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Look Before You Leap

Crisis gives birth to innovation. Te proverb proves always true in the world

technology. As companies search or ways to power through the present econom

downturn, the Sotware-as-a-Service (SaaS) model has gained even more momentu

Businesses in many industries and geographies have applied this service delivery mod

to a variety o business processes and achieved great success.

By using a commercial vendor to develop the sotware, host its operation and provi

Internet-based access and application support to customers, companies are able

reduce the cost o procuring and maintaining enterprise sotware applications.

SaaS is particularly compelling or small and midsized businesses, says Dan

Druker, SVP at Intacct. SaaS democratizes the world o sotware by giving SMB rm

access to the same capabilities and benets heretoore available only to the largecorporate enterprises and at ar lower cost.

Given its strong appeal, the rate o SaaS adoption is on the rise, as evidenced by t

growth o worldwide SaaS revenue. Gartner Group predicts the SaaS market w

grow at a compound annual growth rate (CAGR) o 22.1 percent through 2011, tw

the rate o the overall enterprise sotware market.1

Meanwhile, venture capital dollars are owing into the sector. In 2009, ventu

capitalists invested more than $187 million in companies oering SaaS solution

Tese VC unds were distributed among 33 deals or 30 companies, with an avera

deal size o $5.67 million. According to Dow Jones Venture Sources, 116 VC rm

have invested in companies with products related to SaaS, while 10 o these rms ha

unded more than one SaaS product.

1 Gartner Research. Gartner/Dataquest Insight: SaaS Demand Set to Outpace Enterprise Software Market GrowtAugust 3, 2007.

2 Thomson Reuters. Investment Analytics Reports 2009.

Best Practices for Adopting SaaS:A Holistic Evaluation Approach

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categories to oer compelling alternate solutions delivered v

the SaaS model within the coming years.

From a recent survey o SaaS Adoption by application, ForresResearch identied 13 areas in which SaaS applications a

making headway:

Archiving and eDiscovery

Business Intelligence (BI)

Collaboration

CRM

Digital asset management

Enterprise content management

Enterprise resource planning (ERP)

Human resources

Integration

I management

Online backup

Supply chain management

Web content management

Web conerencing

As a broad guideline, SVB recommends that compan

consider migrating applications that are less critical to t

business to the SaaS model rst. For now, it is wise to mainta

on-premise solutions or business-critical applications becau

o the need or tighter controls on data and access. Tis m

change when the SaaS delivery model becomes more matu

and standards-based. Te ideal starting point or SaaS can

collaboration platorms, marketing, helpdesk, and sales a

HR applications.

2. What ChaLLengeS WiLL i enCounter in

moving to SaaS?

How much does a SaaS model cost?

How do I ensure data security in the SaaS model?

Why is the idea o delivering sotware as a service so

compelling? And what are the best ways to adopt it? We

answered the rst question in Part 1 o the SVB series on

SaaS technologies (Is SaaS the Silver lining to the Cloud?

August 2009). Here in Part 2, we plan to explore best practices

or SaaS adoption. Tere is no well dened, ready-to-go

approach or SaaS since every companys situation is dierent;

however, understanding the basic adoption cycle and applying

established best practices will help to ensure success.

SaaS solutions put the customer backin charge, says Byron Deeter, partner,

Bessemer Venture Partners. Shelwareno longer needs to exist, and because itsa service, you have the option to switchvendors at any time i the product or serviceisnt meeting your standards.

As the number o vendors oering SaaS solutions increases

and this approach becomes more common in the enterprise

environment, CIOs need to plan ahead and evaluate products

thoroughly beore embarking on a SaaS implementation.

1. WhiCh BuSineSS appLiCationS make more

SenSe for SaaS?

Is SaaS a replacement or traditional delivery models?

Can all enterprise applications be migrated to SaaS?

CIOs need answers to these questions beore they can plan a

SaaS implementation. According to a recent Forrester Research

survey,3 not all applications are equally suitable or SaaS

adoption. While most companies still preer to purchase their

core business applications the traditional way, according to

Bessemers Byron Deeter, We are already seeing major sotware

categories where the majority o new licenses are delivered via the

SaaS model, and we expect almost all major existing sotware

3 Forrester Research, Inc. Enterprise and SMB Software Survey, North America and

Europe, Q4 2008, February 2009.

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oremost it should clearly meet the solution needs or the co

business problem at hand. Once that is established there a

some specic items to consider to analyze and assess beo

you adopt the SaaS based solution. Te ollowing steps are

guideline to help select the right t SaaS solution rom the rig

vendor at the right investment,

Selecting and adopting SaaS applications shares many o t

same characteristics as selecting and adopting new on-premis

sotware applications. You need to identiy your requiremen

and ensure business t and understand how the applicati

will t within your existing business processes and technolo

inrastructure. You must implement and congure t

applications to match your business needs. What is dierent

that the vendor will be operating and maintaining the syste

or you, so you need to clearly document your expectations a

agree with the vendor on their ongoing responsibilities. F

this reason crating thorough service level agreements (SLA)

such an important part o adopting SaaS it sets the stage

a successul ongoing relationship with your vendor, sugge

Daniel Druker o Intacct.

