page .......................................... 97

Figure 7.9 Microsoft Office 365 Tool, Results Page ................................................. 98

vi

Figure 7.10 Microsoft Office 365 Tool, Cost Comparison Page For Office 365 vs. On

Premise Software ....................................................................................................... 99

Figure 7.11 Model: Total Economic Impact Analysis Summary - SaaS CRM ....... 101

Figure 7.12 Model: Total Economic Impact Analysis Summary - SaaS HR .......... 101

Figure 7.13 Model: Total Economic Impact Analysis Summary - Saas IT

Management ............................................................................................................. 102

Figure 7.14 Composite Organization Three-Year Risk-Adjusted Roi ..................... 103

Figure 7.15 Composite Organization Three-Year Risk-Adjusted Cumulative Cash

Flow ......................................................................................................................... 106

1

1 INTRODUCTION

Cloud computing is simply the ability to access files and applications online through

multiple devices, such as computer, browser, or phone. The analogy that derives

cloud computing concept is if somebody needs milk, that person should not buy a

cow.

Forrester Research defines cloud computing as a standardized IT capability

(software, infrastructure, or services) delivered in a pay-per-use self-service way

(Staten, 2009).

Cloud computing is a technology that uses the internet and central remote servers to

maintain data and applications. Cloud computing allows consumers and businesses to

use applications without installation and access their personal files at any computer

with internet access. This technology allows for much more inefficient computing by

centralizing storage, memory, processing and bandwidth.

Businesses around the world are already beginning to make the transition to this new

model of computing. Basically, there are three reasons why this trend is so

overwhelming: agility, focus and economics. Agility, focus, and economics are the

key factors that motivating companies to make the move to cloud computing.

The first is agility, which has several facets. Cloud computing speeds up the ability

to capitalize on new opportunities, and respond to changes in business demand.

Business can deploy applications much faster and more efficiently, and business can

deliver solutions to its end users so they can work from nearly anywhere, at any time,

across devices in ways that are both secure and manageable. Also, with cloud

computing, the entire IT infrastructure business need to operate quickly and

2

efficiently is available at the flip of a switch. So, the next time the marketing

department launches a campaign and doesn't tell anybody, its Website is much less

likely to go down. The environment can quickly scale up and down to meet spikes in

demand.

The second factor driving adoption of cloud computing is "focus. By this we mean

the ability to focus on improving the success of the business through better IT. Put

another way, business can focus more on innovation and less on infrastructure.

Today, the typical IT department spends most of its time and money on maintenance

and operations. Cloud computing cuts those costs down dramatically. ICT

infrastructure is abstracted and its resources are pooled, so IT runs more like a utility

than a collection of complicated (and often fragile) software and hardware systems.

When business can pay more attention to ideas than IT complexity, business adds a

new kind of value to the business.

The third factor driving adoption of cloud computing is economics. This means

lowering the cost of delivering IT and increasing the utilization and efficiency of the

datacenter and IT spending. The delivery costs go down because now business can

offer self-service of applications and resources, and business can meter the usage of

those resources in new and very precise ways. Utilization goes up because the

infrastructure resources (storage, compute, and network) are now pooled and

abstracted. So, for example, when a self-service application is finished, the server

and storage resources it used will go right back into the pool. The environment is

highly automated so the ICT systems are not just sitting around idle, they are always

at work as much as needed, not much, not less.

3

This study explores and analyzes the benefits and risks of cloud computing for Small

and Medium sized Enterprises (10 < full time employees < 251) in Turkey using

global and local information available. The study will inspects the ROI of public

Cloud Services offerings provided by some SaaS vendors. This study also performs

SWOT analysis of cloud computing for the SaaS market. The study will also exhibit

cost comparison of public cloud services vs. on premise IT including all direct and

indirect costs and benefits over 5 years. However, the keep the scope more

understandable and concise, the study will only focus on public deployment model

and SaaS service model, thus, private and hybrid deployment models as well as PaaS

and IaaS service models are excluded.

4

2 DEFINITION AND TAXONOMY

Consumer and business products, services and solutions delivered and consumed in

real-time over the Internet. Cloud services are shared, standard services, built for a

market, not for any specific customer. Cloud computing is a general term for

anything that involves delivering hosted services over the Internet. These services are

broadly divided into three categories: Infrastructure-as-a-Service (IaaS), Platform-as-

a-Service (PaaS) and Software-as-a-Service (SaaS). A cloud service has several

distinct characteristics that differentiate it from traditional hosting which is on-

premise. A cloud can be deployed as private, public, hybrid, or community.

2.1 Overview of Cloud Computing

Cloud computing, or simply cloud, is changing how IT delivers services and how a

user can access computing resources at work, from home, and on the go. Cloud

enables IT to respond to business opportunities with on-demand deliveries that are

cost-effective and agile in the long run. Much happening in enterprise IT now is a

journey to transform existing IT establishment into a cloud-friendly, cloud-ready,

cloud-enabled environment.

The evolution of cloud computing can be split into 3 phases (Banerjee, 2011).

The Idea Phase: This started in the 1960s and stretched to the pre internet

bubble era. The core idea of computing as a utility computing and grid

computing developed.

The Pre Cloud Phase: This started around 1999 and lasted till 2006. In this

phase internet as the mechanism to provide Application as Service got

developed.

5

The Cloud Phase: this phase started in 2007 when the term cloud computing

term became popular and the sub classification of IaaS, PaaS & SaaS got

formalized.

Client computing is one of the most optimum ways of providing computing

resources and software. The concept typically runs on the established convention of

the internet where clients and servers communicate remotely and on demand via

subscription model. The concept can sometimes be referred to as Internet as a

Product since all products provided via Internet infrastructure by commercial

companies can be rent as a kind of cloud computing service.

Cloud computing is a technology that uses the internet and central remote servers to

maintain data and applications. Cloud computing allows consumers and businesses to

use applications without installation and access their personal files at any computer

with internet access. This technology allows for much more inefficient computing by

centralizing storage, memory, processing and bandwidth.

Cloud computing provides new services ranging from data storage to end-to-end

computing. Cloud computing takes away the task of infrastructural deployment and

makes technology, platform or just software readily available commodities just like

electricity or water or gas or TV. One pays as per the usage besides other set up

costs, which when combined, are far less than the conventional ways of acquiring

technology.

