Software as a Service

From Isopedia

1 Overview
2 History
3 How it Works
4 Benefits
5 Progress of the Market
6 Established Firms
7 Alternatives
8 References
9 Group Members

Overview

Software as a Service (SaaS) is a software distribution model in which applications are hosted by a vendor or service provider and made available to customers over a network, typically the Internet. In layman’s terms, SaaS is a temporarily purchased program that helps companies with different aspects of their business. Recently (within the past 10 years), software as a service has proven to be a booming industry. It has exploded in growth over the past few years. Simply put, software as a service, or SaaS, is the outsourcing of a company’s IT to another company. SaaS providers aim to remove the annoyance inconveniences of maintaining and improving software that company’s traditionally have had to deal with. Though company’s are very able to maintain their own software, this kind of work is more like “busy-work” that uses up valuable resources such as time, money and memory space. SaaS has grown tremendously because of the many advantages it offers. A SaaS provider is able to give better, less expensive and more reliable applications than what a company itself can give. Though this option is not without risks, for you are trusting certain operations of your business to a third party. Also, businesses must keep in mind that SaaS will not provide a competitive advantage, for the very same software which they may purchase is available to any other business who desires it. Despite these factors, SaaS is generally a beneficial option for businesses.

History

In relative terms, software as a service is a new industry, and thus does not have as much of a history as some other topics related to information systems. Nevertheless, going back 20 years does help to examine the origins of software of a service.

SaaS developed after the market for outsourcing IT learned what works effectively and what does not. For example, the 1990’s saw the dawn of application service providers (ASPs). The problem with ASPs is that the software they provided was not their own; rather, it was simply an existing program. Businesses would outsource their particular IT needs to ASPs, who would then customize the existing software to fit that businesses needs and wants. Though this seems like a good investment for businesses, it was not a good business model for the ASPs. They found it difficult to manage and keep track of each company’s particular customizations. Although each firm would be using the same basic software application, each individual business would want things slightly different, which created problems for ASPs. SaaS was built off the idea of the ASP and is very similar to it. SaaS vendors built off the mistakes of ASPs, and thus have created a more successful and profitable market for themselves.

How it Works

One reason that software as a service has become so popular is because it is easy to use. Providers market their usability as an incentive for companies to invest in them. Purchasing SaaS is as simple as visiting the appropriate website and downloading their software onto the computer.

There are many ways in how Software as a Service (SaaS) works. It can provide management an integral access to commercial software. It enables consumers to remotely access activities and applications that are hosted from a central site rather than a personal site via the internet. SaaS can distribute applications on a single-to-multi interface instead of a one-to-one model. Some of the applications can include characteristics such as architecture, managing, and pricing.

A distinguishing feature of SaaS is that users pay for what they use. SaaS providers usually charge a fixed or variable rate. With a fixed rate, company’s pay for a specified period of time, whether it be a day, a week, or a month. In this approach, company’s can use the software unlimitedly for the amount of time they paid for. On the other hand, some SaaS providers charge a variable rate, in which company’s pay proportionally to the amount they use the software. Each approach has its advantages, depending on the company and the software which is being purchased.

Benefits

The decision to switch to SaaS is one that most CIO’s have come across. The reason so many firms invest in it is because of the many advantages which it offers. Businesses, who are always looking to cut costs, cannot help but notice the ways in which software as a service saves money. It comes down to economics: because of the idea of economies of scale, a service provider can offer better, less expensive, more reliable applications than companies can themselves. In addition, the initial investment is not nearly as substantial when businesses choose SaaS over their own software.

Another benefit is that a company will experience fewer bugs or glitches because SaaS tends to be less complex and therefore less susceptible to errors. Also, a lot of SaaS vendors will usually make improvements to their software 1-3 times a year. These enhancements make the already convenient software even better. Company’s, although capable of creating such enhancements, do not often have the extra time and personnel to improve upon their existing software. By outsourcing their IT, they allow vendors to spend their time making their product better, which benefits the firms.

Progress of the Market

An increasing number of large companies, as well as small or medium companies are beginning to adopt SaaS. SaaS is proving a good solution for new companies starting up because it offers such an ideal pay-as-you-go option, which is beneficial for new companies that don't have a lot of money to throw around. Because our lives have become so global, it's easier for companies to access applications and keep up with information anywhere at anytime with software-as-a-service applications. SaaS doesn't require a lot of time for workers within the company to update and continually make sure it's on track. The SaaS providers themselves keep the software up and running, secure, and are always updating the applications to meet current customer needs. To keep companies satisfied, they can usually partake in try-before-you-buy to see whether it fits their needs or not without wasting any money. This is a great advantage for companies to be able to do so as not to waste money and time with applications that don't turn out to fit them just right and then have to spend more time looking for a better software. Because the economic environment is so global, SaaS offers great broadband networks and software capabilities that are easily used and accessed all over the world. On-demand services are becoming more and more popular everyday. For instance, think about how huge Amazon and iTunes have become. Without these sources and software-as-a-service solutions, these applications might not have become nearly what they are today.

SaaS provides low cost and low maintenance services. Microsoft is already working to make its products SaaS-able. "The more mainstream SaaS becomes, the more these vendors will be forced to offer effective platforms for ISVs and enterprises that want to build SaaS applications." (Wainewright). The vast and quickly growing virtual technology is making software-as-a-service ultimately necessary for companies to adapt to.

Established Firms

Because software as a service has been so successful, there are many emerging providers in this area. This area is viewed as one that will have continued growth because of its many benefits. One of the leading SaaS providers is Salesforce.com, who is said to be one of the first to offer software as a service with their customer relationship management program. There is no set list of firms who are established in this market because it is such an expansive market. Also, as the name implies, there are many different types of software that can be offered as a service. Below are some other notable firms in the market, as well as the type of software which they provide.

▪Widen.com—Marketing resources.

▪Everdream—Desktop management.

▪SuccessFactors—Employee performance management.

▪Ketera—Spend management software.

Alternatives

Of course, companies always have the option NOT to outsource their IT needs to a SaaS provider. They can decided to develop and manage their own systems to suit their specific needs. For some businesses, this can be advantageous. One important thing to note about SaaS is that it is an option aimed at providing convenience, not differentiation or a competitive advantage. Although the purchased software may be configured to the business's liking, the actual code can not be customized. Many start up SaaS companies have failed when they try to customize their code to their current customer. In doing so, the vendor limits its ability to appeal to different industries. With SaaS, the same code that is purchased by one firm can be purchased by another firm. This affects some CIO's decision making.

There are also different software alternatives to SaaS. One alternative to SaaS is called an application service provider(ASP). Unlike SaaS, ASPs run their sources and information through applications in a safe, standardized background. Other clients may to choose to run MSPs to ensure safety in their information and data. The main reason why clients use MSPs and ASPs less is because they require much more hard/software upgrade and fixes.

Here are the definitions of the popular alternatives:

▪Application service providers (ASPs) - business that provides computer-based services to customers over a network.

▪Managed service providers (MSPs) - a company that receives income from services, typically on a monthly basis.