Clearing Up the Confusion About SaaS

Thomas Otter has expressed confusion about definition of SaaS (or the lack of agreement on the definition).  Nicholas Carr provides what Glovia is doing as an example of what SaaS is.  We, at Gartner, do have our own definition.  The Gartner definition has three requirements:

1. The application is owned, delivered, and managed remotely by one or more providers
2. The application is based on single set of common code and data definitions which are consumed in a one-to-many model by all contracted customers at any time.
3. The application is licensed on pay-per-use or subscription basis

There are different architectural models for SaaS, but they conform to these requirements.  Thomas uses an example of ADP as a SaaS provider.  Unfortunately, he is partly right and partly wrong.  I find a lot of people get confused between Outsourcing, ASP and SaaS.  Lisa Stone published a good research note that discusses part of this.  However, let me try to provide a relatively simple model based on the research that can clarify the different options on the continuum between On-Premise and Outsourcing.

Here is how to differentiate between the different options:

• On-Premise -- This is the easiest one and the one with which are the most familiar.  The client is responsible for the business process and the technology and technology support.  The application is installed at the client site (with each customer getting its own code).  A subscription model is typically not used, but some vendors do offer leasing options and financing (so it looks like a subscription).
• Application Management -- This is very similar to On-Premise except that the client contracts with a provider to maintain the application (either on-site or remotely).
• ASP/Hosted Solutions -- With this option, the client is still responsible for the business process, but the provider is responsible for the technology and technology support.  In this option, the provider implements a separate instance of the application for each customer.  There are several different economic arrangements possible ranging from subscription pricing to the client licensing the application from the software provider and contracting with the ASP provider just for hosting services.
• Software-as-a-Service -- With the SaaS approach, the client is responsible for the business process, but the provider is responsible for the technology and its support.  As discussed above, the application runs at the provider's facility and is based on common set of code and data definitions consumed by customers in a one-to-many model.  In addition, SaaS providers use a subscription revenue model.
• Payroll Outsourcing -- Payroll outsourcing is different from SaaS because of the responsibility for process ownership.  In traditional payroll outsourcing, the client is responsible for most of the inputs into the process (e.g., employee changes, pay rate changes, hours worked, etc.) and provider is responsible for the processing and the outputs (e.g., payslips, direct deposit, GL interface).  The technology used to deliver payroll outsourcing is SaaS in nature.  ADP runs AutoPay at its site.  AutoPay is a common set of code and data definitions consumed by customers in a one-to-many model.  In addition, ADP charges on a subscription/pay-per-use basis (i.e., the price is on a per paycheck basis).  It is the ownership of the process that separates payroll outsourcing from SaaS.
• Business Process Outsourcing -- In traditional payroll and benefits outsourcing, there is a split responsibility between the client and the provider for the inputs into the process.  In full BPO, the provider has direct responsibility for the entire process, including the inputs.  The provider also is responsible for not only the technology and technology support, but for process support (e.g., if employees have questions, they contact the provider).  There are a variety of delivery and relationship models for BPO.  For example, some providers will implement a separate instance of the application (like an ASP), but charge on a subscription basis (e.g., priced on per employee per month basis).  If you buy managed payroll services from ADP as a National Accounts customer, this is the model that you would use.  ADP would implement a hosted version of its Enterprise HR solution for that customer that is integrated with its payroll engine AutoPay and charge customers on a per employee per month basis.
• Business Process Utility -- The easiest way to think about a BPU is BPO meets SaaS.  Much like in BPO, a BPU would be responsible for the business process and the technology.  However, like a SaaS provider, the BPU utilizes a common set of code and data definitions consumed by customers in a one-to-many model.  In addition, it charges on a subscription/pay-per-use basis.

So, if you consider these definitions, ADP is really an outsourcing provider that leverages different delivery models for different parts of its operations.  Some of those are hosted applications.  Others are SaaS applications.

The big challenge for clients is sorting out what providers are truly offering and which approach best meets their needs.  That is something we help clients with every day.

Comments

[Thomas Otter]

Jim
Thanks for this. It seems I have kicked off a definition fest. I'd like to argue these through a bit more but I'm still recovering from the CARR crash.

A question. what do you think of the ADP globalview offering. SAP HR, single instance, running nearly a million records and 60+ companies. It is rocking here in old europe.

[Jim Holincheck]

Thanks, Thomas. I am sure that it is true that others would do the same thing about definitions. One of the hard things about using ADP as an example is that it is not one homogenous organization. It has four main business units along with a variety of other services that may be used across business units. That is why I was very explicit about the National Accounts (companies with more than 1,000 employees) example. GlobalView is offered for the Global Accounts BU. It is more like a BPU, than a BPO for the reasons you indicate in how it is using SAP to support BPO (though there is not a single back-end payroll engine that is used across all geographies). Another example would be the Employease acquisition for Major Accounts (customers with between 50 and 999 employees). It is also a SaaS solution that is a front-end for AutoPay. Finally, for ADP's Pre-Employment Services, it has recently acquired VirtualEdge which is also a SaaS solution. So, depending on the BU and the service, ADP uses a variety of application delivery models.

[Jerome Gouvernel]

Hi Jim

You are no quite accurate with your description of the SAP/GlobalView payroll code base.
Although it is structured by country, each country payroll program re-uses the same code for equivalent processes. Only country-specific processes (taxes, social insurances etc..) are managed at a country level. The common code is roughly 70% of the total.
In other words it is using a single backend payroll engine for all countries. As you stated, this same payroll engine is also used for all customers.
I obviously agree with the "BPU" slot for GlobalView.
Another point worth mentioning is that the overal code base of our application is still (after 6 years of operations!) virtually identical to the original SAP code.

Jerome
(Product Manager for GlobalView)

[Abhinav]

In my view the BPU is only commoditization of BPO .

There are similer discussion on the topic going on http://www.unstructure.org .

Lets check it there .

[John Robb]

Jim-

Thanks for putting together the definition of SaaS. It is great to have something in writing.

I had a follow up question for you. Does a central IT department that provides a multi-tentant application to dozens of departments fit into your definition of a SaaS provider? I would assume yes put I wanted to get your view.

Thanks,
-john

(VMware product team)

[Jim]

John,

Thanks for the comment on an oldie, but a goodie. If you look at the official Gartner definition, we say that SaaS requires a single line of code and data definition to be used across multiple customers. So, I guess it depends on how you define customers. You could certainly define it to be internal customers. I have also seen as an example in public sector, a single solution being managed by a central agency with agencies or departments running on the same instance of the application. So, there is definitely precedent.