SOFTWARE AS A SERVICE: WHY, WHEN, AND HOW? Julie Smith David and Michael Lee: December 8, 2009

Overview History of the project Today’s objectives – Software as a Service What’s happened in the past Why SaaS is emerging How it might be integrated – Research help Survey evaluation

EMERGENCE OF APPLICATIONS IN THE CLOUDS: SAAS, ON DEMAND…

Software & Hardware Driver: Economies of Scale 70’s: Time sharing Co 1 Co 4 Co 3 Co 2 Co 1 Software & Hardware

Economies of Scale 70’s: Time sharing Co 1 Co 4 Co 3 Co 2 Co 1 80’s-90’s: Application Service Providers (ASP) Software & Hardware

Economies of Scale 70’s: Time sharing Co 1 Co 4 Co 3 Co 2 Co 1 80’s-90’s: Application Service Providers (ASP) 00’s: Software as a Service (SaaS)/On Demand

As a result… SaaS is a Disruptive Technology Source: Mann and David, For more, see: Harrigan, K. R Formulating Vertical Integration Strategies The Academy of Management Review 9 (4):15. Rothaermel, F. T., M. A. Hitt, and L. A. Jobe Balancing vertical integration and strategic outsourcing: Effects on product portfolio, product success, and firm performance. Strategic Management Journal 27: * ODSA: On-Demand Software Aggregator, an earlier term for PaaS.

SaaS Characteristics Technical – Browser based: Reduced upgrade issues Lower cost hardware – Hardware acquisition, operations, maintenance – Multi-tenant – Agile development: 2 week sprints Strategic – Low initial acquisition costs – Quick Implementations – Predictable pricing – Reduced support staff needed

Diversity in the Market: Examples The “Visible” Leaders Consolidation Switch to Service “Unknown”… but large adoptions Traditional SW Suppliers Diverse Functionality

Source: Spinola, M Why Large Public and Private Sector Organizations (not just SMB's) Are Seriously Considering Cloud Computing? (October 5)

The Risks of SaaS Data control Supplier viability 1 Regulatory risks 2 – Examples: Sarbanes-Oxley (SOX), Gramm-Leach- Bliley (GLBA) and HIPAA, and industry standards like the Payment Card Industry Data Security Standard (PCI DSS) – SAS 70 audits – Type I and Type II Reliability 1.Bell, M.Z The Risks of SaaS. Feb 2. saas-software-as-service.htmlhttp://blog.riskythinking.com/2009/02/risks-of- saas-software-as-service.html 2.Finch, A The Rise of SaaS and your Regulatory Risks. January Significant Contract implications 2

Privacy Considerations: Example

Who will adopt SaaS? Factors influencing the decision SaaS Adoption Strategic importance of the application Security concerns with data Compliance issues with data Diffusion of current applications Infusion of current applications

TRADITIONAL SOFTWARE: MARKET MATURITY, STRATEGIC DECISIONS AND EAI AND HOW WILL WE INTEGRATE SAAS INTO OUR EXISTING APPLICATOINS?

Single sourceBest of breed SaaS PaaS IaaS Integration Options Legacy Cloud Computing Market Segment Maturity Technology Platform In house Integration Model We’ll Explore : No integration3: IaaS 1: Single Sign On4: PaaS 2: In-house, API/WS

A long time ago… when information systems were beginning Financing Buy Fixed AssetsBuy Inventory Hire EmployeesManufacture Goods Sell Goods Accounting & Fin Strong framework with Dr/Cr approach Simple adding & subtracting The language of business Everyone submitted summary data to be entered

A long time ago… when information systems were beginning Financing Buy Fixed AssetsBuy Inventory Hire EmployeesManufacture Goods Sell Goods Accounting & Fin Most departments started using IT Systems developed independently And installed independently Summaries still sent to accounting PROBLEMS? HR Manufacturing/ Warehouse Systems Sales

Market Maturity: ERP - An Integrated Solution

Strategic decisions 1.Centralized vs decentralized decision 2.Standardized vs variable implementations 3.Customize vs configure for process execution 4.Flexible vs stable 5.Single source vs best-of-breed Implications for Integration?

Decision Complexity Centralized / Decent. Std/ Variable Customize/ Configure Flexible/ Stable Single Source/ B of B Integration approach 1CSConfStable Single Source 2CVConfFlexibleB of BHigh EAI 3DSConfStableFedLow EAI 4CSCustFlexMin B of B Point-2- Point ………………

Single sourceBest of breed Legacy Cloud Computing Market Segment Maturity Technology Platform In house Integration Progress:

Single sourceBest of breed SaaS Legacy Cloud Computing Market Segment Maturity Technology Platform In house Integration More Progress!

INTEGRATION IMPLICATIONS Julie Smith David, Michael Lee, and Arti Mann, October 6, 2009

Integration Issues Still important… but different: Best of breed vs Single source: SaaS vs “PaaS” Standardization across your organization Customize vs configure for process execution And now… Variation of locations of technology – Data – Applications – Hardware… Variation in control of applications Upgrade cycle – huge increase in releases Security: behind or out front of the firewall?