Cloud computing is broken down into three segments: "application" "storage" and

"connectivity." Each segment serves a different purpose and offers different products

for businesses and individuals around the world.

6

Community cloud shares infrastructure between several organizations from a specific

community with common concerns (security, compliance, jurisdiction, etc.), whether

managed internally or by a third-party and hosted internally or externally. The costs

are spread over fewer users than a public cloud (but more than a private cloud), so

only some of the benefits of cloud computing are realized.

2.2 Definition of Cloud Computing

For Information Technology (IT) technical professionals, Cloud Computing may

mean utility computing, high speed grids, virtualization, automatic configuration and

deployment, on-demand and remote processing, and combinations of them. For

business users, Cloud Computing is simply the Internet, a cable form a service

provider or just something out there networked with my computer. Either public,

private, or in between, the conventional wisdom, as published in The NIST

Definition of Cloud Computing, assumes noticeable characteristic regarding how

computing resources are made available in Cloud.

Cloud computing is a model for enabling ubiquitous, convenient, on-demand

network access to a shared pool of configurable computing resources (e.g., networks,

servers, storage, applications, and services) that can be rapidly provisioned and

released with minimal management effort or service provider interaction. This cloud

model is composed of five essential characteristics, three service models, and four

deployment models (Mell & Grance, 2011).

The National Institute of Standards and Technology (NIST) explain these essential

characteristics, service models and deployment models as in the following

subsections.

7

2.2.1 Deployment Models

A cloud deployment model represents a specific type of cloud environment,

primarily distinguished by ownership and size. These can be summarized as private

cloud, community cloud, public cloud, and hybrid cloud (Mell & Grance, 2011).

Private cloud: The cloud infrastructure is provisioned for exclusive use by a

single organization comprising multiple consumers (e.g., business units). It may be

owned, managed, and operated by the organization, a third party, or some

combination of them, and it may exist on or off premises.

Community cloud: The cloud infrastructure is provisioned for exclusive

use by a specific community of consumers from organizations that have shared

concerns (e.g., mission, security requirements, policy, and compliance

considerations). It may be owned, managed, and operated by one or more of

the organizations in the community, a third party, or some combination of them,

and it may exist on or off premises.

Public cloud: The cloud infrastructure is provisioned for open use by the

general public. It may be owned, managed, and operated by a business, academic, or

government organization, or some combination of them. It exists on the premises of

the cloud provider.

Hybrid cloud: The cloud infrastructure is a composition of two or

more distinct cloud infrastructures (private, community, or public) that remain

unique entities, but are bound together by standardized or proprietary technology

that enables data and application portability (e.g., cloud bursting for load

balancing between clouds).

8

2.2.2 Service Models

A cloud delivery model represents a specific combination of IT resources offered by

a cloud provider. These can be summarized as Software as a Service, Platform as a

Service, and Infrastructure as a Service (Mell & Grance, 2011).

Software as a Service (SaaS): The capability provided to the consumer

is to use the providers applications running on a cloud infrastructure. The

applications are accessible from various client devices through either a thin client

interface, such as a web browser (e.g., web-based email), or a program interface. The

consumer does not manage or control the underlying cloud infrastructure including

network, servers, operating systems, storage, or even individual application

capabilities, with the possible exception of limited user-specific application

configuration settings.

Platform as a Service (PaaS): The capability provided to the consumer is to

deploy onto the cloud infrastructure consumer-created or acquired applications

created using programming languages, libraries, services, and tools supported

by the provider. The consumer does not manage or control the underlying

cloud infrastructure including network, servers, operating systems, or storage, but

has control over the deployed applications and possibly configuration settings for the

application-hosting environment.

Infrastructure as a Service (IaaS): The capability provided to the

consumer is to provision processing, storage, networks, and other fundamental

computing resources where the consumer is able to deploy and run arbitrary

software, which can include operating systems and applications. The consumer

does not manage or control the underlying cloud infrastructure but has control over

9

operating systems, storage, and deployed applications; and possibly limited control

of select networking components (e.g., host firewalls).

2.2.3 Essential Characteristics

A cloud is a distinct and remote IT environment designed for the purpose of remotely

provisioning scalable and measured IT resources. In order to remotely provision

scalable and measured IT resources in an effective manner, an IT environment

requires a specific set of characteristics. These characteristics need to exist to a

meaningful extent for the IT environment to be considered an effective cloud. These

can be summarized as on-demand self-service, broad network access, resource

pooling, rapid elasticity, and measured service (Mell & Grance, 2011).

On-demand self-service: A consumer can unilaterally provision

computing capabilities, such as server time and network storage, as needed

automatically without requiring human interaction with each service provider.

Broad network access: Capabilities are available over the network and

accessed through standard mechanisms that promote use by heterogeneous thin

or thick client platforms e.g., mobile phones, tablets, laptops, and workstations.

Resource pooling: The providers computing resources are pooled to serve

multiple consumers using a multi-tenant model, with different physical and

virtual resources dynamically assigned and reassigned according to consumer

demand. There is a sense of location independence in that the customer generally

has no control or knowledge over the exact location of the provided resources but

may be able to specify location at a higher level of abstraction e.g., country, state,

or datacenter. Examples of resources include storage, processing, memory, and

network bandwidth.

10

Rapid elasticity: Capabilities can be elastically provisioned and released,

in some cases automatically, to scale rapidly outward and inward

commensurate with demand. To the consumer, the capabilities available for

provisioning often appear to be unlimited and can be appropriated in any quantity at

any time.

Measured service: Cloud systems automatically control and optimize

resource use by leveraging a metering capability at some level of abstraction

appropriate to the type of service e.g., storage, processing, bandwidth, and active

user accounts. Resource usage can be monitored, controlled, and reported,

providing transparency for both the provider and consumer of the utilized

service.

2.2.4 Illustration of NIST Cloud Definition

The NIST cloud definition shown in the Figure 2.1 below recognizes several types of

cloud deployment models, service models, essential and common characteristics.

This figure lists Common Characteristics which is not part of the NIST essential

definition additional quality attributes in the lower section that can help to prioritize

what cloud features are important to organizations.

11

Figure 2.1 NIST Cloud Definition

Source: Joyner., J. (2011). How cloudy is your cloud - The NIST offers a cloud standard,

http://www.techrepublic.com/blog/networking/how-cloudy-is-your-cloud-the-nist-offers-a-

cloud-standard/4635

2.2.5 Differences in Scope and Control among Cloud Service Models

The following Figure 2.2 illustrates the differences in scope and control between the

cloud subscriber and cloud provider, for each of the service models discussed above.

