Tuesday, October 22, 2013

The Impact of SaaS - The Times They Are A-Changin'

Come gather 'round people
Wherever you roam
And admit that the waters
Around you have grown
And accept it that soon
You'll be drenched to the bone
If your time to you
Is worth savin'
Then you better start swimmin'
Or you'll sink like a stone
For the times they are a-changin'.
            -Fron Bob Dylan's "The Times They Are A-Changin'

It was my good fortune to have telecons last week with three different Fortune 500 CIOs.  Big companies.  You would know them if I named them, although I won't do so out of respect for their privacy.  One from brick-and-mortar retail, one from engineering services, and one from health care.  A few observations from those conversations:
  • Each of those CIOs sought advice on one particular idea:  driving down the cost of in-house IT by moving from on-premise packaged Enterprise Applications to cloud applications, signing up for a SaaS model.  
  • All three of those CIOs were actually considering switching products (and in one case, vendors) with the intent of reducing in-house IT costs.  And all three were doing so in response to pressure from CFOs and CEOs.  
  • Two of the three were willing to scrap all their customizations.  The third was curious about the ability of customize with SaaS (I pointed out that both Oracle and Workday allowed for customizations in a SaaS environment).  
  • All admitted to data security concerns, but all three found that the need to reduce costs trumped any security concerns.  One of the CIOs indicated that her enterprise had already done the liability analysis and figured they could pay for any foreseeable cost from a security breach with the savings from the first 24 months after switching to SaaS.  And they are all willing to live with scrutiny from the US Government (under the Patriot Act) in exchange for the cost reduction.
For all three of these companies, IT is a cost center.  It's not a profit generator nor it's not a comparative advantage; it's simply the cost of doing business in today's world.  So, from a "follow the money" standpoint, I'd have to say that all three of these CIOs are spot on with their analysis.  Maintenance, infrastructure, support costs, upgrading, license fees…all those costs and more simply "go away" in return for a recurring subscription fee.

Now I've heard this spiel before.  So have you.  Nothing new.  What struck me was that, in three unrelated encounters, CIOs of major customers were willing to sacrifice the unique elements of  their business processes as well as privacy and security considerations in order to cut in-house IT costs.  And they saw SaaS as the most expedient path to cutting those costs.

I suspect we'll see more and more Enterprise Application customers moving to SaaS as they begin to recognize the short-term cost savings.  And, as John Maynard Keynes pointed out, "in the long run, we're all dead."  A bit of a dark perspective, but nevertheless true.  It's the short-run that matters these days.

One other thing:  all three of these CIOs had also figured out that they had squeezed about all the benefits they possibly could out of automating their business operations - they'd reached the point of diminishing returns.  Each of them thought (and I tend to agree) that the big benefits remaining to be realized rested with getting information out of their data.  They're anticipating that moving to SaaS will free up more of their operating budgets to focus on delivering that information.

The times, they are a-changin'.

1 comment:

Totencough said...

The most interesting thing to me here is the willingness of these large corporations to accept the supposed security risks; they're generally known to play things close to the chest even though their own facilities are generally more vulnerable than those of SaaS software providers.

Security is actually a smaller deal than most people make it out to be. SaaS companies providing CRM, project management software, ERP, etc. are tasked with doubling down on security because they hold data for other companies.

They're doing it for a living and almost always have more experience than localized IT departments.

Good to see that times are a'changing.

Brad Hodson