What Is Saas: SaaS Business Model Explained

posted by ADMIN // March 18, 2009 // What's Next?

Software as a Service (SaaS) is a method of using software applications hosted by a vendor and delivered to customers via a web browser on the Internet. Instead of installing the software locally, the program is used by hundreds of users distributed globally and is hosted in a central location by the vendor. The customer who is using this service pays the vendor or host of the software on a per-use basis.

SaaS Potential

Software as a Service is available in many areas of a business including HR management, accounting, legal services, partner management, customer relationship management, email, IT security and content management services. There are a number of companies offering Software as a Service today including Salesforce.com, Oracle, Microsoft, WebEx, Citrix, SAP and GoToMeeting.

Also known as “on-demand," “remotely-hosted” and “application service providers (ASP)”, the concept Software as a Service (SaaS) was first circulated in the late 1990s. Since then it has gained much importance and acceptance among users. Now, it looks like every major software company plans to provide SaaS in one form or another. According to Gartner research, 30 percent of new customer service and support application investments will be delivered through the SaaS model by 2012. It also predicts that all forms of SaaS-delivered customer service applications in the call center will grow by more than 20 percent per year through 2012.

A wide variety of companies are involved in the SaaS business model. Although it has been in existence a fairly good amount of time, it is still evolving and companies are still struggling a bit to push it into the mainstream. One of the successful companies based on this model is Salesforce.com, which provides Customer Relationship Management (CRM) software services via the Internet.

Advantages and Disadvantages of SaaS

1. No infrastructure costs: The first and foremost advantage of the SaaS model is that by having someone else host the software, small businesses can save on the upfront license and ongoing maintenance fees associated with running it on their own infrastructure. This is the primary reason many companies shift to this service.

2. No human capital: No human resources are needed to maintain the software, which contributes to cost savings for the small business. This also helps SaaS companies as they need to use fewer resources for a large number of customers as the servers are located in a central location.

3. No maintainance headache and thus less risky: It is the responsibility of the vendor or service provider to keep the software and servers up-to-date with patches, and thus provide maximum uptime and less overhead for the customers using the services.

4. Low cost of implementation: There is a little bit of disagreement over this among users, as even though SaaS looks like a low cost option, it may be expensive over time as they will pay for the service on an on-going basis. However, for companies offering SaaS, revenues are predictable and more sustained for the long-term, thus helping them in better forecasting, planning and positioning themselves in the market.

5. Less customization: Customers using this service have less scope for customizations as they need to use the same code base used by multiple other users. Even though many companies that offer SaaS boast that the software is highly customizable for each user according to their needs, it may not meet the requirements of highly demanding users.

6. Security: There are some apprehensions among customers in terms of security for their data and systems, particularly if their business-critical applications are hosted and maintained by external companies. In such a case, one can avail these services for less business-critical tasks such as partner management software, human resources management, etc.

7. Integration and scalability: Often it is found that these services are not easy to integrate with other applications in the enterprise. There needs to be lot of work done to integrate with other applications as each application has its own set of standards and business processes.

Future of SaaS

It is exciting to see the future of the SaaS business model. Already there are signs of it becoming more popular as the number of companies that are providing the offerings based on it and the number of customers signing up for these applications are increasing daily, especially in the global economic slowdown. A number of big corporations are joining this party as the traditional way of using software is becoming more of a burden for customers.

Author
Praveen Kumar Tumma

Article Source: Articlesbase.com

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