Customer Relationship Management

Build an IT shop without servers.

It’s a novel idea, more a suggestion than a reality. But it is – albeit to the extreme — the concept behind the long-past-budding Software as a Service (SaaS) industry.

Why, the SaaS vendors ask, should CIOs burden themselves with hardware, maintenance and in-house headaches? Why not have someone else do it for you? You can log into your applications from the Web. And you could save money.

SaaS may have been just a buzzword a few years ago, but the success of Salesforce.com made the model appear more realistic. SAP AG put a lot of effort into Business ByDesign, the company’s hosted ERP for the midmarket.

The list goes on, and to top it off, major tech companies are banding together to take advantage of the SaaS onslaught.

In July, Yahoo, Hewlett-Packard Corp. and Intel Corp. joined forces to further cloud computing research that could expand the capabilities and reliability of SaaS applications.

And a survey this year found that midmarket CIOs are more in love with the SaaS model than their enterprise-sized counterparts are. Researchers at Saugatuck Technologies, which conducted the survey, say midmarket CIOs are attracted to the quick deployment and potential cost-savings of SaaS programs.

Liz Herbert, a senior analyst at Forrester Research Inc., said other CIOs are attempting to implement a large number of SaaS applications. A Forrester survey from 2007 found 47% of small and midsized businesses using three or more SaaS applications.

How well a multi-application SaaS strategy works depends on a variety of factors, Herbert said. Chief among concerns is integration. Business unit leaders will sometimes go around IT to make an SaaS purchase. But if the product doesn’t mesh properly, it could lead to disaster or, at the least, a lot of point-to-point coding.

Security remains a concern, Herbert said, and due diligence is in order there. Of course, some SaaS vendors might offer better security than a company would conduct on-premise, she pointed out, adding that Forrester has not come across any “serious” security problems with the SaaS model.

Total cost of ownership, though one of the major reasons CIOs look to SaaS, is not a given. With the SaaS market so fragmented – some tools may handle only a single task – CIOs need to plan ahead lest they be left with a tangled mess of applications and service contracts.

“At a higher level, when you’re thinking about this SaaS strategy, given the state of a lot of SaaS applications, you could end up having to cobble together potentially more SaaS applications than you would in the on-premise model,” Herbert said.

The still-developing concept of a Platform as a Service could bring a number of applications together and simplify some of the integration and management hassles, she said. But don’t count on that as a sure thing.

“In theory, you could think the space might evolve that way,” she said. “In reality, it’s pretty immature.”