How SaaS hurts a fragile IT economy

By Mark Everett Hall
January 05, 2009 9:00 AM EST

Software as a service is a wonderful choice for a business manager. Instead of investing in a packaged software product and the new servers and network gear to support it, along with a cadre of highly-paid professional IT staff to implement and manage the software, a business executive merely subscribes to an existing service.

If you read that second sentence closely, you can see why SaaS is a drag on an IT economy that is already in low gear. SaaS providers leverage a multi-tenant architecture to reach economies of scale that reduce overhead. That translates to fewer software developers at Microsoft, Oracle, and SAP and reduced IT operations staff needed by end-user organizations. It also means fewer internal development projects as the business side settles for customizing SaaS apps instead of asking CIOs for the specific tools they want. It also equates to less hardware being bought by users, which means companies like Intel, Hewlett-Packard, IBM and their supply-chain partners in China need fewer engineers and assembly-line workers to design and build machines to run the packaged or custom apps.

Sure, SaaS providers need their own programmers, Web developers and operations staff--not to mention their MBAs, sales forces and public relations folks--to keep their businesses rolling. And they buy servers and routers to run their software. But net-net, there is a significant overall loss of IT workers as the SaaS economy grows.

In fact, it's one of the biggest points in the SaaS sales literature. To get a new application up and running in your own shop, virtually every SaaS vendor contends, it will cost you more in labor and materials than it will to subscribe to a new service. Of course, SaaS vendors couch their labor-reduction sales talk by saying that you will be able to put those people and systems to work doing something more productive or urgent. But you know that it allows you to cut heads. And in today's economy, that's just what you'll do because the most urgent and productive thing an IT executive can do in 2009 is reduce headcount.

SaaS also puts downward pressure on IT worker's salaries, adding to the outsourcing and offshoring competition IT professionals face. The glory days of the UNIX system administrator and the Java programmer are dead and buried. And when that part of IT's history is written, SaaS will be described as just one more nail in the career coffin.

Despite this dark analysis, let me go back to my first sentence. "SaaS is a wonderful choice for a business manager." It is. And, should these tough times ever pass, it will be a god-send choice to launch new business initiatives and to quickly gain competitive advantage in an expanding market. Until those days come, however, it will be used in large measure to avoid spending money, which, during a recession is an added burden weighing down our economy.