As promised in last week’s item, we’re going to take a look today at Software as a Service, commonly referred to as SaaS (pronounced sass or sahz, depending on who you ask). Basically put, SaaS is when you pay someone for a service, where that service mimics a piece of software you can buy.

A good example is something like Salesforce, where you pay for a service, instead of buying the customer relationship management (CRM) software. This is something that can be of real value to a business that’s trying to save money. But it can also be a real problem in certain situations.

Let’s take a bit of a closer look at how SaaS relates to recession IT spending, as well as some of the pros and cons.

When it comes to IT in a recession, capital outlays are often near the top of the chopping block. If a medium-sized company (say, 30 people) were looking at implementing a CRM suite internally, they might need to buy a server to run it on, pay the cost of the software and licenses, then get someone to do the installation work. Maybe some configuration or customization needs to happen, and staff need to be trained. It’s easy for something like this to run into thousands of dollars. So when a service provider comes along offering comparable functionality at $65/ month per person with none of the headaches, it often seems a great bargain. And sometimes it is.

This is the underlying principle behind SaaS… that it’s often less stressful, complicated, and expensive to have someone else do it. But as with most things there’s a good and a bad to this.

The bad is that it sometimes costs less in the short term, but over time the costs add up really quickly. In the above example of a CRM suite, a company with 2 sales people would really benefit from using a service. A company with 20 sales people might not, since the service costs may exceed the internal development cost within a couple years. Especially with 20 users at $65/ month per user.

Another bad is that you can sometimes be subject to lock in. If you sign on to a service, then you grow to the point where something else makes more sense, it can be hard to get away from the past. But as companies grow and evolve, so do their needs. A SaaS solution may not always address that growth.

The last bad that I’ll present (there are others) is that you wouldn’t have control of your information. It sits at someone else’s location. For Canadians this is of particular concern since information kept on a US-based server is subject to US law. However the business still has to abide by Canadian privacy laws, if that’s where they do business. You should really talk to a lawyer if you have concerns about this, but the bottom line is that it can be a snake pit of trouble. Be careful.

On the flip side, one good point to SaaS is that you…. wouldn’t have control of your information. If it’s sitting at a service provider’s location, it’s their job to make sure that the info is safe and available when you want it. You don’t have to worry about backups, because someone else does. The same holds true for the infrastructure as well. No servers, no added complexity to your environment.

Another bonus is that these services often have competitive extras that would cost more to implement on your own. Added functionality might cost an extra $5 per month from a service, or an extra $1000 when you need to buy a license to run something in-house.

And yet another advantage is accessibility. Often these services are web-based like Google Docs (at least for now… see my earlier post about Web 2.2)  which means that you can often access them from virtually anywhere, with no added configuration or complexity.

And last… it’s just plain easier. For a small or medium company with limited resources or internal know-how, being able to say “we need this” (and then having it happen fairly quickly) can be a load off your mind. Especially for more complex items or projects.

Of course, for something as potentially significant as this, you really need to talk to your technical support provider to understand the limitations and implications of the SaaS solution you’re thinking of. Maybe it should be run in-house, maybe it shouldn’t. Either way, you’ll have an idea of where to begin checking.