Software as a Service (SaaS)
Companies can now opt to rent information technology from specialist providers in the same way that you sign up for a phone service. Instead of building in-house IT systems which require significant investments of capital and need skilled people to keep them in tip-top condition, companies like yours can opt for pay-as-you-go access to business systems and software, via the Internet.
In common with many technologies, this software rental approach has gone through several generations and several name changes along the way. Most recently it was provided by Application Service Providers (ASPs) but can now usually be found being sold as Software as a Service (SaaS) or sometimes as On-Demand Software (ODS).
Traditionally, software runs locally, installed on computers or servers within an organisation. With SaaS, software is stored on a provider’s server and then accessed via a web browser, through Microsoft Remote Desktop Connection, using Citrix or other remote desktop software over the Internet. This type of access to world-class software systems is an alternative worth considering for companies that face the high implementation costs of the latest business ICT solutions.
In particular, small companies often do not have the financial resources to purchase on-site systems which require significant investment in packaged software and dedicated hardware together with staffing or the external resources needed to manage them. With SaaS, the immediate costs associated with on-site installation are replaced by a simple, often per-user cost, for access to the hosted software. Larger companies with extensive installations are also beginning to consider SaaS as a cost cutting measure.
A strong trend in the ICT industry is the development and promotion of Cloud computing ,a related concept in which data and applications are stored in the cloud - a slang term for the Internet used because the Net is represented as a cloud in IT network diagrams. This overlaps strongly with SaaS and ASP offerings and can, in many ways, be seen as synonymous.
Some analysts estimate that within five years, one-third of all new software will use the SaaS model. The recent successes of Apple’s iTunes and Google Apps have paved the way for more software and content to be offered in this way.
Generally speaking, its software that’s developed and hosted by the SaaS vendor and which the end user customer accesses over the Internet. Unlike traditional packaged applications that users install on their computers or servers, the SaaS vendor owns the software and runs it on computers in its data center. The customer does not own the software but effectively rents it, usually for a monthly fee. SaaS is sometimes also known as hosted software or by its more marketing-friendly cousin, “on-demand.”
Software as a service (SaaS) sometimes referred to as “software on demand,” is software that is deployed over the internet and/or is deployed to run behind a firewall on a local area network or personal computer. With SaaS, a provider licenses an application to customers either as a service on demand, through a subscription, in a “pay-as-you-go” model, or (increasingly) at no charge. This approach to application delivery is part of the utility computing model where all of the technology is in the "cloud" accessed over the Internet as a service.
Software as a service's acronym, SaaS, first appears in an article called “Strategic Backgrounder: Software as a Service.” It was published in February 2001 by the Software & Information Industry's (SIIA) eBusiness Division.
Software as a Service comes in several different flavours.
1. Delivery of simple applications to consumers (Consumer ASP)
These providers include familiar organisations like Facebook, Hotmail, Yahoo! Mail and Google with, for example, the Google Docs mini-office automation suite - a cut down Microsoft Office and the Google Wave communications platform. Zoho also provides a similar online document creation and editing application.
2. Delivery to a single application or integrated suite of software to businesses (Specialist or Functional ASP)
At one extreme, users may gain access to or pay for access to a single application useful to them or their businesses. This approach is often used to offer enterprise class applications to smaller and medium sized businesses at an entry level cost.
3. Delivery of a suite of applications suited to a particular type of business (Vertical Market ASPs)
These ASPs provide a range of software to businesses in a specific industry, such as medical and dental practices, libraries, discrete manufacturing sub-sectors and professional services organisations. These may include an office automation suite (like Microsoft Office), accounting package and business software specific to your business, e.g. a manufacturing system configured specifically for your industry. This could be provided through a web browser or via a hosted remote desktop - see below.
4. Desktop as a Service: DaaS (Vertical Market ASPs)
The growth in the popularity of virtualisation technologies has led to the development of a new range of services based on the provision of virtual desktops. Instead of installing software on your computer or local server, your desktop PC acts only as a window or thin client viewer onto a desktop hosted on a server at your service provider’s site. This is an adaptation of an approach adopted by many larger companies to reduce desktop maintenance costs and to provide for better backup and data security.
With DaaS, your desktop is created, hosted, backed up and maintained by your service provider. New desktops can be created quickly from images provided by your company or developed by the supplier to meet your needs. This is a good approach where you and your staff use a regular set of software and do not have a need to install or modify software regularly - a new desktop can be created quickly with a standard set of tools and applications as soon as a new member joins your team.
Some service providers have addressed concerns about data ownership: they allow client businesses to keep their data secure within their own infrastructure, and maintain ownership and control over their operating system images, applications and all related licensing while outsourcing the physical data centre infrastructure powering their virtual desktops. Others offer a more limited standard set of applications and services.
SaaS characteristics include:
- Network-based access to, and management of, commercially available software.
- Activities managed from central locations rather than at each customer's site, enabling customers to access applications remotely via the Web.
- Application delivery typically closer to a one-to-many model (single instance, multi-tenant architecture) than to a one-to-one model, including architecture, pricing, partnering, and management characteristics.
- Centralized feature updating, which obviates the need for end-users to download patches and upgrades.
