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Part 2: Why Choose a SaaS Solution? Why SaaS offers advantages over traditional on-premise software solutions.

The process for selecting a software solution for local and municipal government software is a complex undertaking. With the introduction of SaaS solutions over the past few years, it is important to understand the benefits of SaaS, the risks and the challenges. To help shed some light on this process, we will explore the reasons you should consider a SaaS solution, and some of the risks that should be understood.

There are five main reasons to consider a SaaS solution for local and municipal governments:

Time: SaaS solutions can usually be implemented in a manner of days or weeks, instead of the months or years that it usually takes to implement an in-house solution. You don’t need a full staff of available IT resources to implement a SaaS solution either: the SaaS vendors will usually work with you to configure the software, and get you up and running as quickly as possible. 

Cost: Traditional in-house solutions are often an order of magnitude more expensive than SaaS solutions, given the amount of effort required from your internal resources and from the vendor to design, configure, develop, test, and support the systems. SaaS solutions are usually priced at a reasonable monthly cost per user, on a pay-as-you-go basis.

System accessibility: All you need to use SaaS systems is an internet connection and a web browser. This means that you can use the system in your office, on the road, or anywhere else where you have an internet connection.

Data security: Many SaaS providers provide an incredibly robust process for securing access to your system and your data. Your data is usually backed up regularly, and stored in a secure location, using the latest security procedures. This means that in the event of an emergency in your city, you would have access to your system and your data as soon as you have an internet connection.

Flexibility: Many SaaS providers work with you to configure your system to reflect your business needs, and are still able to implement your system in a very short period of time. This means that you can still get a fully configured system for a low cost without needing the costly and time-consuming process of implementing an on-premise solution.

All of these are key reasons to consider SaaS when you need a technology solution.  However, SaaS is not always the best solution. If you do not have a reliable internet connection, then you should consider in-house solutions. If you need highly specialized components for your application and have very specific requirements and little flexibility, then you may need to consider in-house solutions.

If you are cost-conscious, need a highly secure and accessible environment, in as fast a time frame as possible, then a SaaS solution may be the best solution for you.

Why should we care about the current crop of acronyms and buzz words: Software as a Service/SaaS, On Demand, Cloud Computing, Web Apps?

Do they represent a paradigm shift in how we use computers to improve the speed and efficiency of our work? Or are they just the latest way of selling an incrementally better solution that puts processing power at the fingertips of end users?

I look at this question not as the CEO of a SaaS company (BasicGov.com is a cloud computing solution for cities and local government) but more as an investor of my time and other people’s money in SaaS and Cloud Computing deals. What I see is that investors prefer SaaS companies because they can be managed better than traditional software businesses. On that basis alone we should all pay attention. SaaS is not a fad.

As an investor I take risks. I sift through deals to find the businesses I think will win; I convince myself and others to bet successively more money on each deal – first hundreds of thousands, then millions of dollars. Each larger bet on a deal should be made with more information about how a company is performing. Either the performance of a company meets plan with more funds invested and life is good; or, performance doesn’t match expectations, serious conversations begin, and the funding spigot starts getting turned off. The problem is that with traditional software businesses the information tracked by management and relayed to owners may be dangerously out of date or may hide the true performance of the company.

What’s so different about a SaaS deal for an investor? Visibility. We can see precisely how well a company is doing because week by week – even day by day – we measure almost everything. We have key performance indicators that track every aspect of a SaaS company’s performance from Marketing ROI’s, progress up the Sales Learning Curve, Customer Acquisition Cost, “Magic Number”, Committed Monthly Recurring Revenues, Churn, Payback Period etc. Why is this different from traditional licensed software? Because with SaaS you’re building and funding an ongoing stream of income, whereas traditional software licenses produce lumpy revenues around initial sales and major upgrades. There shouldn’t be sudden surprises with SaaS. For more details see this great post about SaaS metrics.

Bottom line: if a software company follows a SaaS delivery model, it’s much easier to for management to tune the business and for owners to monitor their investment. And that’s why financial markets – including acquirers – place a premium on SaaS deals that have a proven product in the market. See this recent update from Corum that includes SaaS valuations.