SaaS Challenges

In the previous post, I had written about some of the benefits of SaaS. This post I will cover some of the challenges (as on date) associated with this model.

Challenges to ISV's

Revenue model: Revenue for a SaaS application is based on subscription or pay-as-you-go. By adopting to such a pricing model, It will take longer time for companies to break even than a on-premise software where couple of big deals will help them break even. Convincing the investors for a delayed but a sustained cash flow is a challenge (some good success stories like salesforce.com has helped to remove this inhibition).

Building the right Architecture: Building a service oriented, single instance multi-tenant application is a key to be successful. Unless the application is efficient for multi-tenant delivery, it cannot scale up and the optimization points will be limited. This will have an impact on the cost and subsequently in the price of the application.

Customer Retention: There is no lock-in for the customer in this model. Whenever the customer wants to use an alternate service provider, he can do it very easily, there is no/less switching cost. It is very important to keep the customer happy by introducing new services, increased usability, application performance and availability.

Sales channels: Still there is no clear definition on how VARs, SI's will have a role to play in this model. The sales channel is still not well defined and not perfected for better output.

Challenges to Customers

Security: One of the major concern for enterprise customer is Security. IT organizations still prefer to have control over most of their critical data. A few service providers are allowing customers to take on-premise backup of their critical data. This might be the way to go forward for critical business applications.

Loosely defined SLAs: Not many of the major SaaS provider have concrete SLA's . Also, when new applications are built by aggregating multiple services (from multiple providers), it will become difficult to have a single unified SLA across these service. Service providers delivering such composite applications are also limited as of now.

Re-aligning the IT organizations: Traditionally IT organizations have been actively involved in any software buying decisions. Now in the new model, people think that IT department is no longer required in the purchasing decisions, which might not be a right thing to do, as still they own substantial amount of software run in-house and there is a lot of integration needs between on-demand and on-premise software. A new definition of IT organizations role needs to be created.

Integration with Legacy application: Companies have already been used to the benefits of data integration and SOA. There are very few infrastructure tools available today to integrate on-demand solution and on-premise solution. Of-late we see a few solutions being created to address this space like Informatica on-demand for data integration and BridgeWerx Business Integrator for integrating on-demand and on-premise applications. Service providers should start supporting such tools in the future to increase adoption rates

The challenges doesn't end here, but the post does. If you feel that I have missed a few things, please add them in your comments.

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