Five conceptual layers of a generalized cloud environment are identified in the

center diagram and apply to public clouds, as well as each of the other

deployment models. The arrows at the left and right of the diagram denote the

approximate range of the cloud providers and users scope and control over the

cloud environment for each service model. In general, the higher the level of support

available from a cloud provider, the more narrow the scope and control the cloud

subscriber has over the system (Jansen & Grance, 2011). The two lowest layers

shown denote the physical elements of a cloud environment, which are under

the full control of the cloud provider, regardless of the service model.

12

Heating, ventilation, air conditioning (HVAC), power, communications, and other

aspects of the physical plant comprise the lowest layer, the facility layer, while

computers, network and storage components, and other physical computing

infrastructure elements comprise the hardware layer.

The remaining layers denote the logical elements of a cloud environment.

The virtualized infrastructure layer entails software elements, such as hypervisors,

virtual machines, virtual data storage, and supporting middleware components used

to realize the infrastructure upon which a computing platform can be established.

While virtual machine technology is commonly used at this layer, other means of

providing the necessary software abstractions are not precluded. Similarly, the

platform architecture layer entails compilers, libraries, utilities, and other software

tools and development environments needed to implement applications. The

application layer represents deployed software applications targeted towards end-

user software clients or other programs, and made available via the cloud.

Figure 2.2 Differences in Scope and Control among Cloud Service Models

Source: Jansen, W. Grance, T. (2011). Guidelines on Security and Privacy in Public Cloud

Computing, http://csrc.nist.gov/publications/drafts/800-144/Draft-SP-800-144_cloud-

computing.pdf

13

2.3 Conceptual Cloud Reference Architecture

One way to describe cloud computing is to base on the service delivery models.

There are three, namely SaaS, PaaS and IaaS and depending on which model, a

subscriber and a service provider hold various roles and responsibilities in

completing a service delivery.

A schematic is shown below in Figure 2.3 highlighting the various functional

components exposed in the three service delivery models in cloud computing

compared with those managed in an on-premises deployment. Essentially, cloud

computing presents separation of subscribers roles and responsibilities from those of

a service providers. And by subscribing a particular service delivery model, a

subscriber implicitly agrees to relinquish certain level of access to and control over

resources.

Figure 2.3 Seperation of Responsibilities

Source: Chou, Y. (2010). Cloud Computing Primer for IT Pros,

http://blogs.technet.com/b/yungchou/archive/2010/11/15/cloud-computing-primer-for-it-

pros.aspx

14

In SaaS, the entire deliveries are provided by a service provider through cloud. The

benefit to a subscriber is there is ultimately no maintenance needed, other than the

credentials to access the application, i.e. the software. At the same time, SaaS also

means there is little control a subscriber has on how the computing environment is

configured and administered outside of a subscribed application. This is the user

experience of, for example, some email offering or weather reports in Internet.

In PaaS, the offering is basically the middleware where the APIs exposed, the service

logic derived, the data manipulated, and the transactions formed. It is where most of

the magic happens.

A subscriber in this model can develop and deploy applications with much control

over the applied intellectual properties. Out of the three models, IaaS provides most

manageability to a subscriber. Form OS, runtime environment, to data and

applications all are managed and configurable. This model presents opportunities for

customizing operating procedures with the ability to on-demand provision IT

infrastructure delivered by virtual machines in cloud.

As shown in the Figure 2.4, the NIST cloud computing reference architecture defines

five major actors: cloud consumer, cloud provider, cloud carrier, cloud auditor and

cloud broker. Each actor is an entity (a person or an organization) that participates in

a transaction or process and/or performs tasks in cloud computing.

15

Figure 2.4 Conceptual Reference Model of Cloud Computing

Source: Liu, F., Tong, J., Mao, J., Bohn, R., Messina, J., Badger, L. & Leaf, D. (2011). NIST

Cloud Computing Reference Architecture,

http://www.nist.gov/customcf/get_pdf.cfm?pub_id=909505

The following Table 2.1 briefly lists the actors as defined in the NIST cloud

computing reference architecture.

Table 2.1 Actors in Cloud Computing

Actor Definition

Cloud

Consumer

A person or organization that maintains a business relationship

with, and uses service from, Cloud Providers.

Cloud Provider A person, organization, or entity responsible for making a

service available to interested parties.

Cloud Auditor A party that can conduct independent assessment of cloud

services, information system operations, performance and

security of the cloud implementation.

Cloud Broker

An entity that manages the use, performance and delivery

of cloud services, and negotiates relationships between

Cloud Providers and Cloud Consumers.

Cloud Carrier

An intermediary that provides connectivity and transport of

cloud services from Cloud Providers to Cloud Consumers.




16

2.4 Possible Services Available to Cloud Consumers

The documentation inside Cloud Reference Architecture outlines several cloud

computing examples depending on the service models (Liu et al., 2011).

Depending on the services requested, the activities and usage scenarios can be

different among cloud consumers. The Figure 2.5 below presents some possible

cloud services that can be provided to cloud consumers by cloud providers.

Figure 2.5 Possible Services Available to Cloud Consumers




List of possible services that can be consumed by a typical cloud consumer are

documented in the NIST Cloud Computing Reference Architecture as below.

SaaS services: SaaS is a model where an application is available on demand.

It is the most common form of cloud computing delivered today.

17

o Email and Office Productivity: Applications for email, word

processing, spreadsheets, presentations, etc.

o Billing: Application services to manage customer billing based on

usage and subscriptions to products and services.

o Customer Relationship Management (CRM): CRM applications

that range from call center applications to sales force automation.

o Collaboration: Tools that allow users to collaborate in workgroups,

within enterprises, and across enterprises.

o Content Management: Services for managing the production of and

access to content for web-based applications.

o Document Management: Applications for managing documents,

enforcing document production workflows, and providing workspaces

for groups or enterprises to find and access documents.

o Financials: Applications for managing financial processes ranging

from expense processing and invoicing to tax management.

o Human Resources: Software for managing human resources

functions within companies.

o Sales: Applications that are specifically designed for sales functions

such as pricing, commission tracking, etc.

o Social Networks: Social software that establishes and maintains a

connection among users that are tied in one or more specific types of

interdependency.

o Enterprise Resource Planning (ERP): Integrated computer-based

system used to manage internal and external resources, including

tangible assets, financial resources, materials, and human resources.

