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Software-as-a-Service – the basic concepts and advantages to businesses

Mon, 26 Jan 2009 14:38:02 GMT

Software-as-a Service – the basic concepts and advantages to businesses

Software as a Service (SaaS) is a model of software deployment where an application is hosted as a service provided to customers across the Internet. By eliminating the need to install and run the application on the customer’s own computer, SaaS alleviates the customer’s burden of software maintenance, ongoing operation, and support. Conversely, customers relinquish control over software versions or changing requirements; moreover, costs to use the service become a continuous expense, rather than a single expense at time of purchase. Using SaaS also can conceivably reduce that up-front expense of software purchases, through less costly, on-demand pricing. SaaS lets software vendors control and limit use, prohibits copies and distribution, and control all derivative versions of their software. This centralized control often allows the vendor to establish an ongoing revenue stream. The SaaS software vendor may host the application on its own web server, or this function may be handled by a third-party application service provider (ASP). This way, end users may reduce their investment on server hardware too.

Philosophy

As a term, SaaS is generally associated with business software and is typically thought of as a low-cost way for businesses to obtain the same benefits of commercially licensed, internally operated software without the associated complexity and high initial cost. Many types of software are well suited to the SaaS model, where customers may have little interest or capability in software deployment, but do have substantial computing needs. Application areas such as Customer relationship management (CRM), Project management, human resources, accounting, web content management, IT service management, video conferencing, IT security, web analytics, and e-mail are some of the initial markets showing SaaS success. The distinction between SaaS and earlier applications delivered over the Internet is that SaaS solutions were developed specifically to leverage web technologies such as the browser, thereby making them web-native. The data design and architecture of SaaS applications are specifically built with a “multi-tenant” backend, thus enabling multiple customers or users to access a shared data model. This further differentiates SaaS from client/server or “ASP” (Application Service Provider) solutions in that SaaS providers are leveraging enormous economies of scale in the deployment, management, support and through the Software Development Lifecycle.

Example

A simple and concrete example of SaaS are the “free” email (also called web-based email) systems offered on the Internet such as G-mail and Yahoo Mail. Each program meets the basic criteria of a SaaS application: a vendor (Google, Yahoo) hosts all of the programs, logic and data in a central location and provides end users access to this data and the software which is run and used over the world-wide web.

This “simple” application architecture can then be applied to a wide range of software applications for use by either business enterprises or individual end-users.

Two Main Categories of SaaS

SaaS is often divided into two major categories:

The so-called “line of business services” which refer to business solutions offered to companies and enterprises, and sold or made available to these enterprises on a subscription basis. Applications covered under this category include business processes such as supply-chain management programs, customer relations applications and others
Customer-oriented services which are offered to the general public either on a subscription basis or (more often than not) offered for free but are supported by advertising. Web-based email services such as those cited above fall into this general category.

Key Advantages for the User

Lower Costs. The user need not pay a single (usually large) licensing fee. He only needs to pay recurring subscription fees.
Smaller Storage Requirements. The user need not store software or data stored on his computer so he doesn't need large data storage facilities. There is also the convenience of not needing to constantly backup data - storage is the responsibility of the SaaS provider.
Fewer Personnel. SaaS reduces the need for specially trained IT personnel to handle maintenance, monitoring and software updates. The SaaS vendor will provide a dedicated team to handle these tasks.

Key Advantages for the Vendor

The primary advantage for the vendor lies in the continuous stream of income which will amount to much more than what can be expected in the traditional software licensing setup. Through SaaS, furthermore, vendors can mitigate piracy and unlicensed use of software and reduce losses associated with such activities.

What makes on-demand SaaS applications better than on-premise software

Sat, 31 Jan 2009 10:46:07 GMT

1. Ready to run
SaaS applications are already installed, already optimized for their hardware and software platform, already customized to meet client’s business processes requirements.

2. Pay as you go
Customers pay for live user accounts.

3. Short learning curve
Users need minimal training to get started with a SaaS application.

4. Multi-tenancy
SaaS applications are based on a multi-tenant architecture where a single instance of the software runs on a server, serving multiple client organizations (tenants). This brings economies of scale by sharing the same physical instance and version of an application across many different customers.

5. Loosely coupled integration
In the same way that the multi-tenant architecture must serve many different customers’ customization preferences, it must also serve many different integration requirements.

6. Constant monitoring and feedback
With all their customers running on a single data center infrastructure, SaaS vendors can easily aggregate, analyze data and provide for billing information about how customers use their applications.

Spotlight shines on SaaS in Europe

Sun, 01 Feb 2009 19:36:02 GMT

Phil Wainwright - It’s tough being a software startup in Europe. Each individual country market is small compared to the US, and expanding into other countries means overcoming a series of linguistic, cultural and administrative barriers. No wonder then that the only SaaS vendors known throughout Europe are US-based companies. But that doesn’t mean there isn’t a significant crop of indigenous European SaaS leaders. It simply means their names are not well-known — something I’d like to help put right, as I’ll explain below.

