9: Looking Forwards to Expansion
although cheaper is good, too cheap can lead to
data crisis.
‘Talk about SLAs and remember that contracts are
only as good as your counter party,’ says Vashi.
‘What is the company standing behind the
contract? First and foremost – are they a real
company with real revenue? Do they own the data
centre? Many operate out of data centres that are
owned by someone else, which could have
downstream problems.’
‘And some are run out of garages with no
certification.’ It’s a valuable warning, especially if
you are dealing with private, sensitive and critical
Software makes
up a huge slice of the corporate IT
budget, often because companies can’t avoid
expensive perpetual licence fees that rack up bills
even when the programs are not being used.
The idea behind SaaS is that software is supplied
on demand, with customers able to expand or
contract fees based on usage. In theory, that should
ensure cheaper applications, especially as the SaaS
provider bears much of the hardware costs in a
cloud computing model.
This is no cowboy Wild West either; Microsoft,
Google, Cisco, IBM and a number of smaller
players are queuing up to sell SaaS solutions to
cash-strapped IT managers during the downturn.
We’ve seen this model bandied around in various
guises for several years – Application Service
9: Looking Forwards to Expansion
Providers promised a very similar model in the last
century. It’s bubbled along on a slow simmer, but
evangelists believe the model has now come of
age. Or its age has come.
‘The popularity of the on-demand deployment
model has increased significantly within the last
four years. Initial concerns over security, response
time, and service availability have diminished for
many organisations as SaaS business and
computing models have matured and adoption has
become pervasive,’ said Sharon Mertz, Research
Director at Gartner.
Gartner research suggested SaaS sales in
enterprise application markets were on pace to
surpass US$6.4 billion in 2008, ballooning to
US$14.8 billion a year by 2012, with the fastest-
growing markets for SaaS office suites and digital
content creation.
SaaS is no silver bullet, however, and any
company considering serviced software needs to
give serious headspace to the contractual issues
surrounding buying those services.
Even if the signs point towards SaaS being an
economical or strategic boon, negotiating suitable
prices, uptime guarantees and service provision is
essential to the success of any such project.
Through SLAs, customers can keep suppliers on
their toes by insisting that certain standards are
agreed in writing, with clear penalties kicking in
when standards fall below par.
‘For the SaaS customer, the SLA introduces a new
level of accountability from the software provider
and a means to measure and monitor service
9: Looking Forwards to Expansion
performance,’ says a report by the US-based
Software & Information Industry Association.
‘Because of the legal nature of the SLA, it is
important to carefully draft the limits to the
remedy for credits for both parties to the
agreement,’ says the SIIA report. ‘The credit
calculation must unambiguously cover the
different types of failure and should clearly define
compensation due for extended single outages or
cumulative periods of downtime within a fixed
SaaS converts also have a step learning curve in
understanding the various nuances that go into the
pricing plans for serviced software – although
theoretically cheaper, it can still throw up nasty
‘SaaS pricing models that seem simple and
inexpensive (flat per-user monthly fees) can
become costly and complex when users sign up for
different pieces of functionality and support
options,’ the analysts say. ‘Additional charges
often apply for support, configuration services,
additional functionality or going beyond a pre-set
storage limit.’
Companies seriously considering adopting SaaS,
need to hire or employ someone to negotiate the
SLAs and contract management.

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