By Satish Syal
Mumbai, Jun 6, 2008 

For decades companies ran software applications on their own infrastructure; paying for and managing everything that was involved -- buying the hardware/software, installation, application development, security, maintenance, and upgrades. Software as a Service (SaaS) is a new delivery model where companies pay not for owning the software but for using it. SaaS as a concept isn't new. In fact, many consider the Application Service Provider (ASP) model to be the predecessor to SaaS.

Going back in time, we first witnessed the Internet Service Providers (ISPs). ISPs provided access to the Internet and related services like email hosting, web hosting, and DNS hosting. These morphed into Application ASPs, who provided dynamic content that end-users wanted. Companies like Amazon, Yahoo, Google, Monster, and thousands of others built elaborate web sites that provided an interactive experience customized to the user's need. As this field matured, the ASP business model stretched into something often known as SaaS.

What is SaaS?
 
The concept of paying for services isn't new. Take the example of electricity. Most firms don't own generators; they buy electricity from the grid. The philosophy behind SaaS is similar, and rests upon the concept of selling an application as a set of services or capabilities as opposed to selling the software itself. End users now need not bother about installation, integration, and operation services. The application is hosted, typically, with a service provider who owns the underlying physical, technical, and human resource infrastructure to run and support the application. The services are accessible by the end-users on a 24/7 basis. Whether the service is on a dedicated or shared platform, the goal is to shift responsibility for delivery of the software's functionality to a service provider rather than it residing with the end-user's organization.

The SaaS provider is responsible not only for the performance of the software but also for the maintenance and upgrade of the software as well. The SaaS model involves hosted software based on a single set of common code and data definitions that are consumed in a one-to-many model by all contracted consumers, at any time, on a pay-for-use basis, or as a subscription.

Why SaaS?

There are both technical and business reasons driving the demand for SaaS:
* With the rise of the Internet and broadband connectivity, organizations are in the process of moving away from traditional computing models like client/server to more flexible multi-tiered architectures. As bandwidth costs continue to drop, it's now affordable for companies to purchase the level of connectivity that allows online applications to perform gracefully.

* Company's customers, purchasing goods and services, are demanding access anytime during the day, which means their IT systems must be available at all times, and to locations anywhere in the world.

* Company's suppliers and employees are demanding access to their IT infrastructure on a real-time basis in order to work. These global and ever-present demands require a flexible, robust, and secure application infrastructure that can be too complex and costly for companies to implement and manage on their own.

Perhaps most importantly, many customers are eager for the shift to SaaS, as they're frustrated by the traditional cycle of buying a software license, paying for a maintenance contract, and then having to go through time-consuming and expensive upgrades. Additionally, SaaS licenses also differ from traditional license plans in that SaaS licenses factor into the operating budget, whereas traditional software license plans (purchase, maintenance, and upgrades) usually require a capital budget that increases over time.

Who can use SaaS?

The companies best suited for the SaaS model are SMBs; however, even larger enterprises see the value of utilizing SaaS for those applications that are used within certain departments or lines of business, because they save the need for a 'global' IT deployment of an application that isn't used by everyone. By using outsourced SaaS services, companies can procure a best-in-class computing environment that is more efficient and less expensive than creating one on their own. This allows organizations to focus on the real technology and business issues that drive the success of their companies.

Solutions that lend themselves well to the SaaS model include workgroup-oriented applications for collaborative development and communications, enterprise software applications such as ERP, CRM, web conferencing, and HR applications like talent management and payroll. Enterprise mail systems like Microsoft Exchange and IBM Notes are few other candidates.

Emerging Potential

The first wave of adoption for software as a service has been under way for several years with sales automation, CRM and payroll applications as these require little integration with on-premise applications and little customization. Salesforce.com and Web Ex are 2 examples.

The next wave of applications seems likely to involve transactions between buyers and suppliers, including procurement, logistics, and supply chain management. As customers grow increasingly comfortable with the concept, a third wave of applications more critical to business, such as hosted environments for software development, is sure to follow suit.

SaaS Challenges

Reliability:

Since SaaS applications are delivered via the Internet and a multi-tenant shared infrastructure, there are many failure points that can create a service outage. Large spikes in usage, denial of service attacks, application upgrades, or hardware failure can bring the system down unexpectedly for all end-user organizations. In addition, scheduled maintenance, upgrades and downtime occur at the vendor's discretion, and not when most convenient for a particular end user organization. This creates significant reliability concerns for mission critical business applications.

Performance:

On-demand applications don't offer predictable performance and cannot be tuned for the needs of individual end user organizations. Slow WAN connections or spikes in usage can cause sluggishness. A shared infrastructure means that all users and organizations receive the same service levels. There are no mechanisms to tune the applications performance for organizations that have unique requirements such as many remote offices connected on slow Internet connections.

Security:

In addition, many organizations have legitimate security concerns. End user organizations must trust that on-demand vendors are keeping their data secure by protecting data from internal threats such as limiting access to specific vendor employees that have been effectively screened , protecting data from external threats such as hackers, and reliably backing up, archiving, and when necessary, recovering data.

In spite of these challenges, the SaaS market is growing faster than the traditional packaged software application market. IDC, global provider of market intelligence, predicts that worldwide spending on SaaS, which totaled US $4 billion in 2004, will reach US $10.7 billion by 2009. SaaS represented approximately 5 % of business software revenue in 2005 and by 2011, 25 % of new business software will be delivered as SaaS, according to Gartner.

The future for SaaS is indeed looking bright.