18

PaaS Services: PaaS is a platform available on demand for development,

testing, deployment and on-going maintenance of applications without the

cost of buying the underlying infrastructure and software environments.

o Business Intelligence: Platforms for the creation of applications such

as dashboards, reporting systems, and data analysis.

o Database: Services offering scalable relational database solutions or

scalable non-SQL data stores.

o Development and Testing: Platforms for the development and testing

cycles of application development, which expand and contract as

needed.

o Integration: Development platforms for building integration

applications in the cloud and within the enterprise.

o Application Deployment: Platforms suited for general purpose

application development. These services provide databases, web

application runtime environments, etc.

IaaS Services: IaaS is an IT environment with ability for a subscriber to on

demand provision infrastructure. This infrastructure is, for example, delivered

with virtual machines in which a subscriber maintains the OS and installed

applications, while the underlying fabric is managed by a service provider.

o Backup and Recovery: Services for backup and recovery of file

systems and raw data stores on servers and desktop systems.

o Compute: Server resources for running cloud-based systems that can

be dynamically provisioned and configured as needed.

19

o Content Delivery Networks (CDNs): CDNs store content and files to

improve the performance and cost of delivering content for web-based

systems.

o Services Management: Services that manage cloud infrastructure

platforms. These tools often provide features that cloud providers do

not provide or specialize in managing certain application

technologies.

o Storage: Massively scalable storage capacity that can be used for

applications, backups, archival, and file storage.

20

3 PROBLEM DEFINITION

IT investment is still very risky for SMEs. The results of this research revealed that

SME owners or managers are quite dissatisfied with their existing IT investment and

IT infrastructure (Turan & rkmez, 2011). Many issues related to IT usage and

adoption in worldwide SMEs is also valid for Turkey. Findings of the study are as

follows (Kutlu & Ozturan, 2008):

Increased use of IT in SMEs is mainly for operational and administrative

tasks. Proof of this is the dominant use of accounting and office software.

Development of internal IT skills produce high levels of success with IT

adoption.

Evidence for this is the increase in usage of production applications

indicating a higher level of adoption in parallel with an increase in number of

program developers.

Business owners and managers with positive attitude are inclined to be more

successful in adopting and implementing new technology.

Verification of this is the positioning of SMEs in a higher level of adoption

among the ones that encouraged their employees for IT usage.

One of the factors affecting the usage and adoption of IT in SMEs is the

expected benefits of IT. The findings of this study, which is an indication of

this item, point out that, expected increase in the accuracy of information,

comfort level with technology and expected increase in the processing speed

are the major factors affecting IT implementation decisions.

21

We have analyzed the Comscore metrics reports and Email Tracker 2010 usage data

reports. We have identified the following problems for SMEs worldwide. We believe

the same issues apply to the Turkish SMEs as well.

Most of the SMEs are still running old servers in terms of hardware and

software.

One or two employees oversee whole IT operations for growing company, so

they dont have the luxury to apply proven best practices timely.

The SMEs dont have strong backup, restore, and disaster recovery

capability.

SMEs cannot provide high availability or reliability targets.

Performance issues such as delays in mail delivery and email not

downloading properly on smartphones.

Calendars not synchronizing correctly.

SMEs have distributed remote workforce to compete with other SMEs and

large companies.

SMEs can go global if they have new opportunities abroad.

SMEs can merge with other SMEs or can be acquired by large organizations.

SMEs dont have enough IT resources to take on new projects.

If employees change their cell phones, then their directory of contacts do not

work properly sometimes.

SMEs need to share and collaborate with peers and partners over the internet

with fewer clicks in a secure way. For example, they need to share large files

with advertising agencies.

Companies spend a lot of time in custom reporting using old technology and

disintegrated enterprise applications.

22

Employees cannot collaborate over internet. For example, they need to edit

same documents simultaneously.

Most of the SMEs have not obtained ISO 20000 and ISO 27001 certifications

which are related to ICT. Therefore they lack security standards.

Internet facing servers are not patched timely which poses security risks.

As a consequence of these research studies, we can deduce that today most of SMEs

have some pains related to their ICT including Software Adequacy, Timeliness,

Software Maintenance, Security and Integrity, Information Content, Productivity,

Information Accuracy, Documentation, Information Format, Vendor Support, Ease

of Use, and Training and Education, which are related to new technology adoptions

and operational costs. SMEs need to focus on higher priority projects related to core

business instead of supporting IT capital investments. SMEs also need to pay only

for services used as they have limited ICT budget. The SMEs have limited

operational ICT employees so they need to reduce IT complexity. Most of the startup

companies and SMEs often try different business opportunities but very few of them

become successful, most of these initiatives fade away. Some of these new products

require extensive ICT spending due to the nature of technology. For SMEs it should

be possible to add computing resources without building new infrastructure for these

new initiatives and research efforts. SMEs mostly dont have enough ICT budget to

apply or upgrade to the latest ICT technology so they lack competitiveness and have

relative poor productivity gains compared to large organizations. Access to leading-

edge technology for a decent cost and effort will allow SMEs to use the latest and

brightest ICT technology similar to large organizations without making huge capital

and operational expenses.

23

To alleviate these problems for SMEs, cloud computing is becoming very popular

every day because customers only pay for the computing infrastructure that they

actually use. In many cases users experience lower IT costs than if they had to buy

all the equipment, hire the technical staff to run it and maintain it, and purchase

software applications. This type of on-demand computing is beneficial to small and

medium-size companies since they can easily scale up and down their IT

requirements as the pace of their business demands it. Larger organizations however,

may not want their most sensitive data stored on servers which they dont control.

System reliability is also a special concern to all businesses. The unavailability of

business data and applications for even a few hours may be unacceptable. The SaaS

model means that SMEs can get the latest software and required infrastructure at a

low, monthly cost, rather than having to go through the headaches of upfront

investments, installation and upgrades themselves.

24

4 METHODS

In this study, I propose an integrated framework with qualitative and quantitative

aspects. The elements of this methodology can be summarized as follows:

SaaS Evolution of Technology: SaaS technology has been around for a while.

We will investigate where it came from in the last decade and how it will be

evolving in the future.

