Are you torn by the decision between a local application like Channergy for your channel and order management versus one of the new Software as a Service (SaaS) applications? There are advantages and disadvantages to each. This article will give you plenty to think about and hopefully enough to make the right decision for your company.
CLOUD APPLICATIONS (SaaS)
Could applications are becoming more popular and more numerous. Rather than purchasing outright, you pay a monthly or annual fee to use these apps. They are less complex than local apps but offer less features.
- Less expensive entry cost
- Accessible on any platform via a browser
- Simpler and easier to set up and use
- Updates are automatic
- Long term costs are eventually higher
- Dependent on an Internet connection
- Less features and extensibility, no customization (unless you hack, use a plug in or “mashups”)
- Updates are automatic
- Latency (speed) and Security issues
- Data is not local, but can generally be downloaded
One of the main attractions of SaaS applications is their low entry cost. Your monthly fee gets you started right away with all the features and, usually, minimal setup. You can access it from anywhere using a browser which adds the benefit of being agnostic (use it on a PC or Mac for example).
If you are just starting your business or taking an existing retail business online a SaaS may be a good way to begin. In some cases it can offer long term benefits as well. The real measure of its worth to your business is the complexity of your needs. SaaS applications are not generally customizable and automatic updates may change features you are using or need. If your business fits the model for the particular SaaS you are using then all should be well.
Issues may arise though when you want to do something not supported by your SaaS application. You then have a couple of choices: 1) Use a separate application or manually manage unsupported features. 2) Extend your SaaS application through custom programming or mashups (combinations of multiple applications).
The first option can be managed by almost anyone, but usually results in less than ideal processes like double entry, data silos (e.g., one system stores data differently than another so they cannot “talk”), more labor and a greater likelihood of errors.
The second option can result in better operations but requires technical expertise. Some SaaS applications offer an API (application programming interface) that allows you to build your own extensions or implement third party plug-ins. These can be used to extend the functionality of the SaaS but may not be an exact fit for your needs and must be maintained, an especially difficult task because SaaS applications usually update automatically.
Mashups are combinations of multiple SaaS products, for example a SaaS that supports Google Docs, an email client, customer service system etc. Combinations of several SaaS apps can approach the functionality of local apps but may also be like a house of cards. There is a lot to manage between multiple applications that have different data structures (silos) and can all update automatically and independently.
Because your data is stored in the cloud you do not have the same level of control as you do with a local application. Most SaaS products will allow you to download your data, but interacting with it is more problematic (i.e., real time reading and updating of data between programs). Security may also be a concern. Your customer and order data for example is stored by your provider. Who is responsible if that data is hacked? (Answer: you are). And then there are latency (speed) issues caused by poor Internet connections, growing database size (not just yours, but the whole community a.k.a. multi-tenancy) and your daily/hourly volume. An advantage of having your data in the cloud is that most SaaS apps have redundant backups, however you should always have a backup of your data stored locally and in offsite media like usb drives, tapes etc.
In summary, SaaS applications can be an easy and initially inexpensive way to automate your operations. If you are technically inclined or have internal support you can extend functionality of your SaaS applications. For simpler, especially single use, SaaS apps can provide a long term solution. As your needs become more complex expect to find yourself managing multiple applications, performing manual tasks or migrating away from some of your SaaS applications. Beware of speed and security issues and watch for long term costs since subscription prices continue for the life of the service and many SaaS apps charge a percentage of your revenue which can become very expensive as you grow.
- Pay once and use forever (or until you choose to or must upgrade)
- Accessible on your local network, or via a remote session/virtual server
- More features and customizability
- Manual updates
- Initial cost is higher
- Full or part time system administration may be required
- More complex to set up
- Manual updates
When you purchase a local application you are really leasing it, albeit indefinitely. This means your main cost is incurred up front and long term costs are generally lower than SaaS applications. The return on investment compared to a SaaS may be months or years, depending on the complexity of each.