Determine your readinessBeore adopting SaaS, an organization must demonstrate cle

business objectives or the initiative and assess its organization

readiness or the change. A readiness assessment can help ident

business, technological, operational and cultural challenges th

could interere with a successul adoption. Tis type o exerc

will include evaluation, preparation and planning activities th

address the ollowing:

Contextualize the SaaS initiative

Identiy all o the transormational (business andtechnology) components

Identiy all o the activities that need to occur beore,

during and ater the transormation/adoption

Identiy all o the roadblocks, dependencies and

shortcomings

I youre worried about total cost o ownership, data security,

integration with legacy systems or lack o customization,

youre not alone. Forrester surveyed 239 applications decision

makers who had a variety o concerns relating to SaaS adoption

including total cost, security o platorm, availability o necessary

applications, integration into existing systems, inability to

customize the SaaS platorm, perormance, complicated pricing

schemes and inability to migrate rom their current vendor.

A similar study by Saugatuck echnology4 highlights our

essential management challenges that enterprises (as well as

SaaS vendors) will need to conront and resolve:

Integrating SaaS worklows with enterprise businessprocesses

Collaboration across business units or other enterprises

Customizing and personalizing business worklow

Utilizing SaaS business analytics, both built-in and as

adjunct services

SaaS solutions oer a viable way to reduce the cost o sotware

procurement and maintenance a priority or every CIO. But

the concerns are real: guaranteeing service levels, acilitating

inter- and intra-company collaboration, and integrating data

and workows. Moreover, the increasing presence o cloud-

based5 SaaS business solutions that must be integrated with

on-site applications will require SaaS Integration Platorms

(SIPs) and Enterprise Service Busses (ESBs) to orm coherent

and exible I portolios o integrated business solutions. Te

best way to meet these challenges is to plan ahead.

3. hoW ShouLd i pLan for SaaS?

Adopting and selecting a SaaS solution should be evaluated atpar with other on-premise vendor solutions. Beore considering

the advantages and nuances o a SaaS solution, rst and

4 M. West and M. Koenig. Three Waves of Change: SaaS Beyond the Tipping Point,Saugatuck Technology, May 3, 2007.

5 Cloud computing involves delivering hosted services over the Internet. Theseservices are broadly divided into three categories: Infrastructure-as-a-Service (IaaS),

Platform-as-a-Service (PaaS) and Software-as-a-Service (SaaS)

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Optimize transormation/adoption costs; analyze re-use/

customization areas

Identiy the right implementation and testing

methodology

Deine the maintenance plan

Select the right vendor

Te right SaaS partner will ensure a successul implementation

in your organization. We recommend evaluating SaaS solutions

at par with conventional perpetual licensed on-premise

sotware. It important or prospective SaaS clients to also look

at business practices and culture, not just product eatures and

technical capabilities. Finally the bottom line: select the best tor eature, price and ease o use win. Specically, take the time

to evaluate SaaS vendors according to two criteria:

1.Technical capabilities: Assess the proposed solution in the

context o the needs o the organization, transition approach,

delivery mechanism, maintenance, scalability, standard

compliance and reliability.

2. Financial viability: Ensure longevity and uninterrupted

services over a reasonable period o time.

Technical capabilities

Unlike the old on-premise sotware evaluation process, in

which the application with the most eatures (now and in the

uture) oten won the contract, the ocus o a SaaS evaluation is

whether the tool is good enough on day one and how well it will

adapt over time. Consider how complete the product is today,

whether it meets your current and uture needs and how you

will adopt and integrate the solution. An article in the Control

Engineeringsuggests a number o specic steps such as: ensuringphysical and logical security or data, requiring comprehensive

non-disclosure agreements rom the vendor, ull data back-up

and disaster recovery procedures. Te vendor should be able to

suggest a pragmatic approach and incorporate industry-wide

best practices.

In addition to these actors, you should also look at the vendo

ability to handle customization and conguration. Your abil

to make appropriate changes to the application depends on t

richness o the conguration tool. You might need metada

level conguration capabilities to align the eatures o sotwa

with your business processes. Te reason why companies su

as Salesorce.com and NetSuite have done exceedingly w

is that their conguration tool is rich enough to handle su

changes successully.

