NETTING IT OUT

Software as a service (SaaS) has brought significant change to ecommerce and the software industry. I think the biggest impact for e-business will prove to be the democratization of capabilities that have until recently only been available to the very top tier ecommerce sites: great search and merchandising, with highly relevant offers, search results, and recommendations. For shoppers and buyers, as well as visitors looking for information, this is good news: the customer experience is going to get much better, fairly quickly. For vendors of on-premise solutions, the classic software model, business will get more complicated. Customers who have experienced SaaS will have new, higher expectations of what a solution can be, and they won’t settle for industry practices that have all too often resulted in shelfware or low-value deployments.

E-businesses find SaaS a compelling model for its speed to value; cost profile; rapidly evolving functionality; reliability, scalability, security, and performance; and the ongoing contribution of the vendor’s expertise. As they review SaaS solutions, they should select only efficiently architected solutions that are multi-tenanted and load-balanced; those with a client care model providing ongoing optimization and guidance, those that are updated at least monthly with enhancements and fixes, and those that have a service level agreement (SLA) promising at least 99.99 percent up time.

HOW SAAS HAS CHANGED ECOMMERCE

What Is SaaS vs. Cloud Computing vs. On-Demand

Software as a Service (SaaS) is software delivered via Internet on a subscription model. Often payment for services is based on value delivered, such as the number of transactions or other events consumed by the subscriber. The services provided are accessible from any Internet connection and require no local servers to be set up. System monitoring and maintenance are handled by the provider—typically also the developer of the software. Salesforce.com and Google’s Gmail are well-known and widely used SaaS offerings.

The cloud is where SaaS resides and from whence it is delivered. Cloud computing is a broad term that refers to delivery of computing resources via a network. Those resources include networks, servers, storage, applications, and services. SaaS, Platform as a Service (PaaS) and Infrastructure as a Service (IaaS) are categories of cloud computing.

On-demand software is a term often regarded as interchangeable with SaaS. Not exactly. SaaS is on-demand, but on-demand is a vaguer term used to make just about anything sound more modern and desirable. For example, I provide on-demand services for my dog, who requires my support for key digestion-related tasks.

Democratization of Advanced Capabilities

I think the primary advantage of SaaS is affordability of leading-edge services. Software as a Service delivers advanced capabilities to retailers of all sizes that once were available only to the top ten retailers. Online sellers have studied Amazon’s web site for more than a decade, helpless with envy at its many selling breakthroughs. Only Amazon had pockets deep enough to afford to deploy recommendations such as “people who looked at this bought that” a decade ago. Today, recommendations are available as a service—and suddenly recommendations are on the web sites of mid-size and small sellers. The full complement of merchandising tools are available from the cloud: search, merchandising, recommendations, testing and optimization, analytics. While these tools have been applied by leading retailers for a number of years, media sites, manufacturers, and B2B sites are increasingly using merchandising tools, especially site search and recommendations, to deliver a more relevant and even personalized customer experience.

Customer Experience Is a Rising Tide

SaaS affordability means that any seller can have advanced search and merchandising on his site. And the opportunity has been seized: there has been rapid growth in the number of sites sporting advanced search with facets and optimized ranking, recommendations, and dynamic promotions and offers. This is great for customers—readers, shoppers and buyers—who are trying to accomplish a goal online. The universally mediocre customer experience of just a few years ago is steadily shifting to a decent or even pleasant customer experience today, with relevant information and efficient navigation.

THE FIVE REASONS TO PUT YOUR BUSINESS IN THE CLOUD

Speed to Value

The primary reason most companies cite for embracing SaaS is the rapid implementation. Service providers have honed the setup task, not only to keep IT out of the way, but also to make free trial periods feasible. Search and merchandising can be up and running in a matter of days; in a few hours staff can be trained to begin using merchandising capability; and in a few weeks results can begin to roll in. Contrast this with the timeline for on-premise software: months for hardware planning, procurement, and provisioning; software planning and procurement, for the pre-requisite software such as operating system. Then weeks of training for the IT staff, and weeks of software installation, configuration, and testing. A very streamlined on-premise implementation might be completed in six months; more complex solutions take 12 or 18 months. With SaaS, you know in 30 days, and certainly in 90 days, if the solution was a good choice. With on-premise, your staff works very hard for 6-18 months before you find out whether the right solution is in place.

ROI and Cost Profile

The second most important reason companies cite for embracing SaaS is the cost profile. The 6-to-18 months for on-premise implementation comes with a big price tag, both for internal IT resources and for the vendor’s professional services. With SaaS, there is small or no IT project team to budget because the effort to integrate and enable SaaS applications is as close to zero as the provider can make it. For example, with site search, the minimum intervention is adding a search box to Web pages and designing a search results page.

Most on-premise software has a hefty up-front cost, with annual fees for maintenance and support. With SaaS, there is no large sum up front for software licenses and professional services. There is no capital expenditure for hardware. There is no cost for application management and monitoring. There is no cost for managing search indexes or user licenses. There is no cost for deploying and managing upgrades or reapplying modifications after an upgrade.

Most importantly, there is no expense for peak provisioning—buying double or triple the hardware capacity used in a typical day in order to get through peak periods. And there’s no expense to manage that extra hardware and software and licenses nor any expense for maintaining availability and performance.

The SaaS business model is often predicated on value delivered, such as transactions effected or events handled: queries answered, recommendations presented, A/B tests performed. There are often upfront costs for setup, but they are very modest in comparison with the professional services required to get an on-premise solution deployed. In my last ecommerce search comparison, the setup cost for SaaS search and merchandising was two percent of the cost for professional services to set up an on-premise solution. That’s right, the fee for on-premise set up was 50 times as much as SaaS set up.

Vendor’s Expertise

With SaaS fees pegged to the value being delivered, the service provider (vendor) is motivated to be a valuable partner who can contribute to your business every day. While the vendor of on-premise software gets a big fat check whether or not the software is ever used, the SaaS provider is paid based on each client’s success. The software has to work, and work quickly, and work better every day, for the vendor to be successful. Most service providers offering search and merchandising have client care staffs that help clients improve their skills, improve their sites, and improve their results. They may be in contact almost daily; most offer a quarterly or semi-annual review to identify and prioritize improvements and to revise estimates of capacity and performance required. Clients also get the benefit of the SaaS provider’s expertise...