SaaS Market Analysis and SWOT Analysis: SWOT analysis of SaaS

solutions are documented to give the knowledge about Strengths,

Weaknesses, Opportunities, Threats of SaaS vendors and solutions for

evaluators about the situation of the technology. Evaluators should check this

guidance to see different angles and perspectives.

Checklist for qualifying SaaS provider: There are several checklists when

checking the solution is adequate or not. There are several components to a

successful SaaS purchase, including Functionality, Implementation Process,

and Cost. There are multiple factors to consider when making the deal.

Scoring table for evaluation SaaS provider: The organization which selects

the SaaS solution from different vendors can score each SaaS vendors rating

for 1-9 for several characteristics to quantify criterion. The higher the score

the better for that SaaS vendor.

On Premise ICT costing model: In this section, all the direct and hidden costs

of having ICT on premise are revealed.

TCO Total Cost of Ownership: Total Cost of Ownership calculation

examples help us to compare total cost of on premise ICT vs. SaaS solution.

ROI Return on Investment: In this section, we focus on the net present

value of current SaaS investments return.

25

Based on these methods, I have developed a simple SaaS Evaluation Framework for

SMEs as listed below:

Is SaaS the right technology for my company?

o SaaS Evolution today and future

o SaaS Market Analysis

o SaaS Maturity Model

o Advantages and Disadavantages of SaaS model

o SWOT Analysis of SaaS

How should I filter the SaaS providers?

o SaaS Provider Qualification checklist

How should I select the right SaaS providers?

o Multi Critearia Based SaaS Provider Scoring tool

How much do I spend for On Premise ICT Services? How much will I pay for

online SaaS solutions? How much will I save if go for SaaS over On Premise?

o Direct and Indirect Costs per ICT Service calculation model

o Simple TCO calculation models

o Complex TCO calculation models

Will my costs outweigh my benefits if I invest in SaaS solutions?

o Complex ROI calculation models

If we illustrate the workflow of this model using a flowchart, it can be designed as in

the following Figure 4.1:

26

Is SaaS the

right technology

for my company?

START

END

Will my costs

outweigh my benefits

if I invest

in SaaS solutions?

How should

I filter the

SaaS providers?

How should

I select the right SaaS

providers?

How much do I spend

for On Premise ICT Services?

How much will I pay for online SaaS

solutions?

How much will I save

if go for SaaS over

On Premise?

Qualitative Methods:

SaaS Evolution today and future

SaaS Market Analysis

SaaS Maturity Model

Advantages and Disadavantages of SaaS model

SWOT Analysis of SaaS

Qualitative Methods:

SaaS Provider Qualification checklist

Quantitative Methods:

Multi Critearia Based SaaS Provider Scoring

tool


Direct and Indirect Costs per ICT Service

calculation model

Simple TCO calculation models

Complex TCO calculation models


Complex ROI calculation models

Figure 4.1 Integrated Framework for Filtering and Selecting SaaS Providers

27

5 SaaS MARKET AND VENDOR ANALYSIS

The rapid adoption of all forms of Cloud IT, from IaaS to PaaS to SaaS, is changing

the way that organizations evaluate and manage the concerns related to the selection

of SaaS solutions for business operations and management. But most of all, it is

changing how firms of all sizes, and in all markets, see and manage IT. Software-as-

a-Service (sometimes referred to as Cloud-based business solutions) is a means of

acquiring and using software via the Internet. With SaaS, users do not need to buy,

install, and maintain applications. All maintenance and upgrades are performed by

the SaaS provider. As a result, the key benefits of SaaS center on reduced upfront

cost and simplified software management. These benefits are helping to drive very

rapid and widespread SaaS adoption in all aspects of business, from desktop

applications to departmental solutions (such as sales force automation) to core

business systems such as finance and human resources. SaaS may be acquired, used,

and paid for in a variety of ways. The provider may charge per-use or through a

periodic subscription fee. Most providers offer volume license discounts that reduce

the cost per-user significantly. As a result, the software cost is typically an operating

expense rather than a capital expense (this is of particular interest to firms who need

to conserve their capital) (Saugatuck Technology Inc Report, 2010).

5.1 Changing Sources of Firm Software

Today many business firms continue to operate legacy systems that continue to meet

a business need and that would be extremely costly to replace. But they will purchase

or rent most of their new software applications from external sources. The following

Figure 5.1 illustrates the rapid growth in external sources of software for U.S. firms.

There are three external sources for software: software packages from a commercial

software vendor, outsourcing custom application development to an external vendor,

28

and cloud-based software services and tools. In 2010, U.S. firms will spend over

$291 billion on software. About 40 percent of that ($116 billion) will originate

outside the firm, either from enterprise software vendors selling firm wide

applications or individual application service providers leasing or selling software

modules. Another 10 percent ($29 billion) will be provided by SaaS vendors as an

online cloud-based service (Laudon & Laudon, 2011).

Figure 5.1 Sources of Software Expenditures

Source: Laudon, K.,& Laudon, J. (2011). MIS Managing the Digital Firm 12th Edition, New

Jersey: Prentice Hall, p. 192

5.2 Evolution of SaaS - Yesterday, Today, and Tomorrow

There is a dispute among analysts whether SaaS would displace standard on premise

software and hardware in the future or not. The classical software license model has

still a lot of strengths and will still find enough people that prefer this solution. But

the market share of SaaS applications will grow so that these two software

29

distribution models will complement each other. SaaS offer so many fundamental

advantages to the customer that it will not just become another IT hype that will not

last for a longer time. The strength of the one model is the weakness of the other

model and the other way round.

But SaaS is still just in the beginning of its evolution. The following Figure 5.2 whos

how SaasS evolved since 2003, and how it is expected to evolve by 2014. The huge

disadvantage of the SaaS model is the limited customizing. If the SaaS providers

make the provided software solutions more customizable to fit it to the special needs

of the customers -which will be quite possible - it will be much more interesting to

many companies. Many companies still do not see the potential of SaaS, especially

SMEs, or they just do not know what SaaS is at all. They often do not see that SaaS

has limited customizability. But every company that deals with the idea of using

SaaS must make itself clear what kind of restrictions - besides all advantages - SaaS

has got. So if the costs do not matter every company would get just the best

individual software solution. But in real the cost do matter so this is why standard

software is primary there and the logical continuation for the future would be SaaS.

But already today SaaS is at least an option that has to be checked before achieving

new software for a company.