The two benefits of a local application are its feature set/customizability and local storage of your data. Unlike a SaaS which has a limited feature set and minimal customizability local apps are usually highly customizable. This is good news for large shops and those with special needs or that want to automate as much as possible. The caveat is that the initial set up is more complex and getting started takes longer and may require a cash outlay. Ultimately however a local app can offer much more functionality and once set up generally does not require additional work for many years.
One of the misconceptions to overcome is that local apps are custom apps. If you purchase an existing local app and modify it you can achieve greater automation and suitability for your operation, but it will likely not be an exact match to your dream system. The only way to achieve a perfect match is to design your own system from scratch – a very costly proposition and one that will never truly end. This is recommended only for the largest of shops with deep pockets and plenty of time. The lesson here is compromise. You can achieve much more than today’s SaaS apps can provide, but do not expect a perfect match to your unique needs.
Storing your data locally means you have full control of your information (unless the software provider stores it in a proprietary format) and security is under your control. You can still be hacked but unless you are highly visible or very careless the likelihood is less than a multi-tenancy SaaS application where multiple users store their sensitive data in a single location and create a tempting target. Having your data stored locally also means you can access it directly from other applications including report writers and third party packages. It is far easier for example to support another local application you are using (like a Point of Sale system for your retail operations) than a SaaS application. Real time updating and sharing of data means more functionality/customizability and again, more upfront costs but with long term benefits.
Local apps may set up as easily as running a set up utility or may require hours or even weeks of implementation. The more complex the app, the greater the set up required. However, this is the trade off required to automate more tasks. SaaS products cannot currently provide the same level of automation and integration.
Local apps may also require on staff technical support/system administration or support from your vendor. Once installed and set up they generally run for months or even years without need for modification, but updates and version upgrades may require assistance or in house support. The advantage is that you can choose when to update which can mean staying operational until you are ready.
In summary, a local application is currently the better solution for complex tasks, security and full system integrations. Be prepared to outlay up front and spend days or weeks implementing with the benefit of a more custom solution that is “owned” and controlled by you rather than your provider.
The future for SaaS and local apps is an unknown, but the increasing complexity of SaaS apps is likely and for the next several years the two will migrate towards each other. This could mean we will see a day when all apps are SaaS, but it is more likely that SaaS apps and local apps will coexist. Local apps will remain for a very long time but will more and more cater to large, enterprise solutions.
The other possibility is a hybrid solution where SaaS applications become more accessible to local apps, breaking down the data silo barriers that prevent true integration. A combination of the two could merge the benefits of each.
What does this mean for you? Look at your operations. Would they benefit from the full automation of a local app or are you willing to continue manual operations of some functions to save the initial cash outlay. Think beyond today. A monthly fee may look good this year, but do you plan to stay in business and grow? SaaS apps are ultimately more expensive in both dollars and lost automation. Migrating from them to a local app later may be an option but the longer you wait the more you have pumped into a SaaS you must leave behind and greater effort is required to convert your data to a local app.
Does the SaaS you are considering provide all the features you need today? If it is an order management system can you email your clients, run reports, segment your lists, choose providers like credit card gateways, shipping solutions and other third party software?
Is the local app you are considering sufficient to meet your needs out of the box, or do you need to have it customized? What is the total cost? Leasing options are available, but the interest rate on them is generally high. If you have the cash or are willing to find credit the returns are greater. Don’t forget to weigh in the cost of labor as you will likely save more labor with a local app.
Neither cloud apps nor local apps are going away anytime soon. Until the line between them blurs you must choose the right solution for your business.
The author is the President, CEO and founder of Core-Tech.Com, Inc which began developing Channergy, its order management and now multi channel software, in 1995. Core Tech has automated thousands of mail order and multi channel companies over the years and both Bruce and Core have a lot of experience with the challenges met by direct marketers. Core Tech has embraced both local and cloud applications and strives to remain on the cutting edge of software development.