2013 Update: I wrote this email while heading up sales at an on-premise planning software company back in 2010. Way back then, doing planning on the web was still a vision. About 2012 or so, the climate changed. Not only did everyone in HR start moving to the cloud (see Workday), but companies like Host Analytics, Adaptive Planning, and Anaplan began to wipe out legacy on-premise solutions such as Prophix and Hyperion Planning. I am leaving this blog here as an archive as a reminder for how rapidly technology can change. Most on-premise planning software companies are now offering cloud alternatives. For example, Tagetik is available on-premise or via the cloud. Vena Solutions and Anaplan recently hit the market and player such as Axiom EPM are apparently in the cloud.
That said, Prophix has recently published an anti-cloud for planning software mandate called "Demystifying the Cloud"
http://www.prophix.com/common/pdf/demystifying-the-cloud.pdf
Here is my original 2010 analysis predicting that SaaS (now known as "the cloud") would fail for planning software. Wow was I wrong! Then again, I thought the dotcom fad was real! I guess the lesson is given that everyone from sales and marketing made the move to the cloud long ago, the finance folks may take a while to get there, but we do get there once all the kinks are worked out. For example, now you can copy and paste on the web and right click - even use shortcuts like CTRL-Z!
ORIGINAL POST:
Your Situation: If you are considering replacing spreadsheets with budgeting software, you are likely going to come across the question of whether to go “hosted” or “in-house” or you might hear about “SaaS” or that everyone is making the move to “the cloud”. All these terms are new and evolving but we’re starting to have enough real customer experience to clear up some of the cloudiness. Here is a sample of some “unbiased” information out there on this topic from what I’ve heard from budgeting software consumers who have evaluated and/or purchased Budgeting Software from SaaS Vendors.
Background on SaaS: A group of pundits and investors have embraced the notion of “Software as a Service” commonly called “SaaS”. While SaaS works very well for SalesForce.com and Online banking, there are some that feel all software should be SaaS – even software designed to replace spreadsheets for budgeting and planning. However, the term “SaaS” which was once known as “application service provider (ASP)” is losing popularity and is in process of being replaced with new wording. This new wording is “Cloud Computing”. I must admit “ASP” and “SaaS” were not very catchy terms and they were confusing acronyms. Of course, the term “cloud computing” while it sounds nice, can also be a bit foggy. From a budgeting software perspective, “cloud computing” seems to translate to two basic requirements:
1) Rather than install software, you access it via the web and therefore the software resides on other computers that you do not know about or maintain – this is the so-called “cloud”
2) In general, you pay a subscription fee of some kind rather than purchasing the software, so in fact you never really own the software – this is similar to renting a car rather than purchasing a car.
While there is a plethora of sales pitches detailing how SaaS / Cloud Computing will dramatically improve your business, I’ve seen very few analyses attempting to look at the downside inherent in SaaS/Cloud Computing specifically for budgeting and forecasting software. The purpose of this blog entry is to distinguish SaaS from traditional software and give a quick update on the downside of SaaS from the perspectives of a software buyer. I also hope this blog helps to explain why SaaS is not likely to replace on-premise software for budgeting and extremely unlikely to replace on-premise software for forecasting.
SaaS Item #1: The True Price of SaaS
The message from the SaaS world is clear but incomplete: “SaaS is cheaper." The reality here is that if you plan to buy software for one year, SaaS will be cheaper; however, if you plan to use the software for multiple years, the traditional upfront payment with a small recurring fee will be quite a bit cheaper over time. Many software vendors feature subscription-based pricing. However, most non-SaaS vendors will rent software to you if this is important to you. The advantage of the subscription-pricing model is that it is lower risk since you can always stop paying your software fees if you are not satisfied or if you are tight on cash and need to make some cuts. I’ve heard several customer who winded up purchasing traditional software solutions from vendors such as Clarity, Prophix, Alight Planning, and TM1/IBM, that they ruled out the SaaS vendors simply because of pricing. Their analyses demonstrated that SaaS solutions ended up costing more over the long haul and they did not want to “double-pay” for IT support.
