SaaS Model Pros and Cons and Implications for Document Capture/Processing

By Daja Phillips

Last month, I wrote about Web Services and Ricoh's New App2Me capability. I mentioned that one of the big trends right now is cloud computing, software as a service and cloud services. In this post I'll expand on these ideas to explore the difference between SaaS (software-as-a-service), cloud computing and traditional software business.  I'll also give you an idea of how Ricoh Innovations is experimenting with cloud computing to offer beta-level document/image processing services that can be combined with SaaS offerings or used alone to improve business communication, collaboration and corporate workflows.

Saas - A Definition

Software as a service (SaaS, typically pronounced 'sass') is a model of software deployment whereby a provider licenses an application to customers for use as a service on demand. SaaS providers operate using an Internet-based multi-tenancy model. This means that all customers use a single instance of the application. Customers can only access their information -- their data and unique configuration requirements are virtually partitioned from other customers. The multi-tenancy model means big servers and economies of scale, making it less costly to manage when compared to the cost of running the same software within most corporate firewalls. Furthermore, the SaaS model drives innovations in security, redundancy, reliability and increase software capabilities at levels that any individual customer couldn't do without great cost on their own.

The customer benefits of the SaaS model are clear: software rental without the burden and distraction of hardware and software maintenance, higher up time, lower start-up costs, and often, better accessibility from remote locations. The benefits of the SaaS model for providers is also clear: there is only one main system to upgrade - so upgrades can be rolled out in waves, system analytics give both the provider and the customer much better information on the system and its use, and revenue comes in monthly over a multi-year contract.

How SaaS is different than the traditional software model

Software companies that provide packaged software and sell it in a traditional software model enjoy different benefits than SaaS businesses. The traditional software company must invest heavily in a direct sales/support channel, and focus only the deals large enough to support the expensive direct sales channel model. However, traditional software companies benefit from the ability to recognize revenue upon shipment and thus, have much higher revenues than most SaaS companies. This increased inflow of revenue means that traditional software companies can invest more in creating variations of their products, or add-ons to increase and deepen existing customer relationships and create new ones.

SaaS companies also require large sales/support channels, but not as large as enterprise software firms, and therefore do not have to limit themselves to large deals. SaaS vendors can offer their product to any size firm because it can be demoed on the web, and easily trialed by any company with an Internet connection. Thus, the SaaS model has proven to provide an enterprise-level offering on a pay-as-you-go model that small and mid-size companies can afford. This is one powerful driver for the adoption of the SaaS model.

Limitations of the SaaS model

Now that we have a working understanding of the benefits of the SaaS model, let us round out our knowledge by discussing its drawbacks. Let's revisit the Internet-based multi-tenency of SaaS I discussed earlier. Multi-tenancy means that all customers use a single instance of the application. Thus, SaaS is both easier to support, but much more difficult to customize. Until a compelling portion of the user base requires a new feature, the SaaS vendor may be reticent to provide and support it. Furthermore, the implicit workflow of the SaaS offering may not allow the customization required needed to provide optimized workflow for a single corporate user.

For example, let's imagine there is a SaaS-based information management offering that is used by our corporation. It provides a solid value for the money, and unburdens our internal IT staff so they can focus on customer issues, rather than server upgrades. However, the corporate workflow that we work in, say invoice processing, requires that paper as well as digital documents be added to the SaaS system.  The paper documents arrive as image-based data, with limited data about the document (metadata), making them difficult to properly fit in the SaaS workflow.

What our imaginary invoice processing workflow needs is the ability to string together a custom set of document/forms processing capabilities - say, identify what type of document it is (an invoice from our biggest supplier, for example), then convert the document from image to text and place it in the system both in the invoice process and tag it as related to our biggest supplier.

Unfortunately, document capture/processing software is not available in a SaaS offering today. It seems a pity that to achieve the advanced capture/document processing capabilities today we we would need to purchase, via a traditional software model the hardware consulting and software system. Why have document capture vendors yet to take up the SaaS model? I posit that since most are relatively small companies, they do not have the financial fortitude to invest in a SaaS offering that would have an immediate negative impact on their profitability. Marketing a SaaS offering would dramatically decrease their current year revenue forecasts as they trade revenue today, for much smaller subscription fees for the future. From a financial perspective, SaaS can be a nightmare for traditional software companies. How will they attract and maintain their best salespeople on deals that are not recognizable in one lump? How will they explain to shareholders that they gave up software revenue today, for much lower subscription fees? And then there is the investment required for building a state-of-the-art facility to house and maintains your SaaS offering. SaaS requires a competency in running/maintaining a large software system that is not necessarily required in the traditional software business. Seen in this light, one can readily understand why niche software companies are not keen to jump to a SaaS offering.   Large software companies, like Oracle, recognized this market change quickly and now offer both SaaS "On demand" offerings as well as traditional software. Smaller vendors likely do not have the financial strength to do so in our recovering economy.

Ricoh Innovations Plans Free "Beta" Services for Document Processing

Ricoh Innovations plans to provide free "beta" web trials of document processing services in 2010 to investigate scenarios like the one I explained and learn just how a successful cloud-based forms processing solution can address customer needs. Watch our betas site at ricohinnovations.com for more information in the coming months.