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by Alan Joch, Contributing Editor Posted on Monday, July 30, 2007 4:43:25 PM   | Abstract: | The software subscription model promises cost savings and fewer maintenance headaches for a core application category. |
When Scott Baxter founded SA Baxter Architectural Hardware in Chester, NY, almost three years ago, he reluctantly purchased a top-of-the-line enterprise resource planning (ERP) system. Feature shortcomings weren't his concern; rather it was the up-front investment in servers and software licenses that troubled the start-up CEO. "We went kicking and screaming" when it was time to pay for the software license, Baxter says. His company manufactures custom architectural hardware, including the ornate door knobs and hinges that now adorn a new luxury hotel in Beijing. Previous jobs in high tech and finance had introduced Baxter to software subscription models that allowed companies to pay for essential programs for a set monthly fee without installing their own hardware to run the applications. But Baxter couldn't find an acceptable ERP program that adopted this software as a service (SaaS) model until a year after his company opened for business. Baxter calls the interim period a disaster. "I needed big-company functionality, and I'd find myself outgrowing [the purchased ERP program] on a weekly basis," he recalls. "So I would have to call my local developer to customize the program to my requirements, and I would get bills that were ridiculous." Baxter says he relieved his angst once he found a comprehensive ERP and manufacturing application suite called GSInnovate from Glovia Services. His IT costs have shrunk by half as he taps into the ERP features he needs to support a business that will "shortly hit tens of millions" in revenue. "As a young, high-growth business, we're the ultimate customer for SaaS," Baxter says. "It allows us to invest [in anticipation of growth] without writing the check up front. I can't understand why anybody in their right mind would buy software unless they have to." SMB Attraction A growing number of SaaS ERP vendors are scouring the market for companies like Baxter's. Small and mid-size discrete manufacturers with revenue of $15 million to $500 million have become the SaaS market sweet spot for Glovia, Plexus Systems, and NetSuite Inc. Even large, packaged ERP companies, such as Oracle Corp. and SAP AG, have announced plans to offer subscription-based software to small and mid-size businesses (SMBs). SAP, for example, is developing from scratch a new on-demand ERP system, dubbed A1S. "From an ERP standpoint, SaaS is an intuitive and attractive alternative for smaller companies," says Cindy Jutras, vice president of ERP research at Aberdeen Group. With SaaS, aka on-demand, manufacturers link into remote ERP, supply-chain management, manufacturing execution system (MES), sales force automation, and other important applications using Web browsers and Internet connections protected by the Secure Sockets Layer (SSL) Web protocol and virtual private networks (VPNs). SaaS differs from a related approach known as hosting, where a software company or third-party service provider manages hardware and software owned by the customer at a remote location. The key difference between the two choices is SaaS' "multi-tenancy" structure, in which vendors run one version of the application and divide up the costs of software, databases, servers, and storage among all of their customers. In turn, SMBs pay subscription prices that are significantly lower than for software licenses. But SaaS application prices can vary markedly. For example, NetSuite charges $479 per month, plus $99 per user per month, for access to its collection of CRM, ERP, and e-commerce applications. Thus, a manufacturer with 20 users would spend about $30,000 per year. "That's versus several full-time equivalents and all the IT investments," says Sean Rollings, senior director of product and industries marketing for NetSuite. Page : 1 2 3 4 ... NEXT |