Bottom Line for mid/large companies: Mid-sized and larger companies tend to avoid SaaS solutions since they already have an in-house IT department and are not interested in committing to paying an outside party for ongoing IT support. Moreover, these companies tend to take the time to make the right decision on software and would rather commit to the right product for the long term and they conclude that SaaS pricing winds up costing more over the long term.
Bottom Line for smaller companies: Small companies and start-ups often prefer SaaS pricing model for 2 reasons. First, smaller companies tend to not have IT departments or the ability to manage software installations. Secondly, smaller companies and start-ups prefer to not pay for software upfront since they often decide to later terminate the relationship due to software failures. In the case of start-ups, cash is so tight and the ability to get out of a software contract is very attractive. I am seeing lots of start-up companies as well as companies with less than $5M annual sales find the SaaS pricing model attractive.
SaaS Item #2: The Problem with the Single Version
You know how some people are on Office 2003, other are on Office 2007 or some are on Windows 7 and others are on Vista? If you made the move to the latest Excel, you know there was about a 2-6 week bump in productivity while you tried to figure out the new interfaces. Maybe you like the new Excel better, maybe you wish you never upgraded. Maybe you work at a company where some employees are still on Excel 2003 while other made the move to Excel 2007. Well, when you purchase SaaS software, everyone is always on the same version. On the one hand, this is great news for the software vendor since they always know which version you are on as an end-user. On the other hand, as a software user, this can be awkward at times. You no longer have the ability to choose if and when to upgrade to the next version. Several problems with SaaS Versioning pop to mind from real-customer experiences:
Versioning Key Takeaway #1: The Unexpected Update before the Board Meeting: You are about to complete your budget and present to the board. You finalize your preparations Sunday night before the meeting Monday AM. All the reports are ready to go, you know just where to click and you are sure to have internet access during the presentation so you can show the web-based reports in real-time with the latest and greatest data. However, Sunday at midnight, the software vendor releases an improvement to the reporting interface. The vendor sent an email about this update, but you get those all the time and just ignore them. Anyhow, you are not about to change the board meeting because a new update is coming in your budgeting software. You wake up Monday AM and have your coffee. It’s as good as a Monday can be so far but when you login to the budgeting file and show the reports to the board, the interface is now totally different. What used to be blue is now green. What used to be green is now blue and you can’t seem to find your way through the reports. You don’t know what to say, since the software was working very well and you already told the board how great the reports will be in the new SaaS format. Oops.
Versioning Key Takeaway #2: If it ain’t broke, don’t fix it: At first, this may not seem important, but consider the following: I spoke with a government customer who was very happy with their non-SaaS software which was working very nicely and being used for headcount planning primarily. In fact, it was working so well, that the customer decided to not purchase the upgrade support pack and opted to remain on the old version since upgrading to the new version might put their current set-up at risk. Even the software vendor actually advised this particular customer to not upgrade. In some cases, software vendors actually eliminate functionality that they consider not all that important since the majority of their users are not using the functionality. But what if you are the one minority-user who happens to be using that functionality? If you had purchased an on-premise solution such as Prophix, you are fine, simply do not upgrade to the latest version; however, if you had purchased software from a SaaS vendor, you simply have no choice since the software vendor controls your upgrade timing. In fact, key functionality that you happen to be using may just simply disappear one day when you show up at work and you will have no recourse to go back to the old version. Remember: the SaaS vendor requires all customers be on the same version; I guess the SaaS version of this aphorism is “Keep fixing it and hope it doesn’t break anything”
Versioning Key Takeaway #3: This may seem obvious but suppose you want to have 2 models. One is a budgeting model with 12 months in a year. The other is a 10-Year planning model with data entered in each year (there are no month columns). If you own the software, you simply create a separate model file and take it from there. In the case of SaaS, you may actually need to purchase a separate login code in order to have a separate model set up with years as columns instead of months. Even worse, I’ve heard a story where a customer later realized that their SaaS solution requires you enter data by month and it did not support entering data into other time period columns such as years!