All in all it will be a question of time when SaaS offers so many different add-ons

and customizing possibilities that it converges to the old application service provider

model without repeating the mistakes so that it could be called as real software

through the line. If this is done SaaS will be a very profitable business part and a

huge part of the current revenues for software implementation and integration will go

to the SaaS providers. Prospectively the customer will get the best software solution

for his company and can although source out operative IT services. That minimizes

30

the companies risk. But the future will not be completely without individual or

customized standard software. There is still a need for these specialized software

applications for the companies to achieve competitive business process advantages.

And finally, for the customer it does not matter if the IT services were handled inside

the company or external, important is that the business processes will run perfectly.

So this is the huge goal that both standard software producer as well as SaaS provider

should have. The one who makes it the best will finally rule the market.

Figure 5.2 Possible Evolution Of SaaS from past to future

Source: Saugatuck Technology Report. (2010). Software-as-a-Service Managing Key

Concerns and Considerations, http://www.sagesaleslogix.com/Products-and-

Services/~/media/Category/CRM/SalesLogix/Assets/Collateral/SaaS_Concerns_and_Consid

erations_072610_Sage.pdf

5.3 Forrester Research SaaS Maturity Model

SaaS is the hottest trend in both CRM and SME market in general. While SaaS

appears to be a threat to software vendors with traditional perpetual-license models,

31

it is also an opportunity for competitive advantage. The question is how independent

software vendors and service providers can capitalize on this opportunity. Forrester's

SaaS maturity model provides an assessment of the solutions and underpins our

guidance on realistic strategy transformation for those software vendors and services

providers considering a SaaS business model. Targeting the highest maturity level is

not necessarily the best fit for every vendor. Forrester classifies the maturity of SaaS

solutions on six levels. We define each level according to its answer to the question

of who provides what to whom (see the following Figure 5.3).

Figure 5.3 SaaS Maturity Model according to Forrester

Source: Ried, S. (2008). Forrester Research SaaS Maturity Model,

http://www.forrester.com/rb/Research/forresters_saas_maturity_model/q/id/46817/t/2

The explanations of these 0-to-5 SaaS Maturity Levels are listed below:

32

Level 0: Outsourcing is not SaaS. In outsourcing, a service provider operates

a major application or a unique application landscape for a large enterprise

customer. As the outsourcing company can't leverage this application for a

second customer, outsourcing does not qualify as SaaS.

Level 1: Manual application service provider business models target midsize

companies. At level 1, a hosting provider runs packaged applications like

SAP's ERP 6.0, which require significant IT skills, for multiple midsize

enterprises. Usually, each client has a dedicated server running its instance of

the application and is able to customize the installation in the same way as

self-hosted applications.

Level 2: Industrial ASPs cut the operating costs of packaged applications to a

minimum. At level 2, an application service provider uses sophisticated IT

management software to provide identical software packages with customer-

specific configurations to many SME customers. However, the software

package is still the same software that was originally created for self-hosted

deployment.

Level 3: Single-app SaaS is an alternative to traditional packaged

applications. At level 3, software vendors create new generations of business

applications that have SaaS capabilities built in. Web-based user interface

(UI) concepts and the ability to serve a huge number of tenants with one,

scalable infrastructure are typical characteristics. Customization is restricted

to configuration. Single-app SaaS adoption thus focuses on SMEs.

Salesforce.com's CRM application initially entered the market at this level.

Level 4: Business-domain SaaS provides all the applications for an entire

business domain. At level 4, an advanced SaaS vendor provides not only a

33

well-defined business application but also a platform for additional business

logic. This complements the original single application of the previous level

with third-party packaged SaaS solutions and even custom extensions. The

model even satisfies the requirements of large enterprises, which can migrate

a complete business domain like "customer care" toward SaaS.

Level 5: Dynamic Business Apps-as-a-service is the visionary target.

Forrester's Dynamic Business Application imperative embraces a new

paradigm of application development: "design for people, build for change."

At level 5, advanced SaaS vendors coming from level 4 will provide a

comprehensive application and integration platform on demand, which they

will prepopulate with business applications or business services. They can

compose tenant-specific and even user-specific business applications on

various levels. The resulting process agility will attract everyone, including

large enterprise customers.

5.4 Key Technology Considerations for SaaS Providers

The following figure shows Global SMEs Executive SaaS Survey results from

Saugatuck Technology Inc. This survey results in Figure 5.4 illustrates top

technology considerations when selecting SaaS providers.

34

Figure 5.4 Technology Considerations Regarding SaaS Provider Selection

Source: Saugatuck Technology Report. (2010). Software-as-a-Service Managing Key

Concerns and Considerations, http://www.sagesaleslogix.com/Products-and-

Services/~/media/Category/CRM/SalesLogix/Assets/Collateral/SaaS_Concerns_and_Consid

erations_072610_Sage.pdf

5.5 In House or SaaS

The following Table 5.1 compares criterion based advantages of in house solutions

and SaaS. Since these qualitative comparisons can be different for each organization,

therefore every SME should create a similar chart for its IT expectations and outlook

for the technology.

35

Table 5.1 Comparison Between In-House And SaaS Solutions

Source: Orminski, F. (2008). Does Software as a Service (SaaS) displace standard

software?, http://www.iwi.uni-

hannover.de/upload/lv/sosem08/seminar/www/orminski/HTML%20Homepage/index.html

5.6 Advantages of SaaS Service Model for Turkish SMEs

SaaS is an on-demand solution that provides businesses an affordable way to use a

software application without having to purchase it. This is done by leasing the

program from a provider and either accessing or subscribing to it through the

internet. As an IT business solution, SaaS has become an increasingly popular choice

since companies only rent the software, rather than committing to the purchase price

of the application and user licensing. Regardless of the type of business, it will

realize several benefits if it chooses any SaaS solution. Advantages include the

following:

36

Affordable: With SaaS, business won't have a large up-front capital expense as it

would if it chooses to purchase the software. A reasonable monthly fee is all

business will pay to have the latest version of the favorite software. Business

won't need to spend money purchasing and installing software. Business won't

have to worry about the cost of upgrading it, either. The SaaS provider will take

care of it so business doesnt have to.

Flexible: Because SaaS is offered as an on-demand service, business can adjust

its contract to fit its staffing needs.

Stable: The SaaS applications are installed on more powerful, secure, and

redundant hardware infrastructure than business could afford to own.

