SaaS has garnered plenty of attention over the past two years as a series of upstarts, led by Salesforce.com and Google, have challenged established players such as SAP and Microsoft. These SaaS vendors have responded to escalating demand from companies of all sizes that are fed up with the costs and complexities of deploying and managing legacy enterprise applications. These companies are seeking a lower cost and more reliable alternative to support their day-to-day operations and achieve their business objectives.

As a result, survey research conducted by THINKstrategies and Cutter Consortium over the past three years has found rising interest and adoption of SaaS by corporate users. In our most recent survey, we found a third of the respondents were using a SaaS application and another 37% were considering SaaS alternatives. Of those already using SaaS, over 90% were satisfied and planned to adopt additional SaaS solutions, and would encourage their peers to adopt SaaS solutions. Of those considering SaaS, 80% planned to adopt a SaaS solution in 2008.

The growth of SaaS has not only been fueled by customer frustration with legacy applications, but also by the ability of SaaS vendors to convince customers that their on-demand solutions are a viable alternative.

Not long ago, many IT/business decision-makers harbored concerns about the reliability and security of SaaS. They were also apprehensive about the ability to customize SaaS solutions to meet their individual needs. Publicly-traded companies, as well as those in highly regulated industries, questioned whether SaaS solutions could satisfy escalating governmental and industry-specific compliance requirements.

Many companies have been concerned about application performance problems, such as lack of availability or slow response times. These concerns were understandable given the dependence of SaaS solutions on Internet access. However, as broadband networks have become more prevalent, SaaS has become more viable. High-speed networks permit rich-featured, highly interactive applications to perform in a real-time fashion nearly anywhere at anytime. This ubiquitous access exceeds the availability of most legacy applications that are dependent on highly-centralized data centers or servers hidden behind a firewall and only accessible via a virtual private network (VPN).

The ubiquity of the Web doesn’t guarantee universal availability because there is always the threat that there could be a disruption in Internet traffic or within the SaaS vendor’s own hosting facility. However, a growing number of companies are recognizing that these risks are still relatively rare and a minor inconvenience compared with the ongoing challenges and more common problems many in-house IT staffs face keeping their operations up and running, as well as optimizing the performance of their legacy applications.

Many companies are also recognizing that SaaS vendors may be better equipped to secure their on-demand applications than inhouse IT organizations who struggle to safeguard their corporate data. The most infamous security infractions continue to be found within traditional enterprise application environments, or as the result of lost or stolen laptops. The hosting of critical data in centralized and password secured SaaS hosting facilities has proven to be an effective counter-measure to the security vulnerabilities of the past. Today’s leading SaaS solutions include activity tracking and log capabilities that can identify illicit behavior and user violations.

In the past, the off-site hosting of SaaS solutions and related corporate data was also seen as a shortcoming in terms of meeting escalating compliance requirements. Today, a growing number of companies view this aspect of the SaaS delivery model as a solution to their data archival, disaster recovery and business continuity needs. The activity tracking and log capabilities also satisfy corporate audit and discovery requirements.

The SaaS model has been built on the supposition that on-demand software can satisfy a majority of customers’ most common business requirements. Based on this ‘80/20’ rule, SaaS vendors are delivering on-demand solutions based on a ‘multi-tenant’ architecture which enables SaaS vendors to support a broad installed base of customers with a single software platform, just like an apartment building landlord supports its tenants with a single set of utilities. This makes the SaaS model more economical and operationally efficient. But, it also reduces the freedom and flexibility that each software user is given to customize the application to meet their specific needs.