It’s no coincidence that the first major SaaS conference in Europe is taking place in Amsterdam next week (even though it’s not an indigenous effort, being an offshoot of the SIIA’s On Demand Summit, first held in San Jose last November). On Demand Europe, which I’ll be attending and speaking at, is being held at a time when SaaS adoption is beginning to surge across the continent.

A briefing published today by market analyst Saugatuck Technology emphasizes how timely the event is. SaaS Adoption in Europe: A Closer Look at Rapid Growth suggests that 2007 will be a boom year for SaaS companies in Europe (and most that I’ve spoken to have indeed confirmed their sales momentum has really taken off this year). According to Saugatuck’s research:

“SaaS adoption (of one or more SaaS applications) in W Europe will double — from 16.9 percent in 2006 to 33.8 percent in 2007. Over the same period, North American adoption is increasing from 35.3 percent to 46 percent.”

Put that another way, the finding is that growth in Western Europe this year will be virtually double the rate pertaining in North America, with more than a third of European businesses adopting SaaS by the end of the year. What’s more, based on its previous research, Saugatuck believes actual adoption will exceed stated intentions.

There are still differences in emphasis between Europe and North America. Saugatuck’s research is particularly useful in identifying the different stages of adoption — Europe tends to be around 18 months behind the US in its cultural acceptance of new technologies, and that means that European buyers, although they’re embracing SaaS, are doing so in a manner that’s reminiscent of the US market in late 2005. They aren’t yet worried about some of the integration-related issues that North American buyers are currently getting to grips with.

Saugatuck concludes:

“We believe the climate is right for the rapid SaaS growth our survey respondents have forecast, not just in the early adopter countries such as UK, Ireland, and the Benelux and Scandinavian countries, but also across France, Germany, Spain and Italy — and to a somewhat lesser extent in Eastern Europe. Europe is poised for the same pattern of explosive growth in SaaS as North America experienced over the past eighteen months.”

8 Trends in Software as a Service Platforms

Sun, 01 Feb 2009 20:00:13 GMT

Alex Barnett - 8 Trends in Software as a Service Platforms

SaaS is just part of the web mega-trend
Mainstream opinion says “Yes” to SaaS
Software vendors stampede into SaaS
All is being virtualized
Explosion of Web APIs
Economic factors favor SaaS
Enterprise and SMB IT embraces SaaS
SaaS platforms proliferate (PaaS)

1. SaaS is just part of the web mega-trend

Most of us have witnessed and many of us have been a part of the transformation in the way goods and services have been digitized, virtualized, delivered and consumed. Software, the data behind that software and the functionality that software provides is no different - software is subject to the very same transformational forces.

Just think about how even a class of product that is natively digital - such as software - has been transformed in the way it is delivered and consumed. For prosperity's sake, I've still got a few of those ZX81 software cassettes stashed away somewhere, gathering dust, looking ever more antiquated with each passing year. How will today's mode of software delivery and use look to us in a few years from now?

The web wants to connect things, and that's interesting. But connecting and interacting with "live" data, information and remote functionality make things more interesting.

At the fundamental level, the web connects things. It connects people to people, businesses to businesses, and people to businesses. Since the early 90's, the web has enabled the connection of so many things to so many other things at an ever accelerating rate, and yet we crave even more connectivity. But we increasingly also want the ability to interact with those things.

And it is the nature of these connected things that have changed since the early internet. The early web was good at connecting to static views of information and accessing limited and rigid functional services, very much a read-only mode. Then, as we learned a) the ability to read more dynamic-type information - at least regularly updated, and b) access richer remote functionality, we created whole new opportunities for ourselves. Next, we grew our ability read and write against dynamic, near real-time data and information and to program against remote functionality to create a new class of web applications leveraging those capabilities - and hence a new order of business and experiential opportunities have emerged. Some label this as "Web 2.0".

At its essence, it is the "liveness" of these real-time read-write data, information and functional sources available as "always on" services and the increasing ease to connect to, interact with - specifically change those resources available as live, programmable services that allows us to create new value out of those resources, opening up brand new market opportunities for businesses and the compelling, rich "live" end-user experiences of tomorrow.

2. Mainstream opinion says “Yes” to SaaS

Not surprisingly, Wall Street loves the predictability of subscription services. It's good for cash flow, forecasting and business planning.