Integration Options: Legacy System Legacy System SaaS Application No real integration – different menu options on the user’s screen 0 0

Integration Options Legacy System Legacy System SaaS Application Single Sign On (SSO): Log in and some controlled data duplication (and may lead to additional security issues!) User requests an application 2. Application requests authentication 4. Requests log in 5. Log in sent 6. Authentication and data sent 7. Application confirms authorized access and is launched sso 3. Authentication req

Integration Platform, Internal Dev Integration Options Legacy System Legacy System SaaS Application In house integration, using API’s and/or web services Start an application 2. Make a call (often API) 2. Make a call (less often API) 3. Return (data, screen, functionality) 4. Integrate and display Source: NetWeaver

IaaS Integration Options Legacy System Legacy System SaaS Application Integration as a Service (IaaS) User requests an application 2. IaaS requests data, functionality 3. Return sent 2. Requests data, functionality 4. Integrate and return SaaS Application 2. IaaS requests data, functionality 3. Return sent

Integration as a Service example: CastIron

Case Study Implementation: The Schumacher Group implements Cast Iron Source: Woods, D. and C. Prattabhiram

PaaS Capabilities Integration Options Legacy System Legacy System SaaS Application Using PaaS capabilities Start an application 2. Make a call 3. Return (data, screen, functionality) 4. Integrate and send to user

CRM Vendor No – On Demand Platform

AppExchange

PaaS: Electronic Market Places PaaS Platform Developed Apps Developer 2 Developer 1 Developer x Native Dev, By PaaS

Platform as a Service Example, cont.: Force.com Source: September 13, 2009http://

And for more robust integration Source:

Single sourceBest of breed SaaS PaaS IaaS Integration Options Legacy Cloud Computing Market Segment Maturity Technology Platform In house Integration Model We’ll Explore : No integration3: IaaS 1: Single Sign On4: PaaS 2: In-house, API/WS

Additional SaaS Market Maturity Insights: Consolidation SaaS acquiring IaaS Movement toward Single Source (vs Best of Breed) acquires,

STRATEGIC DECISIONS

Who will adopt SaaS? Factors influencing the decision Integration approach Percentage of applications in the cloud (versus behind the firewall) (Biske, 2008) Infusion/diffusion of integration capabilities Complexity of authorized access rules Reporting needs and complexity of business environment Adoption of PaaS vs SaaS Best of breed vs single source SaaS Adoption Strategic importance of the application Security concerns with data Compliance issues with data Diffusion of current applications Infusion of current applications

DevelopersPaaSCustomers Coordination Cost Native Applications Reduced search cost for customers Reduced contracting costs Increased delivery costs (integration costs) Reduced search cost for software providers Reduced costs for collecting info. about products Reduced contracting costs Reduced monitoring costs (only Salesforce) Composite Applications Reduced search cost for customers Reduced contracting costs Increased monitoring costs (Certification costs, random checks) Increased delivery costs (integration costs, packaged application maintenance etc.) Reduced search cost for software providers Reduced costs for collecting info. about products Reduced contract costs Reduced monitoring costs (only Salesforce) Who will adopt PaaS? Cost Structure Source: David, J.S. and A. Mann (2007).

DevelopersPaaSCustomers Native Framework Composite Framework Native Framework Composite Framework Native Framework Composite Framework Production cost for Development LowHigh MediumNA Production cost for Operations MediumHigh Low Coordination Costs Low MediumHighLow Operation Risks LowMediumLowHighLowMedium Opportunism Risks HighMediumLowHighMediumHigh PaaS: Hypothesized Cost Pattern Source: David, J.S. and A. Mann (2007).

Single sourceBest of breed SaaS PaaS IaaS Integration Options Legacy Cloud Computing Market Segment Maturity Technology Platform In house Integration Resulting Model : No integration3: IaaS 1: Single Sign On4: PaaS 2: In-house, API/WS

Factors Driving Integration Efforts In House Criticality of best of breed applications Infusion/diffusion of in house integration platform Infusion/diffusion of in house integration expertise Legacy applications > Cloud applications IaaS IaaS market share Inexperienced in-house staff Cloud applications > Legacy COTS Applications > Custom Open standards PaaS PaaS market share Number of applications available Inexperienced in-house staff Cloud applications > Legacy COTS Applications > Custom Acceptance of THEIR standards Source: Castner & Ferguson, 2000.

SO, WHAT DO WE DO?

Survey Others Could you review the survey for us? – Do the questions make sense? – Would you be able to answer them? – Would you be WILLING to answer them? – Are we missing anything you’d like to know?

Sources Anonymous Wal-Mart Marketplace represents new SaaS market: process-as-a-service. Biske, T Integration as a Service (Feb 12) as a Servicehttp:// Castner, G. and C. Ferguson, The effect of transaction costs on the decision to replace ‘off-the-shelf’ software: the role of software diffusion and infusion. Info Systems J (2000) 10, 65–83. David, J. S. and A. Mann The Emergence of On-Demand Software Aggregators: Implications for Developers, Customers, and Software Companies. Proceedings of the Thirteenth Americas Conference on Information Systems, Keystone, CO, USA August 9th-12 th, Evans, B Global CIO: Salesforce surge pushes SaaS into mainstream. (August 27). InformationWeek. G Integration issues may hinder SaaS Adoption. CIO Update. (August 17): Hayes Weier, M Critical Link: SaaS Integration: Real-World Problems, And How CIOs Are Solving Them. October Hayes Weier, M Workday lands software industry’s biggest SaaS deal. InformationWeek. Mann, A. and J. S. David. On-Demand Software Aggregators (ODSA): The Next Wave for the Software Market? Proc. Enterprise Systems mini-track, (ICIS), Montreal, Canada. Woods, D. and C. Prattabhiram Integration: The Critical Path to Cloud Computing. (June). Cast Iron Computing white paper. Photos are by kevin dooley and used under the creative commons license. They are available at