Migrating to risk-based billing

Software has traditionally been perceived, developed and delivered as a product. However, as discussed in previous Industry Insights, Internet technology has more recently enabled software to be developed as a service that is delivered and consumed on demand. This has resulted in a more flexible relationship between business and technology, and consequently an increased ability to evolve systems as business requirements change.

It is, however, unlikely that there will be a sudden mass migration to software as a service (SaaS) and the consequent risk-based billing model. Attractive as this model may be to organisations seeking to reduce inflated IT costs, there are masses of systems out there that have already been bought and implemented at great expense, with further cash invested in support and training. The proponents of SaaS are therefore not expecting the lifecycle of existing applications to be shortened, but rather that as these systems enter the replacement phase, companies will look to the delivery of SaaS as a viable and more cost-effective alternative.

However, with the increasing popularity of the SaaS concept, and the fact that it is gaining wider acceptance on the global front, companies need to be made aware of what the move to SaaS entails, and what to expect from their service provider.

SaaS is delivered according to a risk-based billing model. This means the customer uses software as and when he needs it, and pays accordingly. With the ongoing uptake of SaaS, more suppliers are embracing the model, and placing themselves in a position where they can offer it as an alternative to their existing clients. This is particularly valuable for clients who wish to grow the number of users for a particular application without having to fork out large amounts of cash.

It is unlikely that there will be a sudden mass migration to software as a service and the consequent risk-based billing model.

Rick Parry, MD, Progress Software South Africa.

Making the migration to the SaaS model is no more complex than moving from one system to another. Organisations that choose to follow this route will still have to go through the set-up and implementation processes, they will still have to address issues such as data concerns, business process examination and staff training, as well as all the usual software lifecycle concerns. Customers should also expect to still have to pay for all the associated services. Once they accept that, the actual challenges of migration are no different to any other new software implementation. The only factor that changes is the basis on which they pay for their software.

The big advantage for the client is that SaaS migration costs are lower, primarily because there are no licence costs involved. Big ERP systems are expensive to buy, implement and maintain. Payment for SaaS, on the other hand, generally includes all enhancements, modifications and ongoing maintenance of the product as part of the fee. And where clients have to be charged for modifications that are extraordinary, the expense is by and large not that great. This is because providers of SaaS build their business applications around very specific niche markets so little customisation is required.

The most important factor for potential SaaS clients to consider is the software on which their required applications are built. Their service provider must be able to prove to them that their applications are underpinned by robust and reliable technology. Application partners too, have to be certain about the technology they are using - after all, they are charging a fee for the delivery of a service, so any problems that may arise will have to be addressed as part of the service contract.

A reliable and robust environment will result in minimal problems and therefore lower costs for the customer. If the supplier has confidence in the technology, that will filter down to the customer, who will have the assurance that the application will work in the interests of his business.

The delivery of SaaS and the advent of the risk-based billing model effectively challenge the software development industry which for decades has been dominated by the interests of suppliers rather than users. With its customer-centric focus, SaaS represents a radical shift in the development of software. There is no doubt that we are witnessing the beginning of a demand-driven model of software delivery, the benefits of which will be flexible software that can easily adapt to meet rapidly changing business needs.