How to Qualify a SaaS Provider

According to recent Gartner and Forrester studies, the use of Software as a Service (SaaS) applications in small and medium size businesses has quadrupled in the past year, with over 85% of companies surveyed subscribing to at least one service. This should come as no surprise actually, given the year’s economic turmoil and SaaS’ reputation for nominal up-front costs.

It’s true about the nominal up-front costs, as there’s no hardware or software to buy, and very limited if any expensive customization or integration even possible. Instead, you pay a monthly subscription fee to access an application hosted by the provider and typically delivered through the Web. The monthly fee also includes all maintenance, support and upgrades. And it gives them custodianship of your business data, so performing the right kind of vendor due diligence is essential.

Compared to on-premise solutions, it’s easy to see how the SaaS model can be especially compelling financially. But it’s not for everyone: if you have complex requirements, your work involves extremely sensitive or regulated data, or you’ll need extensive customization for an application to align with your business processes, then SaaS is probably not for you.

With SaaS providers, you pay only as long as you are a subscriber and are never locked in, so the relationship really starts with the subscription. This gives SaaS providers real motivation to strive for excellence in both their offering and services. I like this reversal of the relationship: it gives the power of choice back to the client, where it rightfully belongs.

But it’s a different game qualifying SaaS vendors. Here’s my list of top considerations:

1.  Will the service satisfy your requirements? SaaS services typically provide standard features and functionality for its niche and not much more, except integration into Outlook and perhaps a complementary partner service. Figure out whether you can live with these constraints, not just today but a few years from now.

2.  Is the service provider’s hosting environment, including security, rock solid? Find out who really hosts – the service provider or a third-party, and where. Learn about their up-time guarantee and their actual track record; their backup/restore policy, and actual track record; and their disaster recovery plan. What access will you have to systems administration functions and to your data? What access will their employees have? What physical security does the location have?

3.  Will limited customization, configuration and integration suffice? Depending on the size and needs of your company, today and in the near future, this is often the defining consideration. Some service providers do allow customizations if you are on a dedicated server running your own instance of the application, but do find out the impact these customizations can have on future upgrades. And if integration into applications behind your firewall is achievable, find out how they would want you to do this as it’s not always straight-forward.

4.  Does the service offer cross-platform compatibility? Personal technology options change rapidly, and whatever your company’s policy is today, it will certainly be different a year or two from now. At the least, your SaaS provider needs to support PC’s and probably Mac’s, a variety of browsers, and the most popular mobile devices.

5.  What is their upgrade policy? One of the drawbacks of SaaS is that product upgrades are installed on the provider’s schedule not yours. Find out how often and how disruptive this might be, their notification process, fallback plan, etc.

6. What is their support policy? Find out what training is available, and also whether all of your subscribers can call the provider’s User Support desk directly or whether questions must go through a few lead contacts.  

7. SaaS provider as a business partner. Just as ASP gave way to SaaS, SaaS too will have its successor. Will your provider be around? If your provider offers both free and paid services, find out their subscriber rates for their paid service, who their key paying customers are, and their average tenure. Given recent economic trends, it wouldn’t be out of line to ask small SaaS companies to provide banking information too.

8. Pricing, Commitment and Scalability. Expect deep discounts as the number of users go up, and also insist that you are rolled into non-penalizing pricing models if you need to scale down. Subscription renewals can be monthly or annual, sometimes even longer. I have found that subscription duration is the typically the most flexible part of the arrangement.

 

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