Service economics

When prospective customers hear the pitch from Servicenow. com, an on-demand IT service management software provider, UK MD Kevin Kimber describes the most common reaction as “What’s the catch?”

That attitude reflects the way in which most corporations have to date regarded the software-as-aservice (SaaS) delivery model. The claim made by SaaS providers that remotely hosted services can remove IT maintenance costs without constraining functionality is, to some ears, too good to be true.

But the number of organisations – both large and small – that are proving the veracity of such claims is growing. “We are finding increasing acceptance of remote hosting among FTSE 500 businesses,” says Kimber. “More enterprise customers approach us because they have a company-wide SaaS policy,” he adds.

Having started by selling its service to smaller organisations, customers now include BT, UBS and Citigroup. Businesses such as these are beginning to realise that the economic benefits of SaaS are too good to ignore, Kimber says.

One enterprise customer, which employs more than 10,000 IT staff to support over 120,000 end-users, rolled out’s solution in March 2007. Its motivation was simple, says Kimber: a 71% reduction in the total cost of ownership, compared with the customer’s existing service management software tools.

But the growing attraction is not just a matter of cost reduction, he insists. For example, Juniper Networks, another customer, started an overhaul of its service management using a traditional software supplier. The company was nine months and millions of dollars into the project when it realised that its 12-month completion target was slipping further and further out of sight.

Running out of time, Juniper went in search of alternatives, and selected Specifications for the on-demand solution were complete within eight weeks, Kimber claims.

Simple service

The explanation for this speed of development and deployment, Kimber believes, lies in its simplicity. “We believe that many enterprise technologies are too complex to use and customise,” he says. With SaaS, the burden of complexity resides with the vendor.

That simplicity reduces both the time to deployment and the upfront capital cost that traditional software requires, and can also prove to be more effective.

One corporate customer, for example, used the two market-leading IT service management products for five years but, in all that time, had yet to develop its service management capability beyond the initial goals of the project. This was because the company’s more sophisticated goals, such as change management, had simply proven too difficult. Once Service-now’s system was deployed, the project’s secondary goals were achieved within 90 days.

But as well as improving the value proposition of software itself, SaaS is greatly empowering customers, Kimber points out, in areas where traditionally they have been at the mercy of software suppliers.

For one thing, they can try the software before they buy, which is, he explains, the only honest way of selling software functionality. “If you send a request for proposal (RFP) document to a software vendor, they will say ‘yes’ to everything in order to make the sale,” says Kimber.

“We can reference all of our existing customers to potential clients,” he adds, “and we know that they are satisfied [with the service] because they are still using it.”

All of these factors have conspired in the past few years to change the attitude among enterprise IT departments towards SaaS. Where once they asked “Why should we?”, the pertinent question today, he says, is “Why on earth wouldn’t we?”.

Pete Swabey

Pete Swabey

Pete was Editor of Information Age and head of technology research for Vitesse Media plc from 2005 to 2013, before moving on to be Senior Editor and then Editorial Director at The Economist Intelligence...

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