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 as a service on demand, through a subscription, in a "pay-as-you-go" model, or increasingly at no charge.
As outlined in the “Strategic Backgrounder: Software as a Service”, an article published by Software and Information Industry Association’s eBusiness division in February 2001, “In the software as a service model, the application, or service, is deployed from a centralised data centre across a network – Internet, Intranet, LAN, or VPN – providing access and use on a recurring fee basis.”
Saas, as it is generally called, was being named differently by the various companies as their models developed around the same ideology. The models were called as application service provider (ASP), application infrastructure providers (AIPs), Internet Business Service (IBS), business service provider (BSP), solutions service provider (SSP), and many more similar models.
The term is coined for a paradigm shift happening in the software industry. Till date, majority of the software have been sold as a product whereby the purchaser has to install and configure the software to use. These would have required excess hardware capabilities which would inevitably be costly. SaaS aims to remove the need to having to install a product and also do away with its customization. The software would now be deployed on a network as outlined above and would be accessible to the user anytime, anywhere.
The core value of software as a service is providing access to, and management of, a commercially available application. This service is different from business process outsourcing (BPO), for instance, where the outsourcing contract encompasses management of entire business processes such as HR or finance. It is also different from hosting services, where the focus of the service is management of the network and servers, but virtually no applications management. SaaS as in present form is held to be encompassing all the ASPs, AIPS etc. as they have been mentioned by SIIA.
SaaS model might have sounded the “in-thing” for many a corporate players, but it had direct implications on the revenue of the companies. The software as a product (SaaP) was more profitable and gave more negotiating powers to the providers as compared to SaaS. But there were reasons why the concept was built and nurtured.
The three main reasons outlined way back in 2001 were:
- Reducing the substantial cost of code delivery to the customer
- Recurring revenue charge model was very appealing to the developers
- SaaS would be able to expand the potential customer base for the developers
Other benefits which would be derived from the model are:
- Move a company into an internet focused approach
- Offer better online services and information
- Increased availability of the software to work
- Limit the cost of configuring software for users
- Attract new investors and partners
- Risk mitigation
- Faster go-live possibility with reduced time from development to market
- Reduced hardware costs
- Standardization of the software
- Increased mobility and scalability
- Painless upgrades
- Low cost internet access
- Widespread usage of computers
- Increasing cost of maintain a large IT support team
- Standardization of applications
- Change in the way software is developed
- Increased reliability on web-based software
- Increased online security (though this seems to be ambiguous for obvious reasons
- Customizability being required by the users
SaaS implementation in a layman’s term would mean that the software which was initially being sold as a product to the client is now being web-enabled, web-accessed version of the same product.
SaaS Strategy
Strategic Analysis has to be conducted before choosing the SaaS strategy for the company. It is similar to the Porter’s Five Force model where the economic, direct and indirect competition and assessment of new competitors, and the amount of negotiating powers of the providers have to be considered.
Strategic Choice Analysis would allow the company to do financial comparisons along with the feasibility of the SaaS as a sustainable solution.
Strategic Implementation would be needed to reap the benefits from the complete system. Different ways to implement the SaaS have been outlined below.
Saas Implementation
SaaS is being implemented in four major ways which are defined as:
Server based computing
In the server-based computing model, an application is run on a server, but the user interface is presented through a thin client to the end user. Users can access the output of the user interface via a special client program or within a browser.
Hosted Client Computing
HCC allows an application to run on the user's desktop, but it is served, or “streamed,” from a server. When the user is finished using the application, it is removed without ever having been physically committed to the user’s machine. The most efficient HCC technologies segment the application so that only those portions of the application and the data needed to run the application are sent over the network to the user’s machine.
Web-based Applications
These include the deployment of applications via html. By simplifying user interface logic and separating application data and user data, a web application is developed to be maintained on a server and viewed through a browser.
Java Applications
Java allows applications to include a rich mix of interactive features and functions that simple Web – or html - based applications cannot offer.
Licensing Models for SaaS
Subscription-Based Mode
Monthly payment is calculated on the software actually used, and includes a commitment as to the actual number of users. Subscriptions are usually written on a per-seat or named user basis.
Usage-Based Mode
Payment is determined by application usage and is typically related to peak or near peak levels of usage. Payment may be tied to the number of CPUs (customers are charged for every computer that runs the hosted application). It may also be a written for number of concurrent users.
Transaction-Based Model
ASPs that provide online scheduling and similar products sometimes charge customers for each business transaction: purchasing one introductory relational database class is one service, two classes are two services, and so on.
Value-Based (a.k.a. Shared Risk or Revenue) Model
Premised on the provision of whatever software is needed to achieve business goals, and payment is linked to the achievement of those goals.
The Fixed-Fee Model
An emerging option, users generally pay a predetermined monthly fee based on number of users supported, which application modules are rented and service and support levels specified by the customer.
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