Financial viability

Te majority o SaaS vendors today are young, innovat

companies that have been in business or only a ew yea

thereore, the ability to judge their nancial viability is a kactor. A ew large vendors have achieved operational scale a

protability to date, but most other vendors will have ew

credentials to make their case. Nevertheless, this should n

deter you rom making your selection o sound SaaS solutio

as long as you conduct the right due diligence on the vend

and strategy, plans and nancial viability. Be sure to answer t

ollowing questions to minimize risk:

I a private startup venture, how well is the company

unded? Who are the investors and stakeholders in thecompany? Ask about the total number o employees, as

well as the companys R&D and service locations.

I the vendor is a large enterprise, how important is the

SaaS business line to the corporation? Does it have a

steady revenue stream rom existing SaaS business? Doe

it have other on-premise perpetual license sales revenues

What percent o the investment is directed toward R&D

versus support?

Does the management team have a good track record

with successul startups or SaaS product experience?

Longevity o the SaaS vendor is crucial toyour success.

http://www.controleng.com/article/193302-Before_you_sign_Consider_the_pros_and_cons_of_Software_as_a_Service_SaaS_adoption.phphttp://www.controleng.com/article/193302-Before_you_sign_Consider_the_pros_and_cons_of_Software_as_a_Service_SaaS_adoption.phphttp://www.controleng.com/article/193302-Before_you_sign_Consider_the_pros_and_cons_of_Software_as_a_Service_SaaS_adoption.phphttp://www.controleng.com/article/193302-Before_you_sign_Consider_the_pros_and_cons_of_Software_as_a_Service_SaaS_adoption.php

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Longevity o the vendor is crucial to your success, but you

should plan a contingency strategy in case o sudden ailure

o the SaaS vendor. When a SaaS provider closes down, what

business continuity plan will you implement to meet the

business process needs?

Calculate total cost of ownership (TCO)

By adopting SaaS, companies are able to avoid many o

the hidden costs o traditional sotware implementations,

including service overruns, integration problems, data center

costs, inrastructure licensing costs and costs associated with

hiring large teams o consultants to implement the solution.

With a SaaS model, you pay a one-time implementation andthen a monthly subscription, which should reduce the CO

considerably in theory. Te case or a lower CO remains

unproven, however, so we recommend that you involve your

nance department at an early stage and evaluate the total cost

o ownership over a ve to seven-year span. Te analysis should

consider recurring ees, availability costs, incremental costs,

network bandwidth increase costs, additional eorts involved

in audit and security, customization and support and help desk

costs.

Understand hidden factors

Te SaaS model introduces a critical success actor, which smart

providers embed in the post-sales service and support portion

o their product: managed services. Managed services vary with

the type o SaaS provided, and range rom broad services such

as ongoing sotware upgrades to targeted services such as data

import unctions or a CRM solution. Tese types o services

are more critical or some categories o SaaS than others. For

example, compare an accounting services solution or a retail

store chain versus a procurement solution or the e-procurement

industry.

SaaS vendors will provide varying levels o managed services as

part o their solutions. Te accounting solution may work well

with the regular updates and upgrades, but the procurement

solution will require targeted supplier content upgrad

import o updated price lists or real-time monitoring o ord

in process. Its important that you unravel the true return

investment (ROI) and not just the total cost o ownersh

(CO), considering indirect costs and investments in additi

to the setup ees, recurring ees and other state ees in t

contract. All such critical aspects should be covered in the serv

contracts and service-level agreements. o avoid such surpris

discuss actors such as: hardware or end-users, SaaS plator

sotware, complementary sotware, peripherals, connectiv

and bandwidth.6

4. What are the BeSt praCtiCeS for adoptina CompLete produCt?

As you consider selecting a SaaS partner to work with yo

organization, keep these best practices in mind to ensure y

receive a complete solution:

Ensure that you (the client organization) and your SaaS

partner have taken all o the components o the whole

product into account.

Watch or middleware/peripheral purchases to enable

integration with existing systems; they may add costs bumay also be critical to achieving the ROI and business

objectives or the SaaS solution.

Review the SaaS partner capabilities and experience in

integrating the service with an enterprise and asses the

partner integration options and experience.

Identiy the ongoing managed services that are critical to

keeping the SaaS solution running smoothly and who w

perorm them.

Choose a SaaS partner with state-o-the-art backup,

recovery and redundancy.

Select a SaaS partner with an open and transparent syste

status website.

6 Suzanne Miglucci. Software as a Service (SaaS): Are you truly getting the WHOL

product, SciQuest, Inc.

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Ensure that your SaaS partner will deliver a strong service-

level agreement (SLA), compared to the industry and your

own organizational standards.

Work with a partner that will deliver ongoing

maintenance, service and upgrades or the solution as a

core component o the SLA.

Choose a partner that acts as an extension o your I

organization.

Repurpose your resources to ocus on your business while

your SaaS partner acts in the role o your extended I

organization.