Quick deployment: Because most SaaS solutions are web-based, deployment is

instantaneous, giving business immediate access to the business solutions it

needs.

Accessible: Regardless of where it does business, it will always have access to its

SaaS applications as long as it has access to the internet.

Compatible: Most SaaS applications are compatible with most systems and

smart phones.

Vendors Responsibility: SaaS providers are responsible for managing and

maintaining both the software and hardware components of the application. The

network issues such as data redundancy, data backup and recovery are also

planned and managed by the vendors. They upgrade the software on regular

intervals.

Ownership: Since SaaS vendors charge a set price per user per month, the firms

dont have to pay extra money for modules they dont even use. It literally

removes the maintenance, end user support, and administration costs of the

37

software. The implementation and customization costs of SaaS are also lower

than the traditional software. All this results in a very low TCO.

Scalability: Hosted software, another term for SaaS offers business more

scalability in using the software. By utilizing SaaS business is free to use as much

or as little part of any software as it needs. This gives business easy and

economical access to many programs.

Regular Upgrading: SaaS Vendors regularly upgrade their software, so that the

users dont have to put any effort into installing and upgrading the applications.

Easy Access: A major advantage of SaaS is it can easily and quickly be accessed

from anywhere with a web browser. This gives users a great facility even when

they are at home or in another country. They can access real time synchronized

applications from Laptops and Smart Phones.

SLA adherence: reported bugs can be fixed minus any rollout overhead. Sure

the provider actually has to fix the issue, but assuming theyve deployed a

moderately efficient SaaS application the rollout of a patch or fix should happen

in the blink of an eye.

Ease Internal IT Pains: SaaS offloads a great deal of IT pains incurred by

software consumers in the traditional client and server model. This leaves IT

personnel to focus on improving the day-to-day technical operations of the

company instead of being called upon to troubleshoot 3rd party software or

maintain aging infrastructure.

Redistribute IT Budget: by outsourcing software functionality to a provider, the

enterprise realizes a cost savings in infrastructure requirements and IT personnel

knowledge requirements. This allows the enterprise to focus on core

38

competencies. It also means that the cost savings from using SaaS applications

can be flat out saved, or reallocated to boost productivity through other services.

According to Forrester Researchs survey conducted in Middle East Africa (MEA)

region including Turkey, the top 3 important motivations for moving to cloud

computing in Turkey are Reduce Hardware Infrastructure Costs, Scalability on

Demand to Meet Business Needs, and Simplified Server/Resource Provisioning,

respectively (Hamad and Erickson, 2011). The following Figure 5.5 lists all the

drivers with their overall percentage.

Figure 5.5 Primary Drivers for Considering Cloud Computing

Source: Forrester Research MEA and Turkey Cloud Computing Survey. (2011).

5.6.1 Hardware, Software, and IT Staff Cost Savings

Traditionally, deploying large-scale business-critical software systems, such as ERP

and CRM application suites, has been a major undertaking. Deploying these systems

across a large enterprise can cost hundreds of thousands of dollars in upfront

licensing cost, and usually requires an army of IT personnel and consultants to

customize and integrate it with the organization's other systems and data. The time,

staff, and budget requirements of a deployment of this magnitude represent a

39

significant risk for an organization of any size, and often puts such software out of

the reach of smaller organizations that would otherwise be able to derive from it a

great deal of utility. The on-demand delivery model changes some of this. SaaS

applications don't require the deployment of a large infrastructure at the client's

location, which eliminates or drastically reduces the upfront commitment of

resources. With no significant initial investment to amortize, an enterprise that

deploys a SaaS application that turns out to produce disappointing results can walk

away and pursue a different direction, without having to abandon an expensive on-

premise infrastructure. Additionally, if custom integration is not required, SaaS

applications can be planned and executed with minimal effort and roll-out activities,

creating one of the shortest time-to-value intervals possible for a major IT

investment. This has also made it possible for a number of SaaS vendors to offer

risk-free "test drives" of their software for a limited period, such as 30 days. Giving

prospective customers a chance to try the software before they buy it helps eliminate

much of the risk surrounding software purchase.

The following survey results in Figure 5.6 clearly illustrate these savings.

Figure 5.6 Cloud Related Investments Can To Help Reduce ICT Spending

Source: Forrester Research MEA and Turkey Cloud Computing Survey. (2011).

40

5.6.2 Easy To Adopt

SaaS applications are available from any computer or any device, anytime, and

anywhere. Because most people are familiar with using the Internet to find what they

need using MSN, Hotmail, or use FaceBook applications, SaaS apps tend to have

high adoption rates, with a lower learning curve.

5.6.3 Less Problematic Software Updates and Patches

Because the SaaS provider manages all updates and upgrades, there are no patches

for customers to download or install.

5.6.4 Scalability on Peak Times

The management burden of anticipating and building out excess capacity IT

infrastructure decreases. The result is less management, maintenance, and

deployment time, with the additional benefit of greater scalability to more easily

handle peaks in demand. The key observation is that Cloud Computings ability to

add or remove resources at a fine grain and with a lead time of minutes rather than

weeks allows matching resources to workload much more closely. Real world

estimates of server utilization in datacenters range from 5% to 20%. This may sound

shockingly low, but it is consistent with the observation that for many services the

peak workload exceeds the average by factors of 2 to 10. Few users deliberately

provision for less than the expected peak, and therefore they must provision for the

peak and allow the resources to remain idle at nonpeak times. The more pronounced

the variation, the more the waste (Armbrust et al., 2009).

Assume our service has a predictable daily demand where the peak requires 500

servers at noon but the trough requires only 100 servers at midnight, as shown in

Figure 5.7. As long as the average utilization over a whole day is 300 servers, the

41

actual utilization over the whole day (shaded area under the curve) is 300 x 24 =

7200 server-hours; but since we must provision to the peak of 500 servers, we pay

for 500 x 24 = 12000 server-hours, a factor of 1.7 more than what is needed.

Therefore, as long as the pay-as-you-go cost per server-hour over 3 years4 is less

than 1.7 times the cost of buying the server, we can save money using utility

computing (Armbrust et al., 2009).

