SaaS for Core Financials, Anyone?

The software as a service (SaaS) delivery model for business applications has been sweeping all before it in recent years, and most finance pros at one time or another have come across one of these online, subscription-based systems -- perhaps a customer relationship management (CRM) tool, a payroll application, or a T&E expense management system.

But how about SaaS for your general ledger? A/P and A/R? Fixed assets?

Software as a service products for these core functions are out there, and have been for several years, but many CFOs have been leery of entrusting mission-critical finance processes and data to service providers outside the corporate firewall and a delivery system with a short track record compared with on-premise software installations. SaaS offerings haven't had much impact on the market.

That's changing, though, and fast, according to research from Saugatuck Technology, a Westport, Conn.-based advisory firm. By 2011, Saugatuck expects that SaaS solutions for core finance and accounting systems of record will have achieved early mainstream adoption, with deployment at close to 15 percent of small to medium enterprises worldwide.

While well-established SaaS offerings such as CRM, sales force automation, and collaboration tools will continue to lead the SaaS expansion, "clearly the biggest and most dramatic growth is occurring not in the front office, but in the back office," says Saugatuck founder and CEO Bill McNee. "Demand for core systems of record -- financials, procurement, HR and benefits -- is going to experience explosive growth." Adoption among large organizations will lag for a few years, but by 2014 many will have shifted to the SaaS model for their core financial systems.

What's driving the trend? For one thing, SaaS offerings are evolving rapidly, and vendors are starting to offer more sophisticated integration with both on-premise systems and other SaaS applications. And companies concerns about the reliability of SaaS may be easing. "Most of the time the software as a service vendors are providing a higher level of security, availability, and reliability than when the service and the data that supports it is being delivered in-house," says McNee. "If the SaaS provider is not up and running 24x7x365, or if they're not fully secure, they're out of business."

Contrast that, he says, with a typical in-house system, which may crash and cut off access to key financial data for hours at a time -- and IT may perceive it as no big deal.

Ivette Ruiz-Babylon weighed the accessibility issues carefully before implementing an SaaS core financials system from Intacct in 2006. She's the controller of Acceller Inc., a Web-based comparison shopping business that's experiencing rapid growth.

"When we first converted I was a little bit wary about what might happen if we decided to go to another software system, or for some reason we needed to download our data," she reports. "What I found is that all the modules have very user-friendly capabilities that let you export raw data, so that if I ever wanted to make a backup, I'd have enough data to convert to another software system without having significant glitches."

A criticism that's often leveled against SaaS products is that they tend to be slow because you're inputting data via a browser. Ruiz-Babylon hasn't found that to be the case even when she accesses the system from home via a DSL connection, though she reports that it can be a bit on the slow side when she uses it via a wireless link, for example in an airport.

Ease of maintenance is a plus, she reports. "Keeping current with new updates, new releases -- with software as a service, you basically don't worry about that. I've worked at companies where the constant upgrades were probably beyond the capabilities of the IT team, so I think we've done a better job by outsourcing that to a specialist."

One of the top goals of the implementation was to reduce paper use, Ruiz-Babylon adds. "The software has what the vendor calls 'supporting document functionality,' so we are able to scan copies of invoices and other types documents into the system. For me, being paperless was a huge benefit."

Best-of-breed SaaS vendors currently have the financials playing field pretty much to themselves. SAP is working on a SaaS offering called Business By Design, but the product's release has been delayed till next year, according to recent reports. It's only a matter of time, though, till Oracle and Microsoft pile in. In the meantime, SaaS core-system vendors will seize the opportunity to stake out their positions in a rapidly expanding market.

A summary of recent Saugatuck Technologies research on the SaaS market titled "Enterprise Ready SaaS: Blue Chip Solution in the Business Portfolio?" is available here (requires free registration).