EthicsPoint, a software provider in the governance and risk management
(GRM) space, has been an ASP provider for years, helping companies
manage whisteblower hotlines with report resolution tools. With time
and advances, and with additional pieces of architecture and structure,
as well as a core system and different application protocols that
support SaaS, delivery and functionality are far easier, says CEO David
Childers. “You have more tools and process consistency,” he says.

Industry analysts say that the mystique of on-demand technology like
SaaS is quickly disappearing. A recent IDC study projects worldwide
spending on SaaS to jump at a 21 percent annual growth rate over the
next three years, reaching $10.7 billion in 2009.

Even in its early stages, SaaS has quickly become a viable alternative
for companies looking for comprehensive solutions in areas like
compliance, governance and supply chain management. Beth Enslow of
Aberdeen Group noted in a March 2006 research report that about half of
participants in an Aberdeen survey say they now use or are considering
using on-demand applications to manage select portions of their supply
chains.

“Current on-demand SCM [supply chain management] users report
overwhelming benefits from the on-demand model, especially in
implementation speed, maintenance ease and return on investment [ROI],”
Enslow wrote. “Moreover, nearly half say customer service is better
from their on-demand vendors than from their traditional supply chain
vendors, an outcome of the fact that on-demand vendors are on the hook
every day to make sure their applications are operating well for their
clients.”

ROI has indeed been a huge selling point for SaaS, especially in tight
spending environments. Randy Littleson, vice president of marketing at
Kinaxis, says the company had traditionally sold its software through
perpetual license arrangements, with periodic upgrades. “We have seen
that produces good results, but we found a common scenario in which,
despite the fact that businesses were doing better, that was not
translating into capital expenditure.” One related problem, he adds, is
that “I.T. budgets tend to be spoken for,” and it’s often difficult to
find dollars for new applications.

“We’re working with auditors, the AICPA and ethics officers, and we can
take best practices and incorporate them into our model,” he adds. “We
can put it in their own vocabulary. The adoption rate is high, which
creates a faster ROI story… People are looking for ways to improve
process and data consistency though a product set that is intuitive and
scalable, and has an ROI story around it. SaaS is one of best ways to
deliver that.”

Transplace manages $3 billion a year in spending for customers. It does
so by providing the tools for customers to optimize the inventory into
shipments, determining the best modes of transport (truck, rail,
overnight, etc.) and choosing the carriers. The company counts major
corporations like Office Depot and U.S. Gypsum among its clients.

Transplace, which was spawned by a Web-based collaborative set up by a
number of carriers in 2000, can work with a host of different systems
to take orders, says Cashman. That’s important, because it obviates the
need to buy a specific solution. “If you buy an off-the-shelf software
package, you can imagine — there are lots of consulting dollars
involved, and a lot of time to market,” he adds.

Unlike software patches, upgrades and new functionality can be tapped
quickly by customers using SaaS. Roger Bottum, vice president of
marketing at Axentis, another GRM application provider, says when it
introduced new functionality earlier this year, 80 percent of its
clients were using it within 30 days of its release.

Many SaaS suppliers have set up regular annual or even monthly fee
structures. Axentis has annual structure, centered on three-year
agreements, that is also tied to the number of users at the client
company. Procuri Inc., a supply chain management provider, typically
has three-year commitments and an annual fee, but payment can be
flexible within that, says senior vice president Tim Minahan. SaaS
“aligns the providers’ goals with those of the customer,” Minahan says.
“With the traditional software model, it’s all about getting the deal
signed.”

Avalara, a sales tax management provider based in Bainbridge
Island, Wash., has set up a monthly subscription fee program that has
several variables, including transaction volume. The base fees aren’t
predicated on company’s size, but on the tax software it uses — Great
Plains, Sage, QuickBooks, etc.

One selling point noted by a number of SaaS vendors is the ability to
offer companies a quicker response to industry shifts. Like other
Kinaxis customers, among them Honeywell International Inc., Raytheon
Co. and Casio Computer Co. Ltd., Lucent found the challenge of adapting
to sudden marketplace changes and product shifts daunting, says
Kinaxis’ Littleson.

“Companies say that it’s extremely difficult to deal with pervasive
change in business. Product life cycles are extremely short,” he notes.
“The challenge is obsolete inventory — it’s hard to manage
financially. We try to help these folks deal with change, to respond
quickly and accurately [to the marketplace.]”

Not surprisingly, success brings competition, and not just from other
specialists. Software giants like Oracle Corp., SAP AG and Microsoft
Co\rp. “are all moving [toward SaaS],” says Littleson. But he and
others insist that threat isn’t imminent.

While the software behemoths “have the potential to encroach” on the
existing market, “we also know that the solutions they would push are
architected to solve different problems,” he says. “Those problems
aren’t easy to solve. They would have to start with new architecture,
and that’s probably a couple of years’ proposition.”

Minahan at Procuri agrees that while a giant provider like SAP could
re-architect its systems, “it may take some time. The challenge for
them may be more that they don’t understand that SaaS is a business
philosophy, and it’s about how you deliver services,” rather than about
systems integration.

Whatever does happen in the greater SaaS market in the near term,
expect to hear a lot more about it in software product marketing. “Two
years ago, [Axentis] didn’t stress SaaS in our marketing,” says Bottum.
“That’s a function of the maturity of the concept in the marketplace.
Now, it’s front and center.”