Sayonara, Servers?

Selling software as a service (SaaS) continues to pick up steam, particularly among small and midsize businesses, where many companies can't afford to purchase and maintain their own applications and systems, or lack the IT staff to support them. In turn, for many VARs and their customers, managed services and SaaS are helping to support another, perhaps unintended, major trend: server consolidation.

A growing number of VARs plan to provide SaaS as more of these services become available from major IT vendors, such as IBM and Oracle, as well as from smaller players. According to VARBusiness' 2005 State of Software survey, roughly 45 percent of service providers plan to sell software as a subscription-based service during the next 12 months. That's more than twice as many as those that provide SaaS today.

For its part, research firm IDC predicts that spending on SaaS will continue to rise during the next five years at a 21 percent compound annual growth rate, reaching $10.7 billion in 2009. IDC expects much of SaaS' adoption to be driven by four factors: organizations' need to improve business processes, an increased understanding of the SaaS delivery model, growth in the number of SaaS offerings, and the creation of enablement programs to help ISVs take advantage of SaaS opportunities.

At the same time SaaS is taking hold at many companies, server consolidation--or the avoidance of new server purchases--has been gaining ground as organizations look for ways to cut IT infrastructure costs. Among the main reasons for the consolidation efforts, says analyst firm Gartner, is to reduce total cost of ownership, improve manageability (security, availability, disaster recovery), provide better service and improve agility.

Laurie McCabe, vice president of SMB insights and business solutions at AMI-Partners, says SaaS might not lead to immediate and widespread server reductions. But, she says, it could help reduce the number of servers at many organizations.

Taking Root

VARs are finding that SaaS, which, in many cases, can be delivered directly to users' desktops, is already giving their customers--and oftentimes the solution providers themselves--an opportunity to eliminate some servers and the associated costs.

For example, by delivering managed services to its clients, Boston-based Everon Technology Services has been able to conduct business without making huge investments in servers and other IT infrastructure. The company provides Web-hosted software from vendors such as AppRiver, Everdream and Iron Mountain.

"It's a huge benefit to us to not have to put in nearly as much infrastructure," says Everon CEO Michael Cooch. "A lot of our competitors have relied on putting servers out at each customer [location]. We've been able to avoid that, and it's a big savings for us."

Cooch estimates that the company is saving as much as $500,000 by not having to buy servers. (That doesn't include maintenance costs.)

Everon's customers have also benefited from less reliance on servers. One client with multiple locations is using Everdream software to automatically monitor and manage its IT assets. Because the application is delivered via the Web, Cooch says, the customer has avoided the costs of buying and maintaining application-specific servers.

Cooch says the SMB market, in particular, will likely generate much demand for SaaS products because these offerings enable smaller companies to use applications they normally would not be able to afford as traditional server-based software.

Horizon Associates Group, a solution provider in Hauppauge, N.Y., offers a family of applications from NetSuite on an SaaS basis. These include CRM, ERP, e-commerce, financial reporting and inventory management.

Horizon partner Joe Giegerich says the SaaS model has allowed customers to cut the number of servers they operate. For instance, Hampton-Haddon Marketing had been running applications on server environments in its offices in Philadelphia and Boston using a VPN for connectivity. Hampton-Haddon--the licensee and U.S. distributor of Hampton Clocks and Waterford, Marquis by Waterford and Stypen writing instruments--replaced its need for server maintenance and connectivity with a single NetSuite license that supports both offices and the company's remote salesforce. Applications including purchasing, sales and inventory management are available to users via SaaS.

Logicalis, meanwhile, a Bloomfield Hills, Mich.-based provider of IT integration solutions to enterprise customers, says it has no plans to offer SaaS unless its customers ask for them and software vendors offer their services on a distribution basis, says Jeff Reed, the company's CTO. "The primary reason is there is not enough volume" among enterprises to justify Logicalis entering the SaaS market, he says.

"I think SaaS is definitely hitting the SMB market, and it's reducing server sprawl, eliminating servers and server purchases," Reed says. Logicalis itself has been able to reduce its dependence on servers by moving some applications to an SaaS model.

The company has still had to add new servers for some applications to support the rapid growth of its business, Reed says. But he says Logicalis has reduced the rate of server growth by at least 10 percent by moving to Web-delivered applications.

Although SaaS has particular appeal for the SMB market, some VARs say they're finding demand among larger enterprises, as well. Inventa Technologies, a Mt. Laurel, N.J.-based provider of software and managed services to Fortune 1000 companies, has enabled customers to eliminate servers through managed services from BMC Software.

By offering BMC capacity planning and management software as a subscription-based service, Inventa has helped some organizations make significant reductions in their servers, says Rick Cerwanka, president and CEO.

Bob Violino ([email protected]) is a freelance writer based in Massapequa Park, N.Y.

Delta College's Server Dream

Like many other organizations, Delta College in University Center, Mich., is looking for ways to consolidate its servers or avoid buying additional servers as it adds new applications.

By using a hardware and software inventory-management application from Everdream on a software-as-a-service (SaaS) basis, the college was able to avoid investing in two to four new servers that it would have needed to run a comparable application, says Bob Wheeler, CIO of Delta.

The college has saved thousands of dollars from not having to buy and maintain servers for the inventory application, says Wheeler, who manages Delta's IT operations and staff through an outsourcing arrangement with SunGard Collegis, a Maitland, Fla.-based company that provides IT management services for colleges and universities.

To run a similar application, Wheeler says, the college would need a production server, test server and backup system. Delta uses the Web-based application from Fremont, Calif.-based Everdream to help manage the life cycle of its PCs and software-licensing compliance on campus. The college currently has 1,400 systems, including 34 servers. It began using the Everdream software earlier this year to improve the management of its IT infrastructure.