Does software as a service deliver value in the short term or over the longer term? The answer seems to be yes.

Some of us think of long-term value as an exercise in deferred gratification – short-term pain for long-term gain. A payoff right now and down the road seems like too much to hope for. But apparently it can happen.

The quick-hit advantages of software as a service (SaaS) over on-premise applications are pretty well known. The ease of implementation and lower upfront costs associated with SaaS seem to be more than attractive enough to keep bringing new enterprise customers into the SaaS fold.

What’s surprising is that many of these customers are actually unsure about the longer-term value proposition.

With a view to exploring the ROI of SaaS over the long haul, Forrester Research embarked on a research study of SaaS vendors and users. The results are in, and it looks as if, on balance, the hard numbers favour SaaS over the longer term too.

Titled “The ROI of Software-As-A-Service,” the report looked at 11 vendors of SaaS enterprise resource planning (ERP), customer relationship management (CRM) and supply chain management (SCM) applications. Researchers interviewed end users as well as vendors, and did detailed case studies on clients of three SaaS vendors to build an ROI model for their Total Economic Impact (TEI) analysis.

There’s heavy competition for new customers in the SaaS arena, and this is clearly one major factor driving vendors to deliver a solid ROI proposition by, in part, keeping acquisition costs as low as possible. But, pricing aside, the report identifies a number of key factors in building a durable SaaS value proposition.

For starters there’s the fact that SaaS solutions are much faster to deploy than on-premise applications. That’s not a huge surprise. But user adoption rates are also better. Firms surveyed complained that on-premise applications suffer from low user adoption rates, despite significant investments in end user training and interface design.

SaaS turns out to have a UI edge too, according to Forrester.

“SaaS applications frequently inherit their user interface from familiar Web programs — having an easy-to-learn Amazon.com or eBay-like look-and-feel,” Forrester says. “This means that users feel that the user interface flow is natural and more intuitive.” And more proactive SaaS usage reports mean administrators can deal with gaps in adoption more efficiently.

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Moving to SaaS also reduces the support overhead required. Forrester noted one firm that previously paid a third-party IT services firm for support was able to eliminate those services completely. Many others redeployed internal resources to other projects.

“Technical support staff (bug fix, patch) are usually eliminated completely as the SaaS vendor performs these tasks. Help desk staff is usually reduced because of SaaS’ enhanced usability and more useful training, built-in tutorials, and help files. SaaS applications are more standardized and therefore the provided help materials remain more relevant,” Forrester noted.

When it came to costs, the research found that SaaS implementation costs are normally much lower. The restricted customization capability of SaaS creates a cost saving.

The basic recurring SaaS cost is the subscription, and while staff costs for administration and support are still present, the consensus is they’re much lower than they are for on-premise deployments, although they can vary widely.

Upgrades are where SaaS really proves its worth. As Forrester puts it, “SaaS solutions typically offer seamless, automatic, frequent upgrades as part of the ongoing subscription charge. Because these upgrades happen more frequently and therefore incrementally than on-premise solutions, they typically have significantly reduced testing and end user acceptance and training costs. Firms rarely have to re-engage third-party consultants the way they would with a major on-premise upgrade.”

There are cautionary notes too. Many SaaS solutions have a lower functional footprint than on-premise applications, Forrester says. This creates higher SaaS cost for things like single sign-on, and for setting up integrations during implementation.

More significantly, implementation cost savings and anticipated hardware and staff reductions often turn out to be smaller than anticipated. Some of the challenges are related to project management, with some enterprises finding that they spend more than they expected on change management, integration, or shoehorning an SaaS solution to meet business needs.

“Firms that are counting on increased adoption and reduced training as part of their benefits assessment must realize this is not a guarantee across all SaaS solutions,” Forrester says. “While many are easier to use and have shown higher adoption rates in studies, there are others that do not have such strong track records and that suffer from serious usability flaws.”

The touted ability of SaaS solutions to scale to actual usage needs may not yield major benefits if firms don’t insist on ironclad contracts, or if they find it difficult to track usage accurately.

But then there’s a cautionary side to everything. The main takeaway from Forrester’s study seems to be that while users may be initially attracted to SaaS for the quick hits, they can also feel more confident that there are goodies down the road.

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