Figure 5.7 Provisioning For Peak Load

Source: Armbrust, M., Fox, A., Griffith, R., Joseph, A.D., Katz, R.H., Konwinski, A., Lee,

G., Patterson, D.A., Rabkin, A., Stoica, I. & Zaharia, M. (2009). Above the Clouds: A

Berkeley View of Cloud Computing,

http://www.eecs.berkeley.edu/Pubs/TechRpts/2009/EECS-2009-28.html, p.13

In addition to simple diurnal patterns, most nontrivial services also experience

seasonal or other periodic demand variation (e.g., e-commerce peaks in December

and photo sharing sites peak after holidays) as well as some unexpected demand

bursts due to external events (e.g., news events). Since it can take weeks to acquire

and rack new equipment, the only way to handle such spikes is to provision for them

in advance. Even if service operators predict the spike sizes correctly, capacity is

wasted, and if they overestimate the spike they provision for, its even worse. They

may also underestimate the spike as shown in the Figure 5.8, however, accidentally

turning away excess users (Armbrust et al., 2009).

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Figure 5.8 Underprovisioning 1

Source: Armbrust, M., Fox, A., Griffith, R., Joseph, A.D., Katz, R.H., Konwinski, A., Lee,

G., Patterson, D.A., Rabkin, A., Stoica, I. & Zaharia, M. (2009). Above the Clouds: A



While the monetary effects of overprovisioning are easily measured, those of under

provisioning are harder to measure yet potentially equally serious: not only do

rejected users generate zero revenue; they may never come back due to poor service.

The following Figure 5.9 aims to capture this behavior: users will desert an under

provisioned service until the peak user load equals the datacenters usable capacity,

at which point users again receive acceptable service, but with fewer potential users

(Armbrust et al., 2009).

Figure 5.9 Underprovisioning 2

Source: Armbrust, M., Fox, A., Griffith, R., Joseph, A.D., Katz, R.H., Konwinski, A., Lee, G., Patterson, D.A., Rabkin, A., Stoica, I. & Zaharia, M. (2009). Above the Clouds: A



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5.6.5 Pay per Use Financial Model

SaaS vendors are compensated by users for the use of the hosted software. Payments

can be either on a pay-per-use basis or as a monthly payment. Some SaaS

applications are available completely free of charge while others are open source (the

customer decided where to host the application). But the one thing all SaaS

applications have in common is that they are all delivered as web applications to the

browser.

5.6.6 Improved Release Management and Testing of New Releases

In the earliest stages of assessing the feasibility of a Cloud Computing solution it is

key for the business and Cloud delivery provider to understand the requirement

for a Cloud solution within that business context. The business must carefully

document what they require from such a solution clearly and unambiguously. As

with the development of any solution, business requirements are the key driver

to the success of the solution. As business look more and more often to third

parties to deliver these solutions, the foundations for the delivery must be solid.

Business requirements are these foundations. Static Testing on business

requirements will ensure that these are concise and complete. Undergoing the

process of reviews and workshops to understand what is being asked for in

business requirements will save time and money later in the development lifecycle

by removing potential software defects before they are built. Cloud Computing

solutions claim to be scalable on demand. How does the business verify that the

solution delivered is capable of coping with the workload which it is required to

undertake? Load or Stress testing can be used to prove that the developed solution

can scale as required. By using test techniques and tools which are capable of

applying huge amounts of load on the solution the Cloud can be accurately

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measured and its capacity verified. Using a distributed Cloud Computing solution

should mean that the delivery will perform to a high standard. Performance

testing techniques allow the systems performance to be measured and verified

accurately. Using performance testing and load testing techniques in tandem allows

an accurate image of the solutions ability over the cloud to be created. This in turn

provides the comfort that the system is constructed so as to be capable of acting as

delivery mechanism for the business requirement. Security testing can provide

assurance that business critical data is stored and transported safely. Techniques such

as Penetration Testing can prove that the mechanisms, which have been developed to

maintain security, will remain intact during potential attempts to compromise the

Cloud solution (AppLabs Report, 2009).

5.6.7 Rapid Resource Provisioning

A cloud model gives business the ability to respond to business demands more

effectively and helps ensure employees have on-demand access to critical business

information, customers, partners, and each other, using nearly any device, from

virtually anywhere. The result is they can give priority to the most critical business

tasks first.

5.6.8 SLAs

Businesses must exercise caution when using software outsourcing or SaaS

providers. If things can go wrong, they likely will. Service level agreements (SLA)

help protect both customers and the service providers. Here are the main points of

SLAs (Laudon & Laudon, 2011).

Defines responsibilities of the service provider and level of service expected

by the customer

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Specifies the nature and level of services provided

Criteria for performance measurement

Support options

Provisions for security and disaster recovery

Hardware and software ownership and upgrades

Customer support, billing and conditions for termination

SME executives are attracted to all types of Cloud Computing solutions primarily for

strategic reasons such as flexibility and speed to market, in addition to potential cost

savings. To achieve these strategic and operational goals, SMEs need to change the

way they manage IT, including the organizational structure and skills of the IT

support staff. There is a need to manage SLAs, data access, subscriptions, and license

management through a robust vendor management process. Additionally, whether

business is going to replace one, some, or all of its business applications with a SaaS

solution, it will need a realistic plan and timeframe to securely implement, migrate,

and then turn off legacy applications. Further, a well-defined process may be

required to optimize key consulting resources to work with the business in

prototyping workflows and building requested customizations (Saugatuck

Technology Inc Report, 2010).

5.6.9 Security

The following Figure 5.10 shows that Turkey SMEs are way above the world

average in terms of Malicious and Potentially Unwanted Software according to

Microsoft Security Intelligence Report in 2010. The higher the security risk exposed

the more motivation for moving to SaaS service model. This is due to reason that

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high security risk is an indicator for SMEs not managing their ICT well in terms of

Security.

Figure 5.10 Malicious and Potentially Unwanted Software

Source: Microsoft Security Intelligence Report. (2010).

5.6.10 Few Technical Skills Required for New Technology

With SaaS, the job of deploying an application and keeping it running from day to

day such as testing and installing patches, managing upgrades, monitoring

performance, ensuring high availability, and so forth, is handled by the SaaS

provider. By transferring the responsibility for these "overhead" activities to a third

party, the IT department can focus more on high-value activities that align with and

support the business goals of the enterprise. Instead of being primarily reactive and

operations-focused, the chief information officer and IT staff can more effectively

function as technology strategists to the rest of the company, working with business

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Analysis of SaaS and On Premise ICT solutions for SMEs

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