SOFTWARE AS A SERVICE:

WHY, WHEN, AND HOW?

Julie Smith David and Michael Lee: December 8, 2009

Overview

• History of the project

• Today’s objectives– Software as a Service• What’s happened in the past• Why SaaS is emerging• How it might be integrated

– Research help• Survey evaluation

EMERGENCE OF APPLICATIONS IN THE CLOUDS: SAAS, ON DEMAND…

Software & Hardware

Driver: Economies of Scale

• 70’s: Time sharing

Co 1

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Co 2

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Software & Hardware

Economies of Scale

• 70’s: Time sharing

Co 1

Co 4

Co 3

Co 2

Co 1

• 80’s-90’s: Application Service Providers (ASP)

Software & Hardware

Software & Hardware

Economies of Scale

• 70’s: Time sharing

Co 1

Co 4

Co 3

Co 2

Co 1

• 80’s-90’s: Application Service Providers (ASP)• 00’s: Software as a Service (SaaS)/On Demand

As a result… SaaS is a Disruptive Technology

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* ODSA: On-Demand Software Aggregator,an earlier term for PaaS.

SaaS Characteristics

• Technical– Browser based:

• Reduced upgrade issues• Lower cost hardware

– Hardware acquisition, operations, maintenance

– Multi-tenant– Agile development: 2

week sprints

• Strategic– Low initial acquisition

costs– Quick Implementations– Predictable pricing– Reduced support staff

needed

Diversity in the Market:Examples

The “Visible” Leaders

ConsolidationSwitch to Service

“Unknown”…but large adoptions

TraditionalSW Suppliers

DiverseFunctionality

Source: Spinola, M. 2009. Why Large Public and Private Sector Organizations (not just SMB's) Are Seriously Considering Cloud Computing? (October 5) http://web2.sys-con.com/node/1132867.

The Risks of SaaS

• Data control• Supplier viability1

• Regulatory risks2

– Examples: Sarbanes-Oxley (SOX), Gramm-Leach-Bliley (GLBA) and HIPAA, and industry standards like the Payment Card Industry Data Security Standard (PCI DSS)

– SAS 70 audits – Type I and Type II• Reliability

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Significant Contract implications2

Privacy Considerations: Example

Who will adopt SaaS?Factors influencing the decision

SaaS Adoption• Strategic importance of the

application• Security concerns with data• Compliance issues with data• Diffusion of current

applications• Infusion of current

applications

TRADITIONAL SOFTWARE: MARKET MATURITY, STRATEGIC DECISIONS AND EAI

AND HOW WILL WE INTEGRATE SAAS INTO OUR EXISTING APPLICATOINS?

Single sourceBest of breed

SaaS PaaSIaaS

Integration Options

Lega

cyCl

oud

Com

putin

g

Market Segment Maturity

Tech

nolo

gy P

latfo

rm

In houseIntegration

Model We’ll Explore

110

0

0

23

0: No integration 3: IaaS1: Single Sign On 4: PaaS2: In-house, API/WS

2

2

4

A long time ago… when information systems were beginning

Financing

Buy Fixed AssetsBuy Inventory

Hire EmployeesManufacture Goods

Sell Goods

Accounting

& Fin • Strong framework with Dr/Cr approach

• Simple adding & subtracting

• The language of business

• Everyone submitted summary data to be entered

A long time ago… when information systems were beginning

Financing

Buy Fixed AssetsBuy Inventory

Hire EmployeesManufacture Goods

Sell Goods

Accounting

& Fin • Most departments started using IT

• Systems developed independently

• And installed independently

• Summaries still sent to accounting

• PROBLEMS?

HR

Manufacturing/Warehouse

Systems

Sales

Market Maturity:ERP - An Integrated Solution

Strategic decisions

1. Centralized vs decentralized decision2. Standardized vs variable implementations3. Customize vs configure for process execution4. Flexible vs stable5. Single source vs best-of-breed

Implications for Integration?

Decision Complexity

Centralized/ Decent.

