Tuesday, June 23, 2009

In-House or SaaS? How About Both?

Chuck Hollis just penned another interested blog post about the economics behind private clouds for the enterprise. There is a lot of talk about on-premise versus on-demand SaaS these days in the BI community (and when I say SaaS I mean either private or public).

From a financial standpoint, the two models are fairly well established. Basically, on-premise is budgeted as capital expenditure, while on-demand is budgeted as operational expenditure. Much like the difference between buying your TV and paying for your electric bill on a monthly basis, or the difference between buying and leasing a car.

With on-premise you buy a lot of expensive stuff and it depreciates (and loses value) over time. With on-demand you rent a service for a short critical amount of time as needed. In many ways, the parallels are strikingly close to hiring in-house software developers versus outsourcing to consultants. The business case for either direction is easily conceived.

In-house developers are a long-term investment. They will learn the business and be allocated as needed on a per-project basis. The project is likely to be long-term. Much like capital equipment, they also need to be “upgraded” periodically – namely allowed and encouraged to keep up with technology so they remain productive and far-sighted. They also need to be provisioned with tools and resources to do their jobs effectively. The most progressive shops understand that. Not unlike expensive heavy metal and software licenses, they also tend to get worn out or outdated with time. And they’re expensive to replace and renew.

Consultants (either remote or in-house) are a quick-fix solution, usually applied to a pressing problem when in-house resources are either not available or not competent to handle the pressing business need. They’re expensive, but they (hopefully) get the job done quickly, get you the answers you need when you need them, and ride out into the sunset. Like on-demand offerings, they can be shutdown at will, but they also carry vendor-lock risk.

Having been in the software business for two decades, I’ve been on both sides of this fence numerous times. In my experience, the best shops implement a hybrid approach with strong internal cores supplemented as needed by top-notch “gun slingers”. In the best of cases, I’ve seen synergy and knowledge transfer occur between the two entities (when the politics were right) with significant benefit to the enterprise.

I think the same thing will probably occur in the BI space. I would imagine large shops will probably have both in-house staff and equipment, backed up by quickly ramped up SaaS offerings dedicated to what I call “transient data mart needs”. I could be wrong about this, but hybrid approaches (in business and technology) are usually more flexible and not necessarily conflicting. They can also feed off each other in positive ways.

I don’t believe the choices are going to be 100% on-premise or 100% on-demand. The trick for the CIOs out there is going to be determining which projects and which needs are better served by internal (strategic) or external (tactical) solutions in an agile way. In that sense there is really no “battle” between the two approaches. They should be considered complementary parts of an intelligent BI strategy toolbox.

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