Software as a Service (SaaS) – Redefining Software Licenses…
Early days of Internet (Early 1990s) – ISPs played an important role in bringing the Internet experience to end users. ASPs (Late 1990s) – Many ISPs morphed into ASPs as well as many ASPs launched afresh. These ASPs provided the end users what they now wanted – Dynamic, customized content & more flexibility. Amazon, Yahoo, Monster, Goggle, ebay are some of the most popular names whose services we use almost everyday and thousands of others built websites where user’s got interactive experience customized to their needs. SaaS (21st Century) – As this field matured the ASP business model started to stretch into something called as Software as a Service. SaaS – Definition – A revolution, horizon …… and the list will go on. Ask 10 people and you will probably get 10 different definitions. Here, are some more!!! The software as a service model (SaaS) – widely understood as the provision of application services delivered over the Internet. In conventional SaaS models the vendor provides application capabilities using Browser or Web Service interfaces, and the user pays for the service on some form of rental agreement. The SaaS model connotes or is based upon a “one-to-many” or multi-client delivery model. Here the application is shared across clients thereby providing a minimal level of application customization in order to avoid major implementation and integration costs. A key postulation of this model is that the ‘SaaS provider’ invests in the technology, hardware and ongoing support services instead of the client. And the client “pays-as-they-go” according to a subscription and Service Level Agreement (SLA) that ensures the customer a specified level of performance and availability. This approach shares risk between the SaaS provider and client and offers single–source accountability. SaaS, A subscription-based model – the customer need not invest for all the hardware, operating systems, databases, licenses, IT staff, and ongoing overhead. Since, SMBs typically do not have the luxury of IT support, by outsourcing a much-needed application to a SaaS Provider, they can focus on their core business rather than divert funds and other resources to support advanced applications. As with many new technologies, however, demand for SaaS is being driven by real business needs. The market is still nascent and there is a fundamental need for a change in the software industry and here SaaS model seems to be playing a major role in taking an initiative that might let the software industry get growing again. Why SMBs are jumping onto the SaaS bandwagon! Small to medium-sized business (SMB) – The ones to whom SaaS ultimately makes the most sense. By adopting SaaS-based applications for certain business processes, Small and medium businesses can reduce capital investment (which they might incur in terms of setting up huge infrastructure, resources, software licenses, maintenance/up gradation costs and skilled IT manpower) if they buy and run similar applications within their premises. Since these enterprises (SMB) are faced with many business challenges that make them ideal candidates to capitalize on this business model. Low switching costs – Initial investment required for the client is minimal and the time to bring an application live is extremely rapid, the potential of the SMB market for SaaS is vast. Vendor is responsible – If there is any problem in the vendor’s software, no customer would be giving money for long. The company is motivated to fix the problem. Vendors purposely provide a secure data environment – Most vendors understand that criticality of backing up the data religiously, and security needs to be given the top priority. The Client can rest assured that their data security is probably better with a hosted solution, not worse. High-level business process automation – SaaS provides such automation and that too at a lower upfront cost, with the value-added service component added to it that a department might not get from the corporate IT organization. Imagine this – Since being founded in 1999, salesforce.com has released 20 iterations of its CRM software — something that would not be possible and practical if a customer had to purchase and installs those upgrades. Figure 1: Typical budget for S/w bought and installed on premise. Figure 2: Typical budget for a SaaS Environment The day is not too far when our home PC and the PC at work would simply be 2 terminals connected over the internet and we will be switching on one of the PC, connect and use the same kind of interface and all our software on other servers, giving all the flexibility one always wished to have. Projections – Analyst firm, International Data Corporation (IDC) projects ‘Software as a Service’ to increase over the next four years at a 21 percent compound annual growth rate (CAGR), reaching $10.7 billion in 2009. While Gartner Research predicts that by the end of this decade, 30 per cent of new software purchases in the Asia-Pacific will be delivered via an application utility or the software as a service model. India is expected to be the fastest growing ‘Software as a Service’ market in the Asia-Pacific with its five million small and medium businesses. Various Factors that are expected to drive adoption of the software as a service model across enterprises include: • Only 5 to 8 per cent of Indian SMBs have adopted some form of CRM. IT budgets for the next five years appear to be increasingly constrained, says Forrester Research. Overall software spending growth is slowing from 10 per cent in 2005 to 7 per cent in 2006 and enterprises are now ready for ‘Software as a Service’. “For all the attention placed on its legal woes, slightly lower-than-expected earnings report, downgraded stock outlook, and recent freefall in market value, the real key for the company right now is its transition from the old ASP model of several years ago to applications as a service”, according to Dwight Davis, vice president and practice director of Summit Strategies, in Kirkland, Wash. As per the market indicators, the applications having a specific functional or vertical orientation would be ideal for service delivery. It is believed that less than ten percent of ‘Software as a Service’ business will be driven by horizontal applications while more than fifty percent will be driven by vertical applications. Applications where ‘Software as a Service’ model is gaining significant opportunities: Vertical or functional-specific applications, as well as specialized ERP applications. Examples include lumber, plastics, or building industry ERP, as well as education administration systems, medical claims processing, and legal/property management etc. Areas where ‘Software as a Service’ is gaining traction: CONCLUSION ‘Software as a Service’ – A subscription-based model or an application via a hosted environment, just like the providers of Electricity, gas & water. Ofcourse, companies can have their own electricity plants, gas tanks to fulfill their needs, but then why would they go for such an investment. They have an alternative of taking these services in lieu of a subscription or monthly rent. When a utility company is there to provide you the services and save huge initial costs, and risk can be minimized, anybody would go for it. The driving force here is cost, benefit for SMBs. Where the entry cost is high before the benefits could be achieved. We can conclude that SaaS will grow at an increasing rate but yes may not prove to be a replacement for licensed software in large organizations. Like any other new technology, even SaaS has various challenges. In order to be successful with SaaS model, the SaaS providers needs to realize that they will inevitably have to address: SaaS is a beginning towards the dot-com revolution. Providing its users a quick start, faster ROI (Return on Investment) and lower IT costs, SaaS is proving to be the best solution to most business problems and issues.
• The price sensitivity and
• Lack of legacy applications.
• Reduced growth in IT budgets
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