Are you being served?

At first glance, there's nothing out of the ordinary about the IT system in use at Stokes Forgings. On the factory floor, orders progress through the production process, tracked by touchscreen-equipped PCs. In the production control office, and in the development office where new forging projects start their life, employees sit at typical office PCs. But take a closer look at the Walsall, West Midlands-based automotive forgings manufacturer, and you'll see something a little more surprising: the software that all those PCs are running is Microsoft's ubiquitous web browser Internet Explorer. And the applications that Stokes' employees are using aren't applications running conventionally on a server located at Stokes, but are instead applications residing thousands of miles over the Atlantic on a server in a data centre in Auburn Hills, Michigan - which is where all of Stokes' data resides, too. In short, the applications that make up Stokes' ERP system aren't `applications' in the usual sense at all, but are more properly regarded as `services' accessed over the internet through a web browser, in much the same way that one might use Hotmail, YouTube or Google. Welcome to the world of `software as a service' (SaaS). Stokes was indisputably something of a SaaS pioneer when it first began using its Plex Systems (formerly Plexus Systems) Plex Online ERP system back in 2003. But since then, SaaS has moved much closer to mainstream manufacturing industry. In some form or other, manufacturers as diverse as Tetra Pak, Hewlett-Packard, Dell Computer Corporation and Innocent Drinks all use SaaS - a roll-call that seems set to expand much further as the credit crunch and economic downturn bites. The reason isn't difficult to spot. While SaaS isn't without its attractions from a technology perspective - more of which below - there's no doubt that its most compelling attractions are financial. As Stokes' IT network administrator Ned Ramsay puts it: "The hardware outlay is virtually nil - you could almost get old PCs from a charity. As long as they'll run Internet Explorer 6 or higher, they're fit for purpose." Attractive model But it isn't just the cost of the PCs themselves that is prompting manufacturers to take a long hard look at SaaS. On almost every metric, a SaaS-based solution has financial attractions when compared to the traditional `on-premise' client-server model that is normally found in ERP and manufacturing applications, where processing takes place at two levels - the desktop `client' and the company's data centre server. Most obviously, of course, there isn't a need for a server, together with the back-up server, air-conditioning, and the attendant skilled IT staff that servers and data centres require. For in contrast to the IT investment called for by on-premise software, the SaaS model simply requires users to pay a fixed monthly fee for each user accessing the software - and it then becomes the concern of the SaaS provider to worry about servers, back-ups, and the associated IT plumbing. Stokes Forgings' back-up data, for instance, is located at a duplicate site several states away in Asheville, North Carolina - to which communications would instantly switch if the Michigan data centre went offline. And if SaaS offers some tempting savings on hardware costs, the savings available on the licensing and software side of things is just as attractive. Take Halesowen, West Midlands-based DPS International, which offers its vehicle route-planning and scheduling software in both SaaS and on-premise forms. Kidderminster-based carpet manufacturer Brintons and Leicester-based bed manufacturer Vogue, for instance, both make use of the SaaS version, explains DPI managing director Paul Palmer. "The on-premise version of our software costs around œ20,000 for a typical installation," says Palmer. "Go to your finance director for that, and he might not like it. Go to him for the equivalent SaaS version, at a cost of œ400 per month per user, and it's a different proposition." SaaS versions, he adds, now form 60% of sales - up from virtually nothing two years ago. US-developed recruitment application Taleo, another SaaS offering, is now in use by 20% of the Fortune 500, as well as 3,000 smaller companies, adds Chris Phillips, the company's international vice president of marketing. "We're only available on a SaaS basis: we don't do traditional licensed software." OnPrompt, an Abingdon, Oxford-based supply chain transaction translation service, is also SaaS-only. "We could sell our software - but we're not going to," says OnPrompt president Brian Bolam. "It's not part of the strategic plan." A similar story comes from Feltham-based Deltion, another transport-related supply chain application. Like Taleo, Deltion's flagship offering CarrierNetOnline is only available in a SaaS form, stresses the company's chief executive Piyush Shah. "It was a risk, but going the SaaS route was part of our strategy from the beginning," he says. "We haven't achieved quite the traction we would had achieved if we were on-premise, but the tide is definitely turning: the number of companies seeing the logic of SaaS is increasing." Analysts concur. In a report released at the beginning of December, for instance, analysts Gartner Group found that nearly 90% of organisations either using SaaS or actively considering using it expected to maintain or grow their use of software sourced as a service, rather than on-premise. Boston, Massachusetts-based Akamai, a web-hosting and internet communications company, has seen a tenfold growth in the SaaS traffic it handles over the past two years, notes Neil Cohen, the company's director of product marketing. Easy upgrades While the financial merits of SaaS are important, technical considerations play a part in this