The venture firms also relish the opportunities that are opening up in a software as services-oriented economy. The ability to circumnavigate the incumbent software players with new disruptive technologies and propositions that are significantly easier to try and access for prospective customers compared to traditional software evaluation, along with usage and subscription-based business models verses the old licensing model makes investing in services-based software companies very compelling propositions from the venture firms' point of view. We should also see healthy M&A activity based on these similar opportunities in the coming year.

And then there's the trend for offshore / IT business process outsourcing. These providers will surely get in the game and make their plays through investments in and acquisitions of SaaS vendors that align well with their current core businesses.

Add to that the excitement we're reading about the SaaS space from the IT Analysts, journalists and bloggers, plus the new book by Nick Carr (author of “IT Doesn’t Matter”) - delivered by Amazon to me last week: “The Big Switch: Rewiring the World, from Edison to Google”. I think there's little doubt Carr's excellent analysis of the computing industry as an analogy to the electricity industry's shift to a utility model will be on business bestseller list for much of 2008. His messages resonates with corporate executives and end-users agree with him:

IT is a needless hassle,
it should be as easy as electricity and
be as reliable as a utility

3. Software vendors stampede into SaaS

The Big Software Players are following the early SaaS successes

CRM as a case in point. If you've been following the CRM software market, you'll know about the noises Oracle-Siebel, SAP and Microsoft started to make in the 2007 about what they are are lining up for the 2008 in terms of CRM as a service. Their efforts to emulate Salesforce.com's success delivering CRM as SaaS will be key strategic bets from the incumbents' point of view - and loud, price and functionally competitive propositions from the point of view of their existing and prospective customers.

CRM is just one of the multiple horizontal solution categories to transform from on-premise with traditional licensing model to a service-based delivery and subscription-based revenue model. ERP, supply chain, e-commerce, HR and many more...the horizontal solution list goes on. And then there are the vertical solution players...

Here's another data point to consider regarding the move by traditional software vendors to a SaaS model:

“15-20% of application ISVs have already either begun new skunk works initiatives or gained access to SaaS assets and development experience through M&A activity”
(Source: Key Trends in SaaS: 2008 and Beyond, Saugatuck Technology)

4. All is being virtualized

Virtualization is a technology trend.

Virtualization enables hardware as a service. The demand for virtual machines met by hypervisor software (VMWare, Xen, Hyper-V) and the success of Amazon's Elastic Compute Cloud (EC2) in the last couple of years point to a continuation of further virtualization of applications and hardware. Virtualization is accelerating the move from traditional on-premise software to services.

Virtualization is a business trend.

We continue to become a mobile workforce. The younger entrants into the workforce in service-oriented economies expect and want to be always connected. It's very hard work, if not impossible to get your traditional on-premise applications and centralized servers sitting behind a firewall to serve today's mobile workers. SaaS and managed services meet the needs square on.

5. The explosion of Web APIs is upon us

According to ProgrammableWeb.com, there are 559 commercial and public APIs available today, most of these are new and there are plenty more to come. How many will we see go live this year? And how many private web APIs are there and will be developed and consumed in the coming year?

Data from ProgrammableWeb.com

6. Economic factors favor SaaS

On-premise software requires upfront capital investments
To lower costs, many companies hold back on their capital investments to mitigate their risks, especially in recessions
Adopting on-demand services on a pay-as-you-go basis will be a perfect sourcing strategy for businesses seeking greater cost-controls and flexibility – the utility model

All well and good, but the real economic value of SaaS is that fact that it unleashes new value of previously isolated data silos and functionality.

7. Enterprise and SMB embraces SaaS

When it comes to IT, who doesn't like

Low-maintenance?
Low cost?
Low-resource profile?

IT and business folk like these things, and externally delivered SaaS applications deliver these benefits.

8. SaaS platforms proliferate (PaaS)

The more mainstream SaaS becomes the more the large vendors will be forced to offer effective platforms for ISVs, enterprises and SMBs.

If the move by the software vendors from traditional on-premise software to a services model is to be successful, they will need to provide programmable interfaces - not just end-user interfaces - to their services for their customers. Customers need and want the ability to access, integrate and create new value out of live, programmable data, information and functionality living in the cloud. And in turn these same customers will want their custom-developed composite applications and integrated data available as programmable services - yet more APIs.

Customers want to unleash new value of previously isolated data silos and functionality through the development of their own applications programmed against those resources. And in turn these same customers will want their own custom-developed composite applications and newly integrated data available as end-user interfaces and as programmable services - yet more APIs. These customer needs will drive the software market to provide platforms to provide businesses and developers with with end-to-end:

programmable services and data integration
application development, testing and collaboration tools
deployment and scalable delivery

...all as a service with a utility model.

2008 will mark a the proliferation of such offerings as "platforms as services" (or PaaS) through 2009, where then the consolidation will begin. Interesting SaaS and PaaS times ahead.

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Wed, 19 Jan 2011 15:46:14 GMT