Why Software as a Service?

Traditional software projects versus SAAS

Historically, companies were required to buy, build, and maintain their own IT infrastructures despite exponential costs. Even a small business with a few PCs needs to find somebody in their organisation to take on the role of the IT Manager - to install the applications, manage the new versions that come from the author at regular intervals, to make sure the systems and data are regularly backed up and stored securely off-site, to think about a disaster recovery plan - all the necessary technical and management issues that can rise to a significant overhead in any company and need a large team in bigger organisations. Software as a Service effectively redefines the software deployment model from packaged applications with upfront licensing fees and lengthy implementations to one that constitutes a dynamic, "pay-as-you-go" Internet delivered service relationship. This shift fundamentally changes the assumptions, relationships, partnerships, and value proposition between software vendors, clients & end-users, and third-party service providers.

This is really turning the IT industry on its head. Think about it for a moment: a traditional software vendor sells a customer a licence for its software and the customer makes a big up-front investment and takes the risk that the project will launch on time and on budget and that the users will like the system. When a customer chooses a SaaS offering, the risk is transferred to the vendor. The software and infrastructure cost is spread as rental payments, which start small and build up over time, but only if more and more use is made of the system in the business. If the system doesn't work well or the users don't adopt it, the service provider gets fired. To the SaaS provider customer service is paramount to ensure customer retention. This is a very different business model to the traditional "licence and installation" of the mainstream software vendors. It is also at odds with the traditional consulting and systems integrators, whose businesses are more oriented towards fees for helping in that big installation project.

Another characteristic of the new approach is the release cycle for new functions. Instead of a 12-18 month period between new releases, SaaS firms release new versions quarterly or monthly, or even more often. And the nature of the approach means that they need to make sure that the new releases provide minimum disruption to their client base. Compare this with upgrading a typical in-house software application and the time and cost saving is enormous.

In conclusion

The trend toward Software as a Service represents a dramatic shift that has been brought about by an interest in lowering the total cost of application ownership, generating a faster return on technology investments, sharing in the application execution risks, and eliminating large, upfront and 'hidden' operational costs. There are fundamental differences between the license and installation model versus Software as a Service. For the software company they are cultural, technical, and involve a different approach to sales incentives, customer service, operational procedures, and even the way they present themselves to their investors. Consequently, we believe that many of the large software providers will adapt only slowly.

Software as a Service will be led by emerging, smarter, private companies that have addressed these challenges from the outset by developing proprietary applications that are properly architected for Internet delivery and an infrastructure designed to support this new delivery mechanism. These implications will be far-reaching, disrupting not only the role of traditional vendors, but also the consulting and IT services firms. In this environment, you need a different kind of consultant, who understands this shift in approach and technology, and who knows how to implement systems with a smaller group of people and challenging timescales.

Whether at the level of the small business, or in larger enterprises, the overall benefactor will be the customer. The balance of power is shifting so that SaaS will provide lower cost of ownership, lower risk, and a business model that requires good quality, continuing customer service, backed up by an appropriate SLA. The traditional software vendors should be worried. As systems users, you and your clients should be pleased - using new and efficient business tools is now a matter of when, not if and how much.