SaaS — Software Deployment Model of the Future?

By now you’ve probably heard of the buzzword acronym SaaS — Software as a Service.  SaaS is a software deployment model where a service is made available to the customer via a network, typically the Internet.  CRM applications deployed as SaaS have been particularly successful, notably software by Salesforce.com, NetSuite, and Open Source SugarCRM.  SaaS software offerings are now beginning to show up in areas like ERP, BI, SFA, MRP, and Document Management.

The SaaS model has a lot of positives.  Big pluses for this strategy is that it can free up a lot of infrastructure and startup costs are small.  With SaaS, the customer doesn’t see any installation media.  They don’t need to spec out and buy any servers or disk arrays.  They don’t need to dedicate people to train, support, and maintain the software.  Hardware and Software updates become transparent.  Software updates and patches get rolled out frequently and automatically, and the customer can be confident that they are always running on the most recent version of the software.  Overall, the SaaS model can make a lot of sense, especially for SMEs where IT infrastructure can be a distraction from the core focus of the business.

With the SaaS software subscription model, customers have the luxury of being able to turn the service on or off like a utility, or to scale the number of active users up and down, as needed.  They only pay for what they use.  And if the software service doesn’t meet their expectations, it is easy to pull the plug.

While there are a lot of pluses, SaaS may still not yet be an acceptable solution for large companies.  Even though software has become more customizable, many large companies will probably find that today’s generation of SaaS offerings isn’t sufficient.  And the higher exposure to risk from storing company data on third-party servers accessable via the internet probably is also not acceptable.  But the upside may outweigh these issues for many smaller companies.

SaaS is the current buzzword.  Ten years ago, the buzzword was ASP and on-demand or utility computing.  In terms of the deployment model and the potential benefits between now and ten years ago, there doesn’t really seem to be much different between the definitions of ASP and SaaS.  What is different though is how technology has changed over the last ten years.  Bandwidth, CPU and Storage costs have all plummeted.

Software Equity Group offers these statistics that show how dramatically costs have changed over the last ten years:

– Bandwidth: $1100/megabit/month in 1995 vs. $128/megabit/month in 2005
– Cage Space: $175/sqft/month in 1995 vs. $25/sqft/month in 2005
– Disk Storage: $1,300,000/TB in 1995 vs. $3,300/TB in 2005 (SCSI RAID)
– 1-CPU Server: $25,000 in 1995 vs. $1,000 in 2005 (web server class machine)
– 4-CPU Server: $360,000 in 1995 vs. $38,000 in 2005 (with 16GB RAM)

On-Demand performance has improved.  Applications have become more customizable.  And, in general, concerns about security have lessened. The business environment is different, and that is why the on-demand model is beginning to work.

It looks like the market for on-demand solutions will only grow.  Software Equity Group estimates that currently 10% of software is sold via the SaaS model, but they expect that in the next 5-10 years that the percentage will grow to more than 25%.

The world of ECM and Document Management solutions sold via SaaS is not non-existent, but it is still small.  We expect to see more growth in on-demand Document and Content Management in the near future.  Formtek ECM product is being sold via a subscription model by our partner LSC in the UK.  It’s a business model that is beginning to make a lot of sense and it will be interesting to see what happens with SaaS Document and Content Management.