Software as a Service: Definition, History, and Benefits

Software as a Service: Definition, History, and Benefits

Software as a Service: Definition, History, and Benefits

Software as a Service is a cloud-based distribution model for systems software and programs. In the SaaS model, providers are responsible for creating, hosting, managing, and maintaining applications, and making these applications available to their clients over the internet. SaaS is one of three distribution models that has emerged with the rise of cloud computing; the other two being infrastructure as a service (IaaS) and platform as a service (PaaS).

Applications delivered through the SaaS model are also often called web-based software or, simply, SaaS software. The popularity of SaaS is widely attributed to its elimination of the need to acquire and maintain hardware to sustain business operations.

Who are the customers of SaaS?

The SaaS model is widely used in the business-to-business space by companies who need software for human resource management (HRM), customer relationship management (CRM), enterprise resource planning (ERP), and other business management solutions. With more than 100,000 customers, Salesforce.com is one of the leaders in SaaS and is the leading SaaS CRM.

According to Forrester Research, “SaaS is the leading factor driving system replacements and net new investments in applications.” This means many companies are moving away from on-premises legacy systems and are choosing to roll out cloud-based business management solutions.

Due to the flexible characteristics of SaaS as a distribution model, cloud-based counterparts of staple industry applications are continuously being developed. Finance, business intelligence, and even consumer-facing software companies are looking to the SaaS model for future iterations of their offerings.

Saas History: ASP as the precursor to SaaS

In the 1960s, IBM and other mainframe computer companies have provided business services to clients who don’t have the resources and expertise to incorporate certain processes internally. Also called service bureau business, mainframe computer companies offered services like data storage and use of their machines’ computing power. This is seen as a precursor to the SaaS we know today.

With the internet’s exponential boom in the 1990s, Application Service Providers (ASP) emerged to respond to the growing need for centralized computing. ASPs supplied much needed specialized business applications which they hosted and managed for their clients as well. ASP frontrunners during that time were Usi in Washington and Futurelink Corp. in California.

SaaS and ASP

The current SaaS model is a direct extension and development of what the ASPs delivered. ASPs in the 90s used the SaaS distribution model, although in more specific areas. ASPs hosted and managed business applications created by third-party vendors while SaaS companies create their own. ASPs typically offered applications that had to be installed and stored in the client’s service whereas SaaS providers deliver their software through the cloud.

With relative newcomers like Google constantly blazing the trail to uncover new opportunities in SaaS and established enterprise companies like Oracle and Adobe moving their services swiftly to the cloud, the rise of SaaS companies–and the growing appetite of businesses and consumers for SaaS solutions–is undeniable.

Benefits of SaaS

Quick benefit

When a client purchases from a SaaS provider, the application can quickly be installed and configured to their existing systems–ready for immediate use. This slashes the long turnaround time of previous software applications. Before SaaS, companies had to spend months sorting out IT infrastructure requirements, preparing for data migration, and prototyping applications for their particular needs.

Cost-effective

The main purchase cost involved in SaaS is licensing.

There is no need to purchase new hardware or added data servers to accommodate new applications. Instead of having to spend resources on infrastructure requirements, SaaS providers supply application program interfaces (APIs) which allow their software and your existing systems to work together. Some SaaS applications are simply web-based and can be accessed and used within standard consumer web browsers like Google Chrome and Mozilla Firefox.

Generally, license contracts are month-to-month (pay-as-you-go), with incentives for clients who choose to sign annually. This model allows businesses to test out the fit and effectiveness of the software with their operations and goals before making long-term commitments.

Scalable

Cloud-based applications supplied through the SaaS model are highly scalable. Clients typically can choose to purchase more licenses, add more features, and request added services on-demand.

The choice to add more users to a contract as a company scales also doesn’t come with typical security and IT headaches that were common in client-server applications. In SaaS, contracts often include provisions for upgrades, uptime, support, and security.

With the widespread adoption of SaaS across industries, data security and uptime problems are non-issues.

SaaS and the future

Countless organizations and software developers are entering the SaaS space either by building new software applications or by creating a SaaS roadmap for existing software. SaaS integration platforms (SIPs) are also emerging which further streamlines and hastens the development of new cloud-based software solutions. Those that can adapt along with the quickly evolving SaaS software landscape will be assured of continued success.

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Patrick Hogan

Patrick Hogan

Patrick is a Co-Founder & Chief Executive Officer of Tenfold.

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