Gartner debunks SaaS CRM myths

SaaS vendors' claims don't always stand up. Gartner analysts took a closer look at some myths at the recent Customer 360 Summit.

LOS ANGELES -- Software as a Service (SaaS) is not for everyone. In fact, some organizations that invested in SaaS

are now looking for a way to move their CRM projects on-premise.

That's the case for Projectline, a Seattle-based company that helps tech companies find and manage reference customers. It's currently running Microsoft Dynamics CRM Online, but is in the process of moving that deployment back in-house.

"We're still, in the next six months, going to run a hybrid model, using SaaS for certain things and internal reporting will be done on premise," said David Jones, chief operating officer.

Projectline wants to move its CRM in-house in part to facilitate its reporting and analytics. And it's not alone, according to Rob Desisto, an analyst with Gartner, speaking at the Customer 360 event here this week. He's seen a number of Gartner clients express interest in moving from on-demand to on-premise.

"There are fundamental challenges that the general architecture features when doing SaaS," Desisto said. "The Internet pipe is only so big. Any heavy analytics or large data set is very difficult."

Running heavy analytics loads aren't the only thing leading some to rethink SaaS. Some organizations are finding that SaaS isn't as inexpensive as some SaaS vendors would have you believe. According to Gartner, the total cost of ownership (TCO) can indeed be lower with SaaS versus on-premise software, but it must meet a few conditions.

The IT staffing myth

For example, if a SaaS application project means reducing head count for things like database administration, system administration, software engineering and patch management that can mean savings, but it comes with a caveat. Saving just a part of someone's job seldom equates to actual savings.

If you’re a small business with no IT staff then the math is a lot easier. You need to buy the hardware. With a larger company, the math doesn't always work out in favor of SaaS.

Rob Desisto, vice president and distinguished analyst, Gartner

"I say head count, not [full time equivalency]," Desisto said. "Users are saying 'this SaaS thing was going to save me money on? head count. We saved 10% of FTE with this.' That doesn't work with the CFO. The idea that there's opportunity costs, doesn't work for the people crunching the numbers."

SaaS can also mean lower TCO if an organization can avoid purchasing new hardware, databases and applications licenses. However, while it may seem obvious that an on-premise software purchase would require new applications licenses, many organizations have CRM already because it was bundled with their ERP licenses, Desisto said.

The hardware, software and IT resources question is dependent largely on the size of the organization.

"If you’re a small business with no IT staff then the math is a lot easier," Desisto said. "You need to buy the hardware. With a larger company, the math doesn't always work out in favor of SaaS."

The myth of the rapid release advantage

SaaS vendors often tout the frequent updates and new functionality that comes with their deployment model, but this does not always work out in the customer's favor, Desisto said. For example, SaaS upgrades, typically two or three times a year, usually happen on the vendor's schedule, not the customer's.

"If you’re a company that has a lot of Six Sigma processes around releases and testing, with this sort of rhythm of every three months or every six months you have to check integrations and do some level of regression testing," Desisto said.

Companies that don't necessarily need all the latest functionality and lag behind on upgrades may find on-premise a better fit, he said. The release schedule for upgrades is something that needs to be discussed in contract negotiations, he warned. Some vendors provide sandboxes and testing environments to facilitate the process.

"These are some of the questions you need to talk about," Desisto said. "What is your sandbox? How quickly can I get access to a release before it comes out?"

The shelfware myth

SaaS vendors, and their sales reps, like to promote the idea that SaaS deployments remove on-premise software's shelfware problem -- software licenses that are paid for and require maintenance and support fees, that no one is using. Again, this is not necessarily always the case, Desisto said.

Take as an example a company that is deploying SaaS CRM to 2,000 users at $60 per user per month. Since most SaaS vendors require a contract agreement for everyone up front and the organization is going to roll the implementation out in phases, it will still wind up paying rent on software it's not using. If it takes six months to roll out the deployment, that's six months of subscription fees its paying for software it's not yet using. If the company starts out with a pilot program of 300 users after the first six months, it's typically still paying subscription fees for the other 1,700 licenses. That's essentially shelfware, Desisto said.

 

The pay for what you use myth

Many SaaS vendors tout the "utility model" of SaaS, suggesting organizations pay only for what they use. Yet, SaaS contracts are typically rigid. If business conditions change and an organization needs to lay off workers, it still winds up paying for licenses.

"They do not allow you to dial down the number of users," Desisto said. "Not only are you committed, in many cases you've paid up from the anniversary of year one."

However, some movement has been made on this front. RightNow recently enacted a Cloud Services Agreement, a standard service level agreement (SLA) guaranteeing uptime, the ability to dial up or down with licenses and a renewal price cap.

The TCO myth

SaaS is not necessarily cheaper than on-premise.

"Over the first couple years, SaaS is less expensive typically because it's an operating expense that starts flat and stays flat," Desisto said. "On-premise has the [capital expenditure] up front."

Upgrades to on-premise software applications will usually push on-premise costs back above SaaS, but only for companies that stay on the most current versions.

"If you’re a company that doesn’t upgrade that frequently on premise, then clearly the SaaS number exceeds on-premise," Desisto said.

More SaaS purchasing considerations

Gartner research has revealed a number of reasons companies are moving off of SaaS. Security is one, though that's often due more to internal policies or national laws that require customer data to be stored in the country's borders and not due to weaknesses of the applications themselves.

Performance can, at times, be an issue. While a SaaS vendor can point to sub-second server response times, organizations need to consider the entire process. How long does it take to go from inside a firewall in London, to the data center in California, back to London and through the firewall again? Latency issues are something that needs to be identified up front, Desisto said.

"It's not realistic for [SaaS vendors] to commit a response time to you because there are a lot of factors, but they should submit their strategy on latency," he said."This is the level of detail you need to get into when evaluating these SaaS vendors."

In fact, Gartner advises organizations to create a SaaS policy and governance document. Since SaaS is often times purchased without IT's involvement, governance can be a challenge. Companies should determine who owns things like configuration change management, vendor management and ownership of internal contracts.

Contracts should include up-time reliability clauses with well defined penalties, a data ownership provision and disaster recovery provisions.

"I guarantee 90% of you do not have RTO [Recovery Point Objectives] in your contract, if something happens physically to that data center," Desisto said. "Very few vendors will provide it."

Companies should also carefully consider what happens if they end their relationship with a SaaS vendor. What format will their customer data be returned in, the vendor's or the company's? Running multiple SaaS applications also can complicate deployments. Upgrade cycles will not be synchronized.

Sean Sullivan, senior business system consultant at a Midwest financial services firm and an attendee at the conference, is thinking carefully about SaaS. The company runs Salesforce.com for its B2B business but is considering other options for its B2C operations.

"We're making sure the business side is aware of the complexities of the issue," particularly the reporting and analytics, Sullivan said. "It's matter of putting more numbers behind it."

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