Nine things you need to know about SAAS

A software-as-a-service expert answers questions about this evolving option for purchasing IT services

Software-as-a-service may have come into the enterprise through "the bathroom window," but it's definitely becoming part of the mainstream, says SAAS expert Mike West, vice president at Saugatuck Technology, a boutique management consulting and subscription research company focused on disruptive technologies.

And it's an alternative to in-house operations and outsourcing that IT shops can and should use to deliver services and improve their infrastructure in a cost-effective way. SAAS can offer high-quality services at a lower cost than other alternatives, and it's particularly good for supporting mobile and geographically disbursed populations, whether they are sales staffers, telecommuters, customers or business partners worldwide. And in its latest iteration, says West, the technology is offered by leading SAAS vendors as complete platforms unifying normally stovepiped sets of services, supporting underlying data capture and analysis.

Here are West's answers to some basic questions about the SAAS market. IT and business users (and Internet service providerss trying to evolve into SAAS providers) need to know the following information about this new and quickly evolving option for purchasing IT services:

1. What is SAAS?

"Software as a service, sometimes known as on-demand software, is a new model for deploying business services ... that requires the provider ... to make access to the functionality available typically through a browser," West says.

It can be seen as the evolution of the application service provider (ASP) model. It differs from ASP in part in that while that model usually provides a unique instance of the underlying application for each user organization, SAAS typically uses a multitenancy architecture, sharing a single instance of an application and a single database of user data among all of a service's customers. This model provides enormous economies of scale, often allowing SAAS providers to sell services at a significantly lower cost than traditional outsourcers or even ASPs, and to deliver superior return on investment to customers.

The ASP model was criticized for providing generic versions of complex applications such as enterprise resource planning. Advances in underlying technology now allow SAAS providers to provide limited amounts of customization of user interfaces, functionality and even underlying data structure. Basically, West says, the software is aware of the identity of each user and consults a customization database to determine what customized features to apply.

However, SAAS solutions typically don't provide the full customization that would be available with the internal installation of a complex software package such as SAP. Definitely, one of the things users considering SAAS must determine is whether their organization can live with the managed customization that SAAS supports.

2. What about security?

If our data is sharing a database with other organizations, possibly including competitors, how can we be sure we are safe?

"The security solutions offered by SAAS vendors are quite excellent," West says, and the danger of corporate espionage is virtually nonexistent. In some cases, some SAAS providers can even keep critical data inside firewalls for those clients who may require it. However, SAAS clearly isn't the right solution for preserving the nation's nuclear secrets. Obviously, this is another element that potential users need to consider, and many will prefer to keep some data and applications in-house for security reasons. On the other hand, internal corporate security isn't perfect, either.

3. How do SAAS providers charge?

"Typically, users pay as they consume the service on a subscription basis," West says. "Pricing per user per month is the most common model. Pricing by transaction is another. There are a variety of metrics." This is one way in which SAAS differs from outsourcing. "It can allow an organization to try something out with little risk," he says, because the organization isn't committed to a three-year fixed-rate contract or hasn't made a huge upfront investment in hardware and software licensing. However, SAAS providers usually offer significant discounts to customers who make multiyear commitments, West adds.

This pricing model also can make SAAS a better choice for fast-growing companies that anticipate huge growth in use of their IT infrastructure and for services with large annual fluctuations in demand, which is common, for example, in retail.

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