Although moving to a SaaS model introduces many challenges,there are a ew aspects o traditional sotware deployment that

wont be a concern. First o all, you need not worry about the

inrastructure. In the SaaS delivery model, the inrastructure

will be the vendors concern. Similarly, scaling up is dynamic,

capacity is built in and installation is not required.

5. readY for a SaaS impLementation?

How to I develop a roadmap or a SaaS initiative?

Do I need to do a proo-o-concept project?

Once youve tackled the steps o organizational readiness and

vendor selection and lined up a complete SaaS solution, you

need to create a roadmap or implementing the initiative. Project

management or a SaaS implementation has its own unique

aspects. Your I department should conduct due diligence to

identiy the touch points and interdependencies in the system.

It is important to identiy any legacy systems and draw up

a SaaS integration plan or them. In a SaaS implementation

project our key areas require specic attention: conguration,

integration, security/access and perormance.

SaaS adoption still does demand signicant technical and

operational capabilities. Assessing the current and required

capabilities, will help you ll the gaps and prepare or success.

Te right approach and methodology can determine the success

o the SaaS initiative. A small pilot or proo-o-concept proje

will prove invaluable at this early phase o adoption. T

limited implementation can validate the approach youve tak

and expose key challenges and complexities.

As Bessemers Byron Deeter explains, Were witnessing

consumerization o sotware, in which employees can becom

empowered as SaaS customers. Sotware purchases no longhave to be made by CIOs and senior executives, but manage

and individual contributors can quickly test products th

may solve their needs and then encourage broader enterpr

adoption only behind success.

Sound project management in any SaaS rollout depends

your ability to manage dependencies, devise backup plans an

work creatively around any obstacles.

Finally, an eective communication plan will set expectatio

or what is required to achieve the shared vision. Communic

directly and oten with the I, network operations and nan

departments within your company as well as with sotwa

vendors, ISPs and other partners.

6. if You are a SaaS vendor

Tis paper ocuses on the concerns shared by organizatio

adopting SaaS delivery models; however, SaaS providers a

many o the same challenges. I you plan to develop and hos

SaaS solution, consider these questions:

Decide whether to adopt a purist SaaS model or choose

hybrid model, (i.e., optionally also provide hosted, ASP

on-demand services). From the business perspective, the

challenge lies in creating a radically dierent approach o

a variety o business processes.

An eective communication plan will setexpectations or what is required to achievethe shared vision.

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Clearly distinguish the SaaS solution rom traditional

models in terms o architecture, deployment methodology

and multi-version support.

Develop and provide ready documentation to address

CO/ROI or your SaaS solution, a 30- to 60-day

implementation cookbook, integration options with

on-premise systems and inally identity and access

management.

Host the SaaS solution with a reputable hosting irm that

has the right certiications and regulatory approvals.

Implement a sound support model using Web sel-service

and call centers.Implement and demonstrate data security, archiving and

compliance.

Most SaaS vendors end up building substantially dierent

solutions or the on-premise and SaaS markets. Tey develop

and nurture separate teams with separate R&D budgets,

sales and marketing teams and prot responsibility and

encourage healthy competition between the two.

ConCLuSion

Companies that adopt SaaS do not choose the model because its

trendy. Rather, they consider SaaS oerings because they have

the potential to solve a business problem while delivering

aster time-to-market through higher ROI and lower CO

than traditional sotware approach.

Tere is no single approach or adopting and implementing

the SaaS delivery model. But i you take the time to develop a

sound strategy and evaluate all SaaS opportunities holistically,

youll tip the scales in avor o success.

aBout SiLiCon vaLLeY Bank

Silicon Valley Bank is the premier commercial bank

companies in the technology, lie science, venture capit

private equity and premium wine industries. SVB provid

a comprehensive suite o nancing solutions, treasu

management, corporate investment and international banki

services to its clients worldwide. Trough its ocus on specializ

markets and extensive knowledge o the people and busin

issues driving them, Silicon Valley Bank provides a level

service and partnership that measurably impacts its clien

success. Founded in 1983 and headquartered in Santa Cla

Cali., the company serves clients around the world through

U.S. ofces and international operations in China, India, Israand the United Kingdom. Silicon Valley Bank is a member

global nancial services rm SVB Financial Group (Nasda

SIVB), with SVB Analytics, SVB Capital, SVB Global a

SVB Private Client Services.

More inormation on the company can be ound

www.svb.com.

This material, including without limitation to the statistical information herein, is provi

for informational purposes only. The material is based in part on information from thi

party sources that we believe to be reliable, but which have not been independently verifby us and for this reason we do not represent that the information is accurate or comp

The information should not be viewed as tax, investment, legal or other advice nor is it to

relied on in making an investment or other decision. You should obtain relevant and spe

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should be construed as a solicitation, offer or recommendation to acquire or dispose of

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