Software as a service (SaaS) has exploded in some software markets--customer relationship management (CRM), human capital management (HCM), and sourcing and procurement, for example--but it hasn't yet taken hold in other application markets such as PLM. This is understandable, since no one wants to expose something as important as product intellectual property (IP) online. Of course, that's also what people said about sales and customer information, and look at Salesforce.com now.

The irony is that companies must be more open with their innovation process so that new ideas come in from customers and partners and strong supplier relationships are forged. Isn't a web-based platform like SaaS for PLM an easy way to facilitate this? Here are some other compelling benefits of SaaS:

1. Structuring fields within the system with ease
2. Using as little or as much functionality as needed

Forming dynamic product teams, with SaaS acting as a good mechanism to support as few or as many team members required during the course of a project, which lets the company pay only for what it needs.

However, alternate delivery models like SaaS have yet to make a dent in PLM vendor revenue.

The Current state of SaaS in PLM: Let's first define what we mean by SaaS:
1. All infrastructure hosted by vendor
2. 100% web based
3. Single instance of the software, multitenant/seats
4. No upfront cost
5. Pay as you go and only for what you need

Large and small companies alike are still reticent to place product IP on the Internet or have it hosted. The SaaS model has gained some traction at small and midsize businesses (SMBs), with organizations looking for a less-expensive collaboration platform they can access on a project-by-project basis. SMBs and large companies that are hesitant to apply any part of their PLM processes online--from CAD, to direct materials sourcing, to product portfolio management--typically cite two reasons:

1. Security and trust--With globalization, companies may not know who they're working with or sourcing from.
2. Desire to keep CAD models local--This is understandable, given the iterative and data-intensive nature of product development.

AMR Research believes the five-year CAGR will be 17%, with global manufacturers adopting stronger security policies and technologies, as well as industries with short-lifecycle products, like apparel, consumer electronics, and consumer goods, recognizing the benefits of a web-based approach to new product development and launch (NPDL). This will be the highest of all PLM application revenue types, while remaining a small segment of the PLM market revenue pie at 2%. Arena Solutions has had the most success in this sector as the sole pure-play SaaS offering. Dassault, Oracle, PTC and Siemens PLM all have hosted offerings as well.

The opportunity--NPDL: It's true there is more risk with putting your product IP online. However, security options like 128-bit encryption, two-factor authentication, intrusion detection, and authorization applications to ensure employees, partners, and customers see only the information they need make this less of an issue. Some manufacturers will want to keep the iterative process of product design offline, check in designs when they are ready to be shared globally, and then solicit feedback and collaboration from other NPDL stakeholders. A SaaS approach could expedite this collaboration and feedback loop.

SaaS is also--product managers and marketers take heed--a perfect model for project managing a new product launch from beginning to end. SaaS PLM would allow you to access the system from any location when you are planning and launching a new product, which matches the periodic and dynamic nature of NPDL.

Markets such as automotive and A&D may not benefit as much from a SaaS approach, at least not at the design level. Designing a car or airplane requires a much longer product development lifecycle and a local management of complex geometry that requires multiple cycles of rapid global iteration. SaaS has not yet provided this capability. This is not to say, though, that a SaaS approach couldn't scale to support this need. However, an on-premises, locally deployed CAD and PDM system remains sufficient.

There are also other challenges with SaaS:
1. Less flexibility to model a business process flow
2. The integration with CAD and ERP systems
3. Limited analytics for design impact on cost, supply chain, and manufacturing

It should be noted that analytics is immature in the PLM market overall, whether the product is SaaS or on premises. However, as the use of outsourced and offshore engineering resources increases, a centralized, web-based system would be a great adjunct to the local CAD system for sharing designs, garnering feedback, and collaborating on new designs no matter the industry.

Here are some PLM processes that would benefit from SaaS PLM:
1. Direct materials sourcing
2. Supplier relationship management
3. Quality management
4. Customer needs management

Providing a lower cost, accessible, flexible platform to enable open innovation with suppliers and customers would result in more quality product ideas, more efficient and on time product launches, and better products.

PLM vendors that have traditionally provided on-premises, single-tenant applications haven't rushed to provide pure SaaS options in their application suites. This is not only because the market is still hesitant to put entire NPDL processes online, but also because of the cost it would take to rearchitect applications to single instance/multitenant.

SaaS success--a case study: Coldwatt, a Rockwell Scientific spinoff and manufacturer of power applications for IT infrastructure vendors, used Excel spreadsheets and e-mail to manage bill of materials (BOM) management as recently as 2005. As a small start-up company, cost and scalability was important. However, the reduction of data input errors and time wasted because of manual implementation of data into spreadsheets was equally important.

With 70 people worldwide, including design teams on two continents and manufacturing in Shenzhen, Coldwatt needed centralized and easy access to design and BOM information to enable fast time to market and compliance with directives such as the Reduction of Hazardous Substances (RoHS). The company chose a SaaS PLM application from Arena Solutions to address these challenges.

Currently, access to information is granted on a read/write basis, but it's not segmented by role or content. Another mechanism used to control the security as well as manage the quality of data was to assign one of its employees to manage the uploading of schematics, documents, and BOMs to the Arena application. It remains to be seen if this approach is scalable as the company grows, but Coldwatt does plan to enhance its authorization technology over time so that employees and suppliers can securely check in and check out the information they need in a timely fashion without having to go through a single point of contact.

One of the challenges Coldwatt faced was internal pushback from its engineering group, which was used to designing and collaborating in their own sandbox instead of a web-based company one. Engineering is a creative discipline, and the integration team, including Coldwatt senior executives, had to be sensitive to this while driving usage and adoption.

The company plans to extend direct access to the system to contract manufacturers, particularly in China where much of the company's business is done. Currently, it has to translate its files offline before sending to these manufacturers.

SaaS--not a replacement: SaaS will not replace traditional on-premises or application service provider PLM applications, and we don't think it should. There are, however, some PLM processes that would benefit from a SaaS model. For starters, collaborating quickly with globally located team members and suppliers, sourcing materials, and interacting with customers to field and test new product ideas would ultimately lead to faster time to market.

The primary detriment to SaaS taking off in PLM has been security. But as SaaS PLM vendors enrich their authentication and authorization capabilities, and large infrastructure and software vendors, such as EMC with its security product RSA and CA with Netegrity, realize the opportunity in NPDL, e-security becomes less of an issue.

SMB is one of the final frontiers for PLM and also a segment of the market where SaaS has gained traction. It's logical for large software vendors to have a SaaS product offering, like SAP with its Business ByDesign.

The cost to rearchitect applications is a short-term investment that will pay long-term dividends as companies look for lower cost, subscription, or even pay-as-you-go PLM options. It will also pay dividends as nonengineers like product managers and marketers use NPDL tools more prevalently to ensure product success, and as segments of PLM, such as direct materials sourcing, supplier management, and customer needs management, become integrated segments of a manufacturer's product development process.

For the SaaS model to take off in PLM, the onus is on the vendors that built their applications from scratch on SaaS to step up and sell the benefits, while educating on the perceived shortcomings of the model. Traditional PLM vendors have a vested interest in keeping most implementations on premises because of potential revenue garnered from customizations, maintenance, and license renewal. In light of this, pure-play SaaS offerings have an opportunity, particularly with upstream NPDL processes in fast-moving markets, such as consumer goods, consumer electronics, and retail.
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