Yogesh Jagga is the CIO of a successful mortgage brokering company in California, which has its IT as well as its sales staff in India. Parsec Loans, the company, sells loans from some 20 American banks to retail customers in America.
Faced with enabling his company’s sales with IT that would bring Parsec cost-effectiveness and few headaches, setting up the IT shop in India was a no-brainer. But Jagga took it a step further by not investing in any stand-alone customer relationship management software. He bought seats on Salesforce.com’s enterprise edition to enable a sales team that operates from a call center in Gurgaon.
This allowed him to exploit a simple yet powerful idea. Salesforce.com hosts the customer relationship management (CRM) software for Parsec and gives the company’s sales people all the access to the software and the related infrastructure they need to function effectively. “Using the Internet and the telemarketing agents, it takes up to 45 days from initial queries to the loan being disbursed,” says Jagga. “This is laborious, requires tasks such as appraisals, multiple partners — the lending banks — are involved, and we need to work together. This is more of a relationship management effort,” he explains.
Buying a subscription to the CRM then made a lot more sense than the higher initial investment involved in the conventional route of buying software, hardware and hiring people to put it all together. “I don’t have to worry about initial expenditure. There isn’t any down time, and if there are any upgrades or maintenance to be done, we know in advance.”
The power of the idea comes from a host of other companies simultaneously being able to do exactly the same thing as Parsec. It’s called ‘Software-as-a-Service’.
Software-as-a-service (SaaS) is being touted as different things to different users by different vendors. The consensus, however, is that it could make life more exciting — and profitable — for businesses by allowing them to configure their own computer applications. They can do so only when they need to, with a little help from the CIO organization.
For the users, this might represent a reduction in upfront investments in computers and software — money saved, which might then be employed more directly in the business. For the CIO, SaaS can take away the pressure of having to quickly deliver an application that the business users are hounding him to build yesterday — the CIO can then ask his men to focus on building better rules for integrating IT with business and, down the line, on integrating the applications that come as a service with existing stand-alone applications.
For the vendors, the business model involves hiring out software applications for a subscription-fee, with upgrades and support thrown in. The challenges before SaaS include integration with existing customized software applications, and legal as well as security measures of allowing the vendor to host data for businesses — usually a requirement for SaaS. Yet, a growing number of companies, from Parsec Loans to multinational network equipment maker Cisco, are embracing SaaS. Vendors too are coming together to help build an ecosystem of SaaS delivery. The opportunities are undeniable, and it’s a matter of time before the challenges will be surmounted.
Reborn in the Internet
The concept isn’t new. Even before computers, it was common enough — it is like the shift that happened from actually owning a cow to getting milk delivered in packets. Having your own data center with all the necessary software installed is the IT-equivalent of owning a cow. SaaS allows businesses to subscribe to the service without having to own the product.
Earlier, the business model was: you go to an independent software vendor, buy a software product, pay a license fee, pay an implementation fee perhaps to a systems integrator, and work out a deal for the maintenance of the software and hardware.
It would also be the end user’s headache to invest in the necessary hardware and other software. All this meant large investments of money and time and effort upfront. Then, there was the worry of connecting IT with business processes.
The application service provider (ASP) offered to take away much of this pain with a different business model — the provider would host the software and companies could purchase the use of that software on a per-user and per-unit-of-time basis. ASP didn’t succeed for the number of users and the cost of using it in that business model didn’t work out. That was the failure of the dotcom era, says Dr. Sridhar Mitta, founder of e4e, which taps SaaS-ready software to sell business services to clients.
In a sense, SaaS is the promise of ASP realized. It takes the business model one step further by making the same software simultaneously usable by several users, each with their own customizations, and secure from the other — a concept called multitenancy.
The changing marketplace is also helping: now, the cost of software has come down because a lot of open source components are being used, outsourcing has helped reduce the development costs in some cases, bandwidth is more easily available with broadband becoming popular, hardware is becoming more commoditized with each passing day, and the number of users is growing fast.
Meanwhile, independent software vendors are building applications ground-up to be multitenant and modular. Service-oriented architecture is being used, so that different modules can come from different sources, and integration is easy. Further, everything will be delivered using the Web, which means they can be hosted anywhere and accessed anywhere.
It was precisely this idea of anytime, anywhere with minimum upfront investment that Amit Verma found attractive. A marketing manager at Informatics India, Verma also doubles as the IT administrator for the e-content distributor. His 18 salesmen use Salesforce.com’s CRM software to work from virtual offices across India to sell subscriptions to Informatics’ services and two products — an aggregation of business content hired out to organizations such as Reuters and Factiva, apart from a search-engine-based portal to scientific research content. Informatics India’s customers include Dr. Reddy’s Laboratories and Apollo Hospitals, and it services some 1,200 customers today, mostly institutional buyers. “We had an inherent need for the SaaS model,” says Verma.
At Parsec Loans, Jagga says he plans to double the number of seats subscribed to a 100. “And this is at the division for which I am CIO. There are two other divisions that also have another 20 seats,” he says.
Both Jagga and Verma fall in the category of small- and medium-sized businesses (SMB), where IT, at best, entails some excel sheets. So, the move to SaaS is easy — little or no integration of the new applications is required with existing ones.
A Global 500 logistics company decided to buy a subscription of Pivot Path, a ‘service delivery platform’ built by Jamcracker, which has most of its development and operational team working from a center off the grid-locked road to Electronics City in Bangalore.
Manish Jain, head of Jamcracker’s India Operations, says, “The logistics company grew by acquisitions, and has some 175 internal software applications.” The company has 2 lakh users, each of whom uses five applications doing tasks like helping customers track a package or answering a query. “This number increases by several thousands during Christmas and then reduces by thousands” as large numbers of temp staff come on board and leave.