SaaS Item #3: Outages
This is a controversial subject, but let me just point out that even leading companies like Intuit have unexpected outages. I know since a couple times already in 2010, we’ve not been able to create invoices or access our financials from QuickBooks since the site was simply down. I’ve received nice notes from Intuit reassuring me that this won’t happen again via Twitter. Well, the point I’m making here, is simple, in order to access your budgeting software with SaaS, two conditions must be met: 1) You need Internet access and 2) Your software vendor’s computers have to be working so you can access them. Remember, it does not matter how good your IT department is when #2 occurs.
Outages Key Takeaway: Again, your ability to access your budget data depends on the software vendor’s ability to prevent outages. In response to outage problems as well as security concerns many SaaS vendors are now offering an “on-premise” alternative.
SaaS item #4: Are SaaS-Oriented Budgeting Software Companies Viable?
SaaS companies require more capital in order to get to profitability. In fact, many SaaS companies have no plans to be profitable for say 5-10 years after they launch their software. Cash Flow is a challenge for SaaS companies since they get little amounts of money from lots of customers. In the long-run, they make tons of money assuming most all the customers renew their licenses, but the problem with budgeting software is that many smaller companies who like SaaS end up either getting acquired or going out of business altogether. In either case, there is no one to call to renew the software, so it appears based on this analysis that something around 50-75% would be the best possible renewal rate for SaaS budgeting software companies to attain. While some SaaS companies are trying to solve the renewal problem by getting their customers to lock-in multi-year contracts whereby the customer commits to a long-term payment stream; this practice defeats the very selling-point of subscription pricing. It is therefore unlikely that the customer will sign a multi-year agreement as signing this type of contract increases the customer’s risk. All this translates to the fact that SaaS companies require more and more capital in order to keep operating. Now if the company is able to keep raising money or eventually achieve positive cash-flow, then you’re fine, but what happens when your SaaS provider goes out of business? How do you access your budgeting data if your data resides in “the cloud” instead of on your company’s server?
Viability Key takeaway: Be sure to ask your SaaS vendor how you can access your budget data in the event that the SaaS provider goes out of business. More importantly, be sure that you ask for a sample of the format of the data dump you would receive so you can check with your IT department to see if it is in a format that you can actually use - such as an Excel data list.
SaaS item #5: SaaS Performs Slower Than Spreadsheets and On-Premise Software
If you use spreadsheets, you are likely accustomed to quickly clicking all around various worksheets, entering data into cells, and seeing numbers refresh in real time. You may even have intentional circular references. Get this: In SaaS solutions, you are required to go to a website in order to access your model which means anytime you make a change, the model needs to update on a cloud computer somewhere over the internet, run the calculations and then refresh your screen. If you use home banking, you know the problem, every time you want to navigate to a new worksheet, you need to save changes. If you have users that are in other countries, they may not have high-speed connections which means their performance is limited to the speed and reliability of their modems. Again, I’ve heard IT folks who are looking for budgeting software rule out SaaS solutions simply because of the performance issue in which some of their users based in regions where they have unreliable internet access. It would be important for them to work on the software locally and then post the changes all at once when ready to submit their budget. Finally, for reasons that are unclear but appear to be related to performance, some SaaS solutions apparently do not support circular references. It turns out that about 70% of the budgeting models we’ve seen include circular references which are an inherent part of many models. Consider for example the management bonus which is a percentage of profit. If you are considering a SaaS budgeting software solution, be sure to confirm that they do indeed support circular references since if not, you may be typing in guesses each time you update your model to solve for something as fundamental as the management bonus!
Performance Key Takeaway: If you want good performance, be sure to confirm all your users have high-speed internet access before deploying a SaaS solution for budgeting. Also, be sure to confirm the SaaS vendor’s solution supports circular references.
If you’ve read this far, I hope you feel better informed about the decision to go with SaaS (or not).