Building a Business with Software-as-a-Service

October 14, 2008

Software as a Service (SaaS) is starting to capture people’s interest with the emergence of more advanced enterprise applications that are often used in a ‘pay as you go’ manner and accessed easily over the Internet.

It provides businesses of all sizes with a new choice in terms of the architecture on which they build their business going forward. Sometimes referred to as ‘on demand’ or ‘cloud computing’, we have until recently seen mainly specific operational applications such as CRM (customer relationship management) delivered successfully in this way. The fact that applications providers are starting to deliver offerings in a diverse range of areas, including strategic areas like accounting and vertical sector solutions, suggests that the market is developing and SaaS has become a real option.

Unlike the Application Service Provider (ASP) days of the 1990s, SaaS applications today are typically delivered through specially designed software with a ‘multi-tenant’ architecture – where many customers are accommodated on the same instance of software, with their data segmented from other users of the service. An example of this that many people use daily is Hotmail, Gmail or Yahoo mail. This is a multi-tenant environment where all use the same software to process email, but each user’s emails remain private. They are feature rich and in many cases are directly comparable with their on-premise counterparts. This delivery model may not be right for all businesses and as with anything, a company should pick the right way to deploy its business applications, based on its business process requirements.

The real benefit of SaaS comes from the ease of set-up, the subscription-based pricing with no large capital outlay, and the ease of maintenance. The risk of selecting the wrong application is significantly reduced as you can often trial the application free of charge before you buy it. Rather than investing in hardware and infrastructure and paying an upfront licence fee and ongoing upgrade costs, with SaaS, hosting and software maintenance is all provided for the customer as part of the rental payment. Users receive the benefits of new editions automatically through their provider rather than having to install a new version every time one is released.

This approach will not suit everyone and ‘traditional’ or ‘on-premise’ software will probably be around forever. But more companies are seeing a benefit in being able to use applications rather than focusing on infrastructure. In this way, I think SaaS signifies the biggest impact on the way business software is deployed and used since the dawn of the Internet.

Nicholas Carr, in his book The Big Switch: Rewiring the World, from Edison to Google, compares the computing industry to that of electricity. Once delivered in-house by each company that needed it, it went to being mass-produced and delivered on a power grid which anyone could tap into, and revolutionized the way we live. In this way, he believes the days of companies building individual IT infrastructures are coming to an end. He writes: “Hooked up to the Internet’s global computing grid, massive information-processing plants have begun pumping data and software code into our homes and businesses. This time, it’s computing that’s turning into a utility.”

In my mind, 2008 marks a turning point in the SaaS space. We have seen a number of key enterprise-level vendors throwing their hats into the SaaS ring – including CODA ourselves, of course. If more strategic business applications are available to organizations as SaaS, then they will take a more strategic approach to it.

Like many technology innovations, the market is awaiting the emergence of standards, particularly in the area of platform. The emergence of standard SaaS platforms – coined ‘Platform as a Service’ - as Salesforce.com is trying to achieve with Force.com, would provide a common infrastructure for new entrants to build all kinds of business applications. Like everything, some will argue that a reliance on a single platform provider has its risks. However, in this way applications can be built that talk to each other easily.

It becomes feasible for users to adopt a business architecture from the bottom up with all the necessary applications up and running very quickly and cheaply – an excellent option for start-ups with little IT budget and no IT expertise in-house for example.

The problem that has existed with a lot of SaaS applications in the past is that they have been built from the ground-up by vendors with little or no experience in the on-demand market space. Often, this has meant that integration with other applications remains a problem and the lack of rich features inherent in on-premise applications, has hampered efforts to drive SaaS adoption more widely.

SaaS applications must be feature-rich and available cost effectively, or they will not attract a sufficient subscriber base. For adoption to be widespread, standards will be important and integration capabilities vital. SaaS will remain just one option for acquiring business applications, but when the platforms become trusted we could see an increasing proportion of the market move this way over the next few years.

–Jeremy Roche, CEO, CODA [www.coda.com].