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BUSINESS SOFTWARE

Software-as-a-Service Vs. Managed Services

What's the difference between SaaS and the managed service concept? And how can you decide which is best for your business?
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With all the technological terms so lightly bandied about today, determining the best way to deliver software to your small mid-sized business -- whether via the managed service or the software-as-a-service model (SaaS) -- can be confusing.

Here are the pros and cons of both models and some tips on which model works best for your business' particular needs.

In a nutshell, a SaaS vendor hosts, maintains, and upgrades its software on its own servers and your employees access it via the Internet. Managed services are a more comprehensive outsourcing of information technology business functions, such as security and networking, says Robert Mahowald, director for SaaS research at IT research firm IDC. Examples include the customer relationship management application Salesforce.com from the company of the same name, as well as many payroll software packages.

SaaS vs. managed services

Because SaaS applications aren't sold as software packages for download or purchase, users don't buy licenses or upgrades. Instead, they pay a flat, usually monthly, subscription fee. The software resides on the host server from which all users -- no matter their organization -- access it. Vendors rely upon economies of scale here, spreading the cost to run and host the application across many users. This makes for costs lower than with other sales models, Mahowald says.

Though SaaS applications can be configured in minor ways -- companies can often make changes to how the application presents on the desktop -- the code itself can't be customized expressly to an organization, he adds.

Businesses that partner with managed service providers (MSP), on the other hand, purchase a software license for each application they ask the MSP to run. They essentially hire the provider to run the software and to run maintenance and install upgrades and, depending on the model, to host the application, says Charles Weaver, president of the MSPAlliance, a professional organization for MSPs.

Consider the costs

Though the cost for a SaaS application is often much less than for a managed service application, users pay for for up-close attention, maintenance and support, seamless upgrades, and customization that MSPs can offer, he adds.

When weighing one model against the other, first consider how integral the software you're purchasing is to your organization, says Robert Bois, research director at AMR Research, which conducts IT research.

'Most companies outsource payroll using SaaS because it's not a differentiator or a competitive advantage for their company,' Bois says.

Some applications may be vital to the organization but may not need much differentiation from those used by competitors and a SaaS is fine here too, he adds. The customer relationship management (CRM) application Salesforce.com is one example.

For areas of the business that need customized software or software that must be tightly integrated with other areas, consider the hands-on help an MSP can offer, Bois says.

'There's a kind of continuum in making these decisions,' he says. 'In virtually every part of the organization you have to ask: do we really want to own all of the software?'

Last updated: Sep 1, 2008




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