12 January 2020
The Future is Software as a Service (SaaS)
It would be premature to continue on our blog series detailing the ins and outs of content marketing without first exploring the ins and outs of SaaS or more commonly known as Software as a Service. Software as a service (SaaS) is a software distribution model in which a third-party provider hosts applications and makes them available to customers over the Internet. SaaS is one of three main categories of cloud computing, alongside infrastructure as a service (IaaS) and platform as a service (PaaS).
SaaS is closely related to the application service provider (ASP) and on demand computing software delivery models. The hosted application management model of SaaS is similar to ASP, where the provider hosts the customer’s software and delivers it to approved end users over the internet. In the software on demand SaaS model, the provider gives customers network-based access to a single copy of an application that the provider created specifically for SaaS distribution. The application’s source code is the same for all customers and when new features or functionalities are rolled out, they are rolled out to all customers. Depending upon the service level agreement (SLA), the customer’s data for each model may be stored locally, in the cloud or both locally and in the cloud. Organizations can integrate SaaS applications with other software using application programming interfaces (APIs). For example, a business can write its own software tools and use the SaaS provider’s APIs to integrate those tools with the SaaS offering.
There are SaaS applications for fundamental business technologies, such as email, sales management, customer relationship management (CRM), financial management, human resource management (HRM), billing and collaboration. Leading SaaS providers include Salesforce, Oracle, SAP, Intuit and Microsoft.
Centralized hosting of business applications dates back to the 1960s. Starting in that decade, IBM and other mainframe providers conducted a service bureau business, often referred to as time-sharing or utility computing. Such services included offering computing power and database storage to banks and other large organizations from their worldwide data centers.
The expansion of the Internet during the 1990s brought about a new class of centralized computing, called Application Service Providers (ASP). ASPs provided businesses with the service of hosting and managing specialized business applications, with the goal of reducing costs through central administration and through the solution provider’s specialization in a particular business application.
While most initial ASP’s focused on managing and hosting third-party independent software vendors’ software, as of 2012 SaaS vendors typically develop and manage their own software.
Whereas many initial ASPs offered more traditional client-server applications, which require installation of software on users’ personal computers, SaaS solutions of today rely predominantly on the Web and only requires a web browser to use.
Whereas the software architecture used by most initial ASPs mandated maintaining a separate instance of the application for each business, as of 2012 SaaS solutions normally utilize a multitenant architecture, in which the application serves multiple businesses and users, and partitions its data accordingly.
Unlike traditional software, which is conventionally sold as a perpetual license with an up-front cost (and an optional ongoing support fee), SaaS providers generally price applications using a subscription fee, most commonly a monthly fee or an annual fee. Consequently, the initial setup cost for SaaS is typically lower than the equivalent enterprise software. SaaS vendors typically price their applications based on some usage parameters, such as the number of users using the application. However, because in a SaaS environment customers’ data reside with the SaaS vendor, opportunities also exist to charge per transaction, event, or other units of value, such as the number of processors required.
The relatively low cost for user provisioning (i.e., setting up a new customer) in a multitenant environment enables some SaaS vendors to offer applications using the freemium model. In this model, a free service is made available with limited functionality or scope, and fees are charged for enhanced functionality or larger scope. Some other SaaS applications are completely free to users, with revenue being derived from alternative sources such as advertising.
A key driver of SaaS growth is SaaS vendors’ ability to provide a price that is competitive with on-premises software. This is consistent with the traditional rationale for outsourcing IT systems, which involves applying economies of scale to application operation, i.e., an outside service provider may be able to offer better, cheaper, more reliable applications.
The vast majority of SaaS solutions are based on a multitenant architecture. With this model, a single version of the application, with a single configuration (hardware, network, operating system), is used for all customers (“tenants”). To support scalability, the application can be installed on multiple machines (called horizontal scaling). In some cases, a second version of the application is set up to offer a select group of customers access to pre-release versions of the applications (e.g., a beta version) for testing purposes. This is contrasted with traditional software, where multiple physical copies of the software — each potentially of a different version, with a potentially different configuration, and often customized — are installed across various customer sites. In this traditional model, each version of the application is based on a unique code.
Although an exception rather than the norm, some SaaS solutions do not use multitenancy, or use other mechanisms—such as virtualization—to cost-effectively manage a large number of customers in place of multitenancy. Whether multitenancy is a necessary component for software as a service is a topic of controversy.
Software as a service (SaaS /sæs/) is a software licensing and delivery model in which software is licensed on a subscription basis and is centrally hosted. It is sometimes referred to as “on-demand software”, and was formerly referred to as “software plus services” by Microsoft. SaaS applications are also known as Web-based software, on-demand software and hosted software.
SaaS shows no signs of slowing down, in fact these platforms are making it easier and easier to facilitate global trade along every industry. While platforms will continue to evolve as a result of the need for efficiencies in businesses and organizations this also contributes to massive shifts in economic change. Those taking advantage of these platforms will stay ahead of the crowd and thrive while those who aren’t not leveraging SaaS will find it near impossible to compete in today’s market place.