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Chapter 10 • Global, Ethics, and Security Management 275

• Global market. A company that made software for human resource management at
boutique hotels might once have had a hard time finding enough of a market to sell its
applications. A hosted application, however, can instantly reach the entire market, making
specialization within a vertical both possible and preferable. This in turn means that SaaS
providers can often deliver products that meet their markets’ needs more closely than
traditional “shrink-wrap” vendors.
• Reliability of Web. Despite sporadic outages and slowdowns, most people are willing to
use the public Internet, the hypertext transfer protocol, and the TCP/IP stack to deliver
business functions to end users.
• Transparent security and trust. With the broad adoption of SSL and HTTPS protocols,
organizations have a way of reaching their applications without the complexity and burden
of end-user configurations or VPNs.

LIMITATIONS WITH THE SAAS MODEL SaaS is conceptually similar to the original mainframe
computing model that had a centralized control, minimal user privacy, and limited flexibility
allowed to the individual user. Much of the explosive success of the PC after its introduction in
the late 1970s and early 1980s was due to the power it gave to individual users. This empower-
ment will erode once users feel that with SaaS they lose their privacy and control. Another
mitigating factor is the need for disconnected use. Many users (e.g., traveling salespeople) with
expensive wireless connections need access to data in offline mode. Although some vendors
provide offline modes that synchronize data, solutions are not optimal and not all vendors
provide such functionality.
Although there is no large investment for software license at the onset of the project, the
ongoing costs of SaaS are categorized as monthly expenses and do not depreciate over time as would
a capital investment of perpetual software licenses. Such vendors can easily mislead customers into
thinking that with SaaS there is no cost to configure the software or customize integrations because
it’s all delivered “out of the box.” Smart ERP teams will see through this myth and realize that in
order for any ERP solution to be successful, there needs to be significant investment in resources
(and possibly third-party technology) to configure and support the solution, perform change
management, and facilitate business process redesign so that ERP efficiencies can be realized. This
cannot take place without thorough understanding of the requirements of the business, the SaaS
configuration capabilities, and the difference between the two. It is quite possible that over a three-or
five-year period, traditional ERP architecture might even be cheaper than a SaaS solution.

TYPES OF SAAS PROVIDERS There are two types of SaaS providers. The first has often been
referred to as an application service provider (ASP) where a customer purchases and brings to a
hosting company a copy of software, or the hosting company offers widely available software for
use by customers (e.g., hosting Microsoft Office and making that available across the Web to
customers who pay a fee per month for access to the software). The second type of SaaS provider
offers what is often called software on demand (SOD), where a company offers to customers’
software specifically built for one-to-many hosting. This means that one copy of the software is
installed for use by many companies who access the software from the Internet.
In the first type of provider, a licensing fee and a monthly fee are separate and are paid to
the maker of the software and to the software host like an ISP. With the second type of hosting
there is no division between licensing and hosting fees, and there is traditionally little or no
customization of software for customers. With mature SaaS providers (e.g., Salesforce.com)
on-demand solutions can be highly customized.