Reader Question: Difference between Hosted, On-Demand and SaaS Supply Chain Software?

Reader Question

I am confused on terms for supply chain software. Is there any real difference between “hosted,” “on-demand,” and/or “software as a service?” Why so many terms?

Director of Logistics
Metal Manufacturer

Category: Supply Chain Software

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Expert Panelist Response: Dan Gilmore, Editor, Supply Chain Digest

Good question – it depends on who you ask. I am swimming upstream here, versus how the vendors want this to go but, for all practical purposes right now, the answer is there is no important difference.

Recently, many vendors have latched on to the “Software as a Service” model/term, which gets abbreviated as SaaS. What most are saying now is that SaaS is different than hosted/on-demand software (which I guess are lumped together), with the difference being that SaaS implies a “multi-tenant” model, whereas the other two terms do not.

What on earth does that mean, you ask? It means one version of the software, say a Transportation Management System, runs on a computer at the provider’s site or other computer center, and multiple companies run the application on this one version, securely logged on and using just their data. One “instance” of software serving multiple customers.

This contrasts certainly with the early and many current versions of “on-demand,” in which (by and large) each customer had their own version of the software running remotely some place.

The multi-tenant model makes it less expensive to deliver and maintain the applications, which means either the cost to users can be lower and/or vendors can actually make money at current prices. It may offer some other advantages as well (such as more easily enabling collaboration, for example in load linking in transportation).

But here is where I will differ with the vendors.

First, while all that may be true, practicality will win out. “Software as a Service” is just too hard to say versus “On-demand” or “hosted.” And the term favored by users of the software will win out, not what the vendors call it.

Second, the abbreviation, SaaS is just too close to the name of a very large software provider, SAS, that has been providing business intelligence software for years.

Finally, soon everyone will be using the multi-tenant model where it makes sense, so there will no longer be a meaningful differentiation between the intent of the terms. “Hosted” and “SaaS” will mean the same things. And again, “hosted” is sure a lot nicer to say.

I recently suggested to one vendor that the term “hosted 2.0” might be a better way to position it.

You also need to be aware that despite its advantages, there are also disadvantages in the multi-tenant model, such as little/no ability to have customizations if that’s what would serve you best now or later.

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Other Responses

	There is definitely a distinction between SaaS (Software as a Service), On Demand, and the term Hosted when evaluating software solution providers. Buyers should also understand the term perpetual license, as well. Let’s start with a perpetual license because it is the simplest. With a perpetual license, you procure a one-time purchase price and annual maintenance for a software solution (e.g., a Warehouse Management System) and the software provider gives you a copy of that software (typically not source code). Note: you would want to put the software in Escrow account in case the solution provider files bankruptcy. With a Hosted solution, you own a perpetual software license and you run the software on servers that you may or not may not own. You outsource the day-to-day server maintenance, database tuning and connectivity to a Hosted co-location provider (Verizon, N-Frame, Intelinet, etc.). A good example would be that you procure a WMS (Manhattan Associates) that runs on an IBM 5-Series server. Your IT team has no experience with an IBM server because they are a HP Unix (HPUX) centric team. You can elect to have the software that you own Hosted by an outside provider. As a consulting firm, we have an outside Hosting service that maintains all of our servers and virtual development servers because it is more cost-effective to outsource this activity. You may actually own the servers as we do, and then engage a Hosting firm to monitor the servers, firewall, and security. One more advantage to a Hosting (Co-Lo) is that they have redundancy built into their architecture framework. One of the earliest TMS providers to provide Hosting was a company called The Pinnacle Group (Freightlogic) now owned by HighJump. The advantage to a Hosted model is that the software company takes care of the servers for you, but you own the perpetual software licenses. This can decrease implementation time because you don’t have to bother with configuring servers, loading software, and a database. Unfortunately, there is much confusion between the terms ‘On Demand’ and ‘SaaS’ (Software as a Service). The key distinction can be best illustrated by the following examples. Have you ever used Microsoft Share Point, Google Mail, Google Ad Words, Yahoo Mail and even Go-To-Meeting? These are On Demand solutions whereby the provider provides the solution to you for free, or for a monthly or annual subscription fee. Importantly, there are NO consulting services built around these solutions. Very simply, if you want Google Mail, you download it and use it. Google does host the solution, but you use the solution at will with no consulting implementation support. Compare this to a SaaS provider who provides functional software to meet a specific business need, HOSTS the solution for you and provides consulting services to help you DEPLOY it. A good example would be a company like GT Nexus that provides Global Supply Chain Visibility or Salesforce.com that offers an online CRM. Each of these companies charge for their services based upon a monthly or annual transaction count, or as a monthly subscription with an unlimited number of transactions. For example, GT Nexus will charge an annual service fee (paid monthly) based upon your annual revenue and dependent upon functionality you deploy from their solution suite. Your annual subscription includes, ALL data connectivity, database maintenance, future software development and functionality that you use. These software providers will also provide professional consulting services to help you implement the solution. You’ll notice I have used the word DATA Connectivity a few times. We typically find that companies provide solutions in a SaaS model when there are economies of scale to aggregate and manage data. Think about how much time your company spends on managing the integrity and the quality of data (accuracy, validity, and effectiveness). Data integrity is costly (item master accuracy, purchase order accuracy, sales order accuracy, etc…). Have you ever shipped to Wal-Mart? The last thing you want is an ASN (EDI856) to be incorrect; the charge back is significant. Most SaaS solution providers are experts at managing data and companies that win the data integration war and can use the information as Business Intelligence Tools will have a competitive advantage. Our research tells us that Data Quality Management is mission critical. Companies can spend as much as 50% of their IT operations support just managing data integrity. Jim Barnes

	I believe there is a major distinction. However, unlike Jim Barnes, I don't believe the distinction is related to software licenses. Although that may be true for different companies, all software companies license their tools the way they want, so I do not believe that is a significant enough difference. I differentiate SaaS and Hosted solutions in this way... SaaS is software as a service. This is software that is offered to many companies with very little customization. It tends to be an "out of the box" type of solution designed to solve a specific need. The software company offering a SaaS solution is typically offering a "canned" application with the ability to select Options and add users. That is the extent of the customization. Hosted, on the other hand, can be very customized. We see companies choose a hosted version when they they don't have the IT resources or they simply want to avoid IT for some reason. They may also go to a hosted version because they don't want the on-going management or can't afford the up front capital to license the software. This can be a completely customized solution or a software solution that can be customized. As an example, a business intelligence application that is highly customized is not well suited for SaaS, however, it can be well suited for a hosted version. POSmart is an application that integrates retailer data with companies internal and syndicated data. It is customized because of the unique integration requirements, however, it can be offered as a hosted or in-house option. Janet Dorenkott VP of Sales & Co-Owner Relational Solutions, Inc.