Std/ Variable

Customize/ Configure

Flexible/ Stable

Single Source/B of B

Integration approach

1 C S Conf Stable Single Source

Single Source

2 C V Conf Flexible B of B High EAI

3 D S Conf Stable Fed Low EAI

4 C S Cust Flex Min B of B Point-2-Point

… … … … … …

Single sourceBest of breed

Lega

cyCl

oud

Com

putin

g

Market Segment Maturity

Tech

nolo

gy P

latfo

rm

In houseIntegration

Progress:

Single sourceBest of breed

SaaS

Lega

cyCl

oud

Com

putin

g

Market Segment Maturity

Tech

nolo

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latfo

rm

In houseIntegration

More Progress!

INTEGRATION IMPLICATIONS

Julie Smith David, Michael Lee, and Arti Mann, October 6, 2009

Integration Issues

Still important… but different:

• Best of breed vs Single source: SaaS vs “PaaS”

• Standardization across your organization

• Customize vs configure for process execution

And now…• Variation of locations of

technology– Data– Applications– Hardware…

• Variation in control of applications

• Upgrade cycle – huge increase in releases

• Security: behind or out front of the firewall?

Integration Options:

LegacySystem

SaaS Application

No real integration – different menu options on the user’s screen

0

Integration Options

LegacySystem

SaaS Application

Single Sign On (SSO): Log in and some controlled data duplication (and may lead to additional security issues!)

1

1. User requests an application

2. Application requests authentication

4. Requests log in

5. Log in sent

6. Authentication and data sent

7. Application confirms authorized accessand is launched

sso3. Authentication req

Integration Platform,

Internal Dev

Integration Options

LegacySystem

SaaS Application

In house integration, using API’s and/or web services

2

1. Start an application

2. Make a call (often API)

2. Make a call (less often API) 3. Return (data, screen, functionality)

3. Return (data, screen, functionality)4. Integrate anddisplay

Source:

NetWeaver

IaaS

Integration Options

LegacySystem

SaaS Application

Integration as a Service (IaaS)3

1. User requests an application

2. IaaS requests data, functionality

3. Return sent

3. Return sent

2. Requests data, functionality

4. Integrate and return

SaaS Application

2. IaaS requests data, functionality

3. Return sent

Integration as a Service example:CastIron

Case Study Implementation:The Schumacher Group implements Cast Iron

Source: Woods, D. and C. Prattabhiram. 2009.

PaaS Capabilities

Integration Options

LegacySystem

SaaS Application

Using PaaS capabilities4

1. Start an application

2. Make a call

3. Return (data, screen, functionality)

4. Integrate and send to user

CRM Vendor

No – On Demand Platform

AppExchange

PaaS: Electronic Market Places

PaaS

Platform

Developed AppsDeveloper2

Developer1

Developerx

NativeDev,

By PaaS

Platform as a Service Example, cont.:Force.com

Source: http://www.salesforce.com/platform/cloud-platform/, September 13, 2009

And for more robust integration

Source: http://sites.force.com/appexchange/listingDetail?listingId=a0N300000016cUTEAY

Single sourceBest of breed

SaaS PaaSIaaS

Integration Options

Lega

cyCl

oud

Com

putin

g

Market Segment Maturity

Tech

nolo

gy P

latfo

rm

In houseIntegration

Model We’ll Explore

110

0

0

23

0: No integration 3: IaaS1: Single Sign On 4: PaaS2: In-house, API/WS

2

2

4

Additional SaaS Market Maturity Insights: Consolidation

• SaaS acquiring IaaS

• Movement toward Single Source (vs Best of Breed)

acquires

, acquires

STRATEGIC DECISIONS

Who will adopt SaaS?Factors influencing the decision

Integration approach• Percentage of applications in

the cloud (versus behind the firewall) (Biske, 2008)

• Infusion/diffusion of integration capabilities

• Complexity of authorized access rules

• Reporting needs and complexity of business environment

• Adoption of PaaS vs SaaS• Best of breed vs single source

SaaS Adoption• Strategic importance of the

application• Security concerns with data• Compliance issues with data• Diffusion of current

applications• Infusion of current

applications

Developers PaaS Customers

Coordination Cost

Native Applications

•Reduced search cost for customers•Reduced contracting costs

•Increased delivery costs (integration costs)

•Reduced search cost for software providers•Reduced costs for collecting info. about products •Reduced contracting costs•Reduced monitoring costs (only Salesforce)

Composite Applications

•Reduced search cost for customers•Reduced contracting costs

•Increased monitoring costs (Certification costs, random checks)•Increased delivery costs (integration costs, packaged application maintenance etc.)

