Limiting factors

While the SaaS model has many advantages, it also has drawbacks. For example, data transfers take place at Internet, rather than local Ethernet speeds; the provider may go bankrupt and the firewall may not permit integration with back end systems. It may not be easy to judge the importance of such issues when an implementation is first started, however they are largely resolved by the Hybrid SaaS model. Other concerns are detailed below.


Widespread implementation of SaaS requires well defined services. That can achieve an economy of scale and the capacity to balance supply and demand. This requires areas of IT that are ubiquitous and commodity-like. SaaS is therefore not suitable for innovative or highly specialized niche systems, though SaaS may be used to provide one or more components in such systems.


As with manufacturing, a lack of substitutability and second sourcing options with any commodity creates a strategic weakness for any customer in terms of security, competition and pricing. Various forms of this weakness, such as "vendor lock-in", are often cited as a barrier to adoption of SaaS as the current industry lacks portability and interoperability between vendors. This means that to change from one vendor to another will take a considerable amount of effort and time, although no more time than required to convert or migrate from one traditional, installed software package to another.

This situation is resolvable by the introduction of open sourced standards and the development of markets based upon such standards.Whilst the severe lack of substitutability remains unresolved, many vendors[by whom?] counter the concerns over potential security and operational risk with the argument that the professionals operating SaaS applications may have much better security and redundancy tools available to them. One vendor of SaaS document and process automation, DataServ, has for many years offered a "data-return guarantee" that allows clients to receive their documents and data upon cancellation of service.


Furthermore the concern that SaaS applications pose some difficulty for businesses that need extensive customization is countered with the claim that many vendors have made progress with both customization and publication of their programming interfaces. Note that customization will reduce substitutability and given that SaaS applications are sometimes deployed for non-strategic business activities, the strategic benefit of customization is somewhat questionable.