The Benefits of the Software-as-a-Service Model

Computerworld - When the Internet burst upon the scene in the early 1990s, the concept of software as a service (SAAS) seemed an idea whose time had come. It got hyped along with everything else about the Internet and reached a massive peak of inflated expectations in early 2000 as venture capitalists funded dozens of nearly identical companies that provided various SAAS offerings.
As venture funding dried up in mid-2000, the cracks in the SAAS model began to appear. The business plans assumed zero customer attrition, an uncompetitive landscape and initial public offerings in the absence of revenue. Disillusionment set in, and 99% of those companies are no longer around. However, the strong did survive, and now, due to the success of companies like Salesforce.com Inc. and RightNow Technologies Inc., SAAS is back.
Analysts claim that by 2010, 30% of new software will be delivered via an SAAS model.
Variously termed "on-demand software," the "ASP model" or "hosted software," SAAS involves renting Web-based software hosted at the provider's site. For many companies large and small, SAAS is the best way to roll out new technology.
The staying power of SAAS has arisen for several reasons:

1. The cost of entry is low. Instead of paying lots of money to roll out complex technology across the entire company, customers can roll out just one test department of, say, 20 people. The risk is very low if it fails, and the company doesn't have to involve its busy IT staff.


2. The onus is on the vendor. If the vendor's software is broken, the vendor won't be getting money from any customer for long. The vendor is motivated to fix the problem.


3. The vendor works for the buyer. Customers don't have to rely on their IT departments to install an application. Everything is running securely at the vendor's location.


4. Less-risky investment. Instead of spending $60,000 all at once, for example, customers pay for the software monthly. The monetary risk is lower and less scary.


5. Vendors must provide a secure data environment, or they're out of a job. Most vendors understand that data must be backed up religiously, and security is the top priority. Customers' IT departments are typically pulled in many directions and can't be as focused on one technology. Customers can assume their data security is probably safer when it's hosted.