•Reduced search cost for software providers•Reduced costs for collecting info. about products •Reduced contract costs•Reduced monitoring costs (only Salesforce)

Who will adopt PaaS?Cost Structure

Source: David, J.S. and A. Mann (2007).

Developers PaaS Customers

Native Framework

Composite Framework

Native Framework

Composite Framework

Native Framework

Composite Framework

Production cost for Development

Low High High Medium NA NA

Production cost for Operations

Medium High High High Low Low

Coordination Costs

Low Low Medium High Low Low

Operation Risks

Low Medium Low High Low Medium

Opportunism Risks

High Medium Low High Medium High

PaaS: Hypothesized Cost Pattern

Source: David, J.S. and A. Mann (2007).

Single sourceBest of breed

SaaS PaaSIaaS

Integration Options

Lega

cyCl

oud

Com

putin

g

Market Segment Maturity

Tech

nolo

gy P

latfo

rm

In houseIntegration

Resulting Model

110

0

0

23

0: No integration 3: IaaS1: Single Sign On 4: PaaS2: In-house, API/WS

2

2

4

Factors Driving Integration Efforts

In House• Criticality of best of breed

applications• Infusion/diffusion of in house

integration platform • Infusion/diffusion of in house

integration expertise• Legacy applications > Cloud

applications

IaaS• IaaS market share• Inexperienced in-house staff• Cloud applications > Legacy• COTS Applications > Custom• Open standards

PaaS• PaaS market share• Number of applications available• Inexperienced in-house staff• Cloud applications > Legacy• COTS Applications > Custom• Acceptance of THEIR standards

Source: Castner & Ferguson, 2000.

SO, WHAT DO WE DO?

Survey Others

• Could you review the survey for us?– Do the questions make sense?– Would you be able to answer them?– Would you be WILLING to answer them?– Are we missing anything you’d like to know?

Sources• Anonymous. 2009. Wal-Mart Marketplace represents new SaaS market: process-as-a-service.

http://www.webguild.org/2009/09/wal-mart-marketplace-represents-new-saas-market-process-as-a-service.php• Biske, T. 2008. Integration as a Service (Feb 12) http://www.biske.com/blog/?p=371• Castner, G. and C. Ferguson, 2000. The effect of transaction costs on the decision to replace ‘off-the-shelf’ software:

the role of software diffusion and infusion. Info Systems J (2000) 10, 65–83.• David, J. S. and A. Mann. 2007. The Emergence of On-Demand Software Aggregators: Implications for Developers,

Customers, and Software Companies. Proceedings of the Thirteenth Americas Conference on Information Systems, Keystone, CO, USA August 9th-12th, 2007.

• Evans, B. 2009. Global CIO: Salesforce surge pushes SaaS into mainstream. (August 27). InformationWeek. www.informationweek.comGruman, G. 2007. Integration issues may hinder SaaS Adoption. CIO Update. (August 17): http://www.cioupdate.com/trends/article.php/3695096/Integration-Issues-May-Hinder-SaaS-Adoption.htm

• Hayes Weier, M. 2008. Critical Link: SaaS Integration: Real-World Problems, And How CIOs Are Solving Them. October 18. http://www.informationweek.com/news/services/saas/showArticle.jhtml?articleID=211200952

• Hayes Weier, M. 2008. Workday lands software industry’s biggest SaaS deal. InformationWeek. www.informationweek.com

• Mann, A. and J. S. David. On-Demand Software Aggregators (ODSA): The Next Wave for the Software Market? Proc. Enterprise Systems mini-track, (ICIS), Montreal, Canada.

• Woods, D. and C. Prattabhiram. 2009. Integration: The Critical Path to Cloud Computing. (June). Cast Iron Computing white paper.

• Photos are by kevin dooley and used under the creative commons license. They are available at http://www.flickr.com/photos/pagedooley/