SaaS providers generally price applications on a per-user basis and/or per business basis, sometimes with a relatively small minimum number of users and often with additional fees for extra bandwidth and storage. SaaS revenue streams to the vendor are therefore lower initially than traditional software license fees, but are also recurring, and therefore viewed as more predictable, much like maintenance fees for licensed software.
Some SaaS applications are free to the user, with revenue being derived from alternate sources such as advertising, or upgrade fees for enhanced functionality. Examples of free SaaS applications include large players such as Gmail and Google Docs, as well as smaller providers like Wave Accounting and Freshbooks.
In addition to characteristics mentioned above, SaaS sometimes provides:
- More feature requests from users, since there is frequently no marginal cost for requesting new features
- Faster new feature releases, since the entire community of users benefits
- Embodiment of recognized best practices, since the user community drives the software publisher to support best practice.
SaaS evolved from the application service provider (ASP) model. When ASPs sprang up in the 1990s, they offered essentially the same thing SaaS vendors offer today: hosted applications delivered over the Internet. The problem ASPs ran into was that they tried to be all things to all people, and they buckled under the weight of their own infrastructure. In trying to serve the unique needs of each of their customers, ASPs lost the economies of scale that were necessary for them to provide their services in a cost-effective manner.
Today’s successful SaaS vendors, such as Salesforce.com, LeanLogistics and Ketera, have solved the scalability and reliability problems that dogged the ASPs and ultimately led to their downfall. (Of course, Salesforce.com did suffer some debilitating outages in December 2005 and January 2006 caused by problems in its database cluster.) Instead of trying to be all things to all people, they offer one-size-fits-all solutions. That is, all customers of a SaaS vendor use the same software. The underlying code is the same for all customers and cannot be customized. Any features or functionality that the SaaS vendor adds to the software based on a customer’s feedback becomes available to all customers.
This multi-tenancy approach differentiates SaaS vendors from the original ASPs and from other vendors of hosted, “on-demand” software and gives SaaS vendors the economies of scale they need to offer their software cost-effectively - and make upgrading their customers to new versions of the software a relative cinch.
There are many advantages to going the SaaS route as opposed to installing software on site. First, SaaS deployments usually take less time than on-premise software implementations simply because you’re not installing software on every user’s computer.
SaaS vendors like to claim that they can get customers on their software in three months or less, but realistically, implementations can take between three and six months (sometimes more, depending on the size and complexity of the implementation). Because SaaS is easier and quicker to implement than traditional software, you can achieve your ROI (Return of Investment) faster, too - provided, of course, your users adopt the software.
Upgrades also tend to be pretty seamless (because you haven’t customized the software), and you’re always on the most recent version of the application, unlike with traditional packaged software. The SaaS vendor just pushes the upgrades and updates out to the customer base.
Key adventages of SaaS:
- Pay per use
- Anytime, anywhere accessibility
- Pay as you go
- Instant scalability
SaaS was initially widely deployed for sales force automation and Customer Relationship Management (CRM). Now it has become commonplace for many business tasks, including accounting software, computerized billing, ERP software, invoicing, human resource management ,financials, content management, collaboration, document management, and service desk management .
The benefit is that user needn’t install anything. User doesn’t have to plug in a CD or download a file and then run an installation routine. User doesn’t have to hassle with configurations to ensure that it works properly on your computer.
The same goes for upgrades. The end-user will never have to spend time upgrading the software application because the author of the software application does it for you. This also extends to other mundane chores that we all forget to do like making back-ups. User doesn’t have to because the software author is doing it for you.
As with anything in life nothing’s perfect. And SaaS is no exception. There are three main disadvantages that can get in the way of this experience.
The first disadvantage, and most obvious, is that you must have a connection to the Internet in order for your SaaS applications to function. No connection, no application. For many, this isn’t a problem. But if you don't have broadband at home, then you won’t be able to work on your SaaS applications at home. And if you travel, forget about working on a plane.
Your connection must also keep working throughout your session. If the connection fails you are at risk of losing work. I haven’t found this to be a problem except with Google Spreadsheets. I’m not sure why, but it seems to be incredibly sensitive to the connection. It has often failed on me and for no good reason. Other SaaS applications seem fine and are able to run all day without problem.
The second disadvantage, and likely the largest one for the moment, is that SaaS applications may not have the same features as non-SaaS applications. The functionality is often not as refined or as full. For example, I often double-click between columns in Excel to automatically re-size a column. Not available in Google Spreadsheets. Automatic cell filling in Excel (ie. Jan, Feb, Mar ...) is not available in Google Spreadsheets.
This can be annoying and frustrating especially because many of these refinements were added to make things faster and easier for us. I’m sure many people will not consider moving to a SaaS application unless these features are there.
This problem will diminish over time. Development tools for SaaS applications are becoming much more capable. Developers, driven by their marketing departments and their customers, are doing their best to add these refinements to their applications. As a good example of this, take a look at the iScrybe video; now here’s a SaaS application that doesn’t appear to suffer from any limitations!
The last disadvantage is speed or lack of it. This, of course, will depend on the speed of your computer but generally speaking, SaaS applications are slower then their non-SaaS cousins. They’re not painfully slow, but you’ll notice that they're just not as smooth.
These three disadvantages will be into the consideration as user think about adopting SaaS.