vote of confidence, too. On-site software upgrades are eliminated, for instance: the roll-out of new software takes place on the host server, not the client computer or corporate server. Accordingly, users benefit the moment the latest version is released - and not when their internal IT administrator gets around to installing it. Lengthy pre-acquisition software evaluations can become a thing of the past, too. There's nothing to stop a company trying a SaaS application for a few months, for example, to see if it suits their needs - and then stopping if it doesn't. While users might have been slow to see this side of SaaS initially, it's very much part of the sales pitch now. "The use of SaaS has been evolving during the past decade, and the SaaS model has become increasingly popular over the past three or four years," observes Gartner analyst Sharon Mertz. That said, it's clear that where SaaS is proving most popular is in software categories outside the core transaction and financial accounting backbone of a business. In other words, Stokes Forgings, running what is very close to a full ERP suite on a SaaS basis, remains the exception and not the rule. So while Silicon Valley's SaaS-based ERP offering NetSuite managed a highly successful flotation in early 2008, its user base is dwarfed by that of neighbouring Salesforce.com - which, with almost a million users, ranks as arguably the most popular SaaS offering aimed at commercial use. (Google Apps, and Zoho - both of which provide SaaS-based office tools such as spreadsheet and word-processing - are two other popular SaaS offerings aimed at businesses.) In part, too, SaaS' growing popularity reflects not just its cost, but how it is paid for, adds Denis O'Sullivan, chair of the supply chain technology integration forum at the Chartered Institute of Logistics and Transport. "SaaS expenditure comes out of operational budgets, and not the IT or capital budget," he notes. As a result, he explains, manufacturers can be more creative - trying a SaaS solution to tackle niche problems such as vehicle scheduling, for example, knowing that the software in effect is paying for itself from the start. Valued service Smoothie manufacturer Innocent Drinks is a typical example of this approach, deploying a SaaS instance of Value-Added-Network EDI application Inovisworks from Guildford-based Inovis in 2007 to support its expansion into Europe. Both the timescales involved and the cost were attractive, explains Ben Tuppen, the company's UK logistics manager. And for a small company like Innocent - which numbered only 270 employees Europe-wide at the time, despite having 75% of the UK market - the saving in management `bandwidth' can be just as important. Thanks to its `suck it and see' flexibility, "SaaS allows companies like Innocent to concentrate on growing the business, and not growing the IT department," says Paul Tatum, Inovis' sales and marketing director. That said, SaaS isn't without its drawbacks, and risks. Take regulatory compliance: as William Beer, an information security specialist and a director in the assurance practice of advisory firm PricewaterhouseCoopers points out, SaaS applications can fall foul of rules relating to data storage. "If you're a manufacturer working for British government organisations, for example, then sending data outside the UK's borders is prohibited," he notes. "It's a problem, because several SaaS vendors have data centres in the US and the EU, but not the UK." Reliability is another concern, and the dangers of having critical business applications running remotely - perhaps thousands of miles away - were starkly illustrated last month when Salesforce.com suffered a 40-minute outage on 6 January, which took out both its primary and secondary server capacity. And while such outages are fairly infrequent, slow communication speeds have been a much more common complaint. That said, manufacturers who dismissed SaaS as too slow three or four years ago are likely to be surprised today. "Network resilience and bandwidth have improved dramatically over the past five years," says Steven Hargreaves, product director at midmarket vendor Solarsoft, which offers its ERP platform in both on-premise and SaaS modes. Stokes Forgings, what's more, benefits from a SaaS application developed from the ground up in the knowledge that it will be deployed over the internet. "Plex is written for the internet, in HTML, which is much more friendly to bandwidth," says Plex Systems' chief executive, Mark Symonds. "Plus, we further tune it with accelerators. Some of our competitors are doing little more than taking their existing client-server applications and posting them on the internet - which is much more bandwidth hungry." Enter the enterprise application industry's 800-pound gorilla: SAP. Deliberately eschewing such a strategy, SAP's latest offering - Business by Design - is aimed at small and medium-sized manufacturers wanting an ERP suite available on a SaaS basis. Intended for customers a little larger than its present Business One offering (15-200 users, as opposed to 10-100), Business by Design represents SAP's vote of faith in the SaaS concept, says Schalk Viljoen, SAP's head of SME business development. "We recognised that the traditional method of buying and consuming software is one that suits a lot of customers, but not all of them," he notes. "We could either sit on the sidelines and watch SaaS happen, or get involved - and we chose to get involved." Undeniably, SAP's involvement changes the game. Alongside that of Microsoft, which offers Dynamics applications via SaaS, it's an endorsement that looks set to further fuel the interest in SaaS. and to fuel it, what's more, for mainstream use, not merely peripheral non-critical applications. SaaS is here and it's not going away.