SaaS benefits starting to outweigh risks for some

Managers are looking more closely at hosted business applications

To internally implement that system, Blume explained, the company would have had to spend significant amounts of money to bolster firewalls, hire a chief security officer, buy new servers and backup systems, and establish off-site disaster recovery facilities.

Mark Buzby, human resource information systems director at The Pep Boys in Philadelphia, said he is "optimistic" about the auto parts supplier's plan to use a new hosted compensation system from Xactly.

"Obviously, with the economy the way it is, we're looking to cut costs just like any other retailer," he said. "[But] to be honest, there is a little caution going into this."

The company was set to start evaluating the service at 60 stores late last month to calculate the sales commissions of service desk workers. If that goes smoothly, Pep Boys will deploy the hosted software to 1,500 employees at its 500 remaining stores over a six-month period, Buzby said.

The company also hopes to use the software as a password-protected reporting tool for employees, managers and executives.

Buzby noted that Xactly has already successfully tweaked the application for Pep Boys in response to a change in its needs.

Xactly Chief Operating Officer Evan Ellis said that vendors of hosted software are under growing pressure from corporate customers to provide applications that can be easily tweaked to fit IT and business needs.

IT demands are also forcing vendors to link internal legacy software and hosted systems and to offer corporate users improved service-level agreements.

Pricing scheme and SLA policies can vary among vendors, and IT managers should take a close look at each, analysts said.

"If you're looking at years three, four and five, is there a crossover at some point?" asked Forrester analyst Liz Herbert. "Some corporations believe that in the long run, software as a service is more expensive."

And Gartner estimates that more than 60% of hosted software users today lack an SLA, despite the potential for service delivery interruptions, performance problems or changes in ownership.

Tom Lockwood, director of IS and logistics at Seattle-based Car Toys, said an outage at PivotLink, the company's provider of hosted business intelligence software, convinced him of the value of a strong SLA.

Lockwood said the outage came when PivotLink opted to move Car Toys' data to new hardware late on a Saturday night without advance warning. PivotLink thought that installing new hardware on the last day of the month would cause little disruption, he said.

But it did disrupt the creation of Car Toys' monthly reports. "That happened once, and never again," Lockwood said.

After the incident, the two firms signed an SLA that requires PivotLink to notify the maker of entertainment, security and other automotive devices about any planned upgrades, maintenance or outages.

Since then, Car Toys has become a believer in SaaS, Lockwood said, and it is now evaluating a hosted payroll application from Automatic Data Processing Inc.

Gartner predicts that corporate adoption of hosted software will grow by 22.1 percent annually through 2011, more than double the projected growth rate for packaged applications.

But IT managers using hosted business applications warned that potential adopters should proceed carefully when selecting a vendor and conduct background checks, contact references and perform due-diligence assessments of service-delivery track records.

"When you get past that honeymoon period," Lockwood noted, "things can sour in a hurry if you don't have the right people and the right relationship in place."

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