Pivot Path automates the process of creating accounts for each new addition of staff, telling the logistics company’s complex computer systems what applications a staff member can access and so on. The automation reduces the time required to give a user access to that average number of five applications from two weeks to a few minutes, once a corresponding supervisor or team leader submits a user profile, says Jain.
That SaaS is not a technology in itself but a way of making technology available to businesses is what makes it attractive. If the problems of integration with existing software — which large corporate companies have a lot of — and security of data, which in SaaS resides with the vendor, are addressed effectively, corporate adoption will take off.
Ray Wang, a principal analyst at research firm Forrester Research, says, “At its essence, SaaS is a deployment option and is a way of allowing enterprises, their customers, partners and employees to take advantage of technology, without dealing directly with the management and administration of that technology.”
Wang says: “In our latest ‘Business Technographic Survey’, we found that the large enterprises are even more interested in adopting SaaS than SMBs. For instance, Cisco has used Salesforce.com as their default CRM system.” Cisco Systems announced in November that they have doubled the number of users (for the sales force automation software they subscribe to at SalesForce.com) to 15,000.” Jeremy Cooper, a vice president of marketing at Salesforce.com, says clients in the financial services domain are now validating the SaaS model. So, concerns about scalability, reliability and security are being mitigated because the large enterprises are now embracing the model, he adds.
Building the eco-system
As corporate customers take more interest in SaaS, established players such as Salesforce.com and up-and-coming ones are building an eco-system that will encourage large-scale adoption of SaaS. Joining them are independent software vendors, building SaaS-ready applications ground-up, and system integrators that see opportunities in helping large companies customize and integrate SaaS software for the user companies.
Apart from providing online directories of SaaS-ready applications, the players have now gone a step ahead by allowing open access to application program interfaces to developers, who can then build their applications to work in the corresponding SaaS environment. The ISVs also get to list their applications on these directories.
At e4e, an interesting experiment is being tried out, which combines the power of SaaS with the power of offshoring.
Consider Jagga’s operations in Gurgaon, which is a small call center. Anand Talwai, president of e4e, says his company bundles the SaaS capability of sales force automation with the actual business service of doing what that sales force would do. “We have 500 small and medium mortgage brokers in the US as customers for whom e4e starts with generating leads and hands over at the point the loan can be closed,” says Talwai.
Each of these 500 brokers is a tenant of an underlying software that e4e runs in a multitenant environment. This also means each of them has their proprietary data residing with e4e. “It’s like Gmail,” explains Mitta, “where your mail sits on Google’s servers, but you get access to it.”
In e4e’s case, of course, the money comes in the form of a fee that the brokers pay per-loan-closed. “Today, we are doing about a 100 loans a week,” Talwai says. Wang says the ease of use and the Google-like reliability is what makes SaaS revolutionary in practice. “Like Web 2.0 applications, we are expecting business applications to function almost like Google — with that level of reliability, ease of use and simplicity; and yet handle the complexity of transactions that business applications bring,” he says.
Implications for the CIO
Verma is a telling comment on the way things are going, even if his is a small company — he is a business person also taking on the CIO’s role in his company. Anuradha Acharya, chief executive of Ocimum Bio Solutions, a biotech services company in Hyderabad, is another example. She is the company’s technology head as well, and pretty hands on about it.
Acharya switched from ‘Datatracker’, a CRM product she had built in-house, to Salesforce.com two years ago. It “makes my life simple as I generate reports myself and am not dependent on the sales folks.” Please note, this is the CIO talking. The switch also helped in planning and getting trends instantly across geographies and products, which is very useful for planning and sales and marketing, she says.
Wang says this reduced dependency on IT support is one of three big opportunities for users. The second is the straightforward one of quick deployment and capital deferment, apart from the the less-obvious opportunity to derive benefits beyond software features and upgrades. The challenges Wang lists include regulations that may require data to be on-site. It will pose difficulties for enterprises that rely on heavy real-time data integration, and for users used to heavy customization of software.
CIOs, says Mitta, get advantages and disadvantages: urgent headaches are taken away, such as the pressure to build that application that business users need yesterday. But in return, the CIO loses control over that application, which is now subscribed to off the Web.
This situation, however, will evolve as the business guys start needing more integration with existing applications. The CIO of one large Indian subsidiary of a multinational giant headquartered in Europe says, “SaaS will mean losing control. It makes sense for small and medium businesses which may need the money elsewhere. But if you are cash-rich, then building an in-house IT department is the way to go.”
SaaS does not also mean SLAs will go away to be replaced by something that makes everyone happy. The CIO’s department will continue to monitor SLAs. But, in theory, pulling out will not be nearly as painful as in the case of traditional applications outsourcing. Yet, Don Best, vice president of marketing at Jamcracker, points out that a recent McKinsey survey found that 70 per cent of the respondents wanted a “single throat to choke.
What this also means is, if a CIO is buying bandwidth for his company from a telecom utility, for instance, he may get a discount on the bandwidth only if he buys a bouquet of services from that telco.
Service delivery platforms do the job of helping the telco deliver these services, such as the same CRM software, a human resource management software, and even an enterprise resource planning package to the CIO and his executive bosses.
In the SaaS model, none of these services has to be built by the telco. They can come from whichever independent software vendor built them. The rest of the story in the McKinsey survey, Best says, was that the more number of services the CIO buys from the telco, the greater will be his stickiness to the telco as a customer.
This brings one back to the single most important trend that every CIO agrees on today — technology heads must exploit their knowledge of technology to help their bosses make sound business decisions.