Reality check

Technology implications of the new financial landscape. By Rodrigo Vaca.

“Cash-intensive IT departments are typically among the first to feel the heat”
-Rodrigo Vaca

With a true sustained financial recovery nowhere in sight, many analysts in the industry concede that this is beyond a regular downturn. We are now living in a new financial reality.

Just as most consumers have been forced to rethink their spending habits, firms are forced to once again re-evaluate how they invest their limited resources. As we are all aware, this could not be more critical than in the hard-hit financial world, from large multi-national institutions to small independent investment firms. 

Cash-intensive IT departments are typically among the first to feel the heat. If recent earnings calls from major technology vendors are any indication, firms have been inclined to slash their investment in IT.

Take this from an IT vendor: they might be doing the right thing. In every company there are two kinds of IT systems and spend: those that enhance the firm's competitive position and those systems that are more horizontal, and - while critical to everyday operations - provide less differentiation. For financial companies, examples of the former are its trading platform, systems that run financial models and those that calculate risk. Investment on these systems is, evidently, critical.

That's not to say companies should stop investing in their more generic systems such as CRM, email, document management, HR/Payroll systems and so on. But they should do a better job at managing those investments. They need to stop spending unnecessary amounts of resources in them and instead get more value while spending less money through the use of Software as a Service (SaaS). Cost is, certainly, only part of the story. But hoopla aside, companies need to recognize that not all SaaS services are created equal.

Three incarnations of SaaS

SaaS is hardly a new concept. In its first incarnation, circa 1997, SaaS was commonly known as ASP. ASPs offered some advantages, but it was primarily a financial engineering transaction: swapping CAPEX for OPEX.

In its second version, SaaS added on a key factor: multi-tenancy, which enables a vendor to deliver application updates much faster and provide more reliable services. But while the second version of SaaS brought technology benefits, it remains anchored in the past practices of the enterprise software scene of the last century: bloated prices, required long-term contracts and other practices.

But in its third incarnation, SaaS delivers true value for customers. Beyond the technology itself, it is the business model revolution that brings value to customers: purchasing flexibility, lack of long-term contracts and of course the lowest possible TCO. Zoho is not alone in this space. Other major players include Amazon.com, Rackspace, Freshbooks and other players who target large and small companies alike.

Beyond TCO

A lower TCO and increased flexibility is not the only thing that SaaS delivers. One of our favourite topics at Zoho is the value of Contextual Information Integration. The web's unique architecture and distributed nature mean that information can flow to the user's screen whenever it is needed, regardless of what particular system originated it.

For example, users of our CRM system can easily go back and forth between their email and their CRM records - or see documents that are attached to a contact right there on their web browser. The line between all those applications is starting to get thinner and blurrier. At the end of the day, what matters is not the application, but the data the user is working with.

When we look into what's coming in the next few years for the financial industry in horizontal technology such as CRM, Mail and others, we see three trends. First, a drive towards a significantly lower TCO through the use of advanced SaaS solutions. Second, increased flexibility in licensing terms and contracts from SaaS vendors. Finally, users will benefit from richer applications that will increasingly provide a higher degree of contextual access to their information, regardless of the application they happen to be using at the time.

Rodrigo Vaca is the Director of Marketing for Zoho, the online provider of productivity, collaboration and business applications. Prior to Zoho, Vaca led several initiatives for Google Enterprise. He has also held several roles at Microsoft Corporation and SAP.