Monday, 26 January 2009

Overview of Software as a Service (SaaS)

Software as a Service is a software delivery model that could actually be called “Software as a Subscription” because it basically means paying for software on a recurring basis, as opposed to the traditional model of commodity software, when a customer pays once and has the software for life, or pays an additional fee to upgrade to a new version in the future.

Hosted software applications are typically accessed via a web browser over the Internet, but this needn’t be the case. A user could install a SaaS application on their PC in the traditional manner, but it will only operate as long as they have a valid subscription.

Benefits of SaaS

Customer Benefits

A customer may baulk at the idea of paying a subscription for software because it breaks away from “the norm” when procuring software; however the benefits are legion:

Low initial capital outlay = low risk

Normally when implementing a software application the customer must pay large fees upfront for software licences and pay specialist consultants pots of money to install and configure the software at their premises; they also have to provision suitable hardware on which to run the new software, which can add massively to the total cost.

With SaaS the potential customer can try the software free of charge before making a decision whether to buy. If the application runs in a web browser there is no additional software to install so they can be up and running in minutes. If they decide to buy, there may be a set up or administration fee in the hundreds or thousands of pounds, rather than the tens of thousands, after which they pay a set fee for the duration of their service agreement, either monthly, quarterly, bi-annually or annually, for example.

No special hardware requirements

With hosted SaaS applications the vendor takes responsibility for hosting the application and the storage of all data. As such the customer doesn’t have to pay for expensive hardware infrastructure to host the application themselves.

No more backups

Because a SaaS application vendor looks after the customer’s data they do not have to worry about scheduling regular backups, disaster recovery, business continuity or physical access to data by unauthorised people.

Regular updates and bug fixes

Normally a user can wait several months or years to receive bug fixes or feature enhancements to their installed software applications. With browser-based SaaS applications there is normally nothing special to install, so regular updates to fix any bugs, add new functionality and improve existing functionality are easy to deploy. Best of all, no effort is required by the customer when a new release is made; they simply log into the new release of the application in the exact same manner as before.

Access the application anywhere in the world

With installed software you can only access the application on PCs where it has been physically installed. With the hosted SaaS model a user can access their applications anywhere in the world with an Internet connection: from the office, from home, an Internet café on holiday or an Internet terminal in their hotel lobby when away on business, even from their seat on a plane that has in-flight Internet connectivity.

Vendor Benefits

As software vendors, there are many benefits to developing hosted SaaS applications. So much so that Microsoft and other big software companies are trying desperately to move from installed software to a SaaS model for these reasons:

No piracy concerns

With hosted software, application files are never released to the outside world so they can never be copied or used illegally. Therefore the vendor doesn't have to waste valuable resources developing and testing anti-piracy measures that can take a lot of time, whilst providing no benefit to the end user whatsoever.

No need to write installers

As surprising as it may seem, creating the simple setup.exe installer program used to install software on a PC is a project in itself and can take many months to develop and test, directly proportional the complexity of the application associated. With the hosted SaaS model the customer never has to install the software so the vendor never has to write an installer for it.

There is only ever one version – the current version

A big problem for software companies is providing support for historical versions of each of their applications. For example, Microsoft Support staff must provide assistance for Office 2007, 2003, 2000 and so on until an old version is retired. A lot of support time can be spent simply trying to determine what version of the application the user is running before actually finding a solution to their problem.

With the hosted SaaS model every user accesses the most recent release of the application, meaning support staff can concentrate on finding a solution to the problem, rather than discovering the application version involved.

Recurring revenue

For software companies the nirvana is the ability to generate recurring revenues from their applications in the form of regular automated subscription payments. Before the ubiquity of the Internet, such subscription models were not really feasible without the installation of specialised communications hardware on the client's premises. Now, with almost every PC in the civilised world having a high-speed Internet connection, accessing a server via the Internet, either to look at a website, download a file or access a hosted software application is easy.

With SaaS, the recurring revenue model allows the vendor to continually improve their software in accordance with their clients’ needs and to continually re-invest in their hosting facilities to increase performance. It also goes towards the research and development of new applications and in bolstering technical support capabilities for improved customer service.

Easy releases

When a new release of a hosted SaaS application is ready for launch it is very easy to deploy it for public consumption with minimal or no downtime whatsoever. The release process is completely invisible to the user and they get all of the benefits of the new release with no effort on their part whatsoever.

Multiple language support

A software vendor with an international customer base must create a separate version of their installed applications for each language they support. With the hosted SaaS approach this overhead is not required, and as such different languages can be supported by simply providing a dictionary of terms used by the application in the required language.

No manufacturing and distribution costs

Because hosted SaaS applications are accessed over the Internet there is no need to produce boxed software containing installation discs or costly printed manuals that must be shipped around the world and sold through traditional retail channels.

Disadvantages of SaaS

Of course, no technical paradigm is perfect, but with the hosted SaaS model the perceived disadvantages are few and far between:

Customer Disadvantages

Where is my data?

Potential users of SaaS applications will almost always ask “where is my data and is it safe?” Clients are used to installing software and keeping their sensitive data onsite under their jurisdiction. With the hosted SaaS model all customer data is stored on shared centralralised servers and naturally this can raise concerns about the security of data and whether it can be accessed by others or copied to disc and lost in the post, for example.

This fear is usually allayed once the customer is made aware of the security precautions undertaken at the hosting company’s premises where their data is physically located, which can put some military bunkers to shame. Oftentimes the security of a dedicated hosted environment
will be far greater than that of a locked server room in the customer’s building.

A customer's service level agreement (SLA) with a SaaS vendor should always include security guarantees and the customer must also have the ability to obtain a copy of their data should they terminate the agreement further down the line. The SLA should also include measures to prevent the vendor from ramping the price up too high at contract renewal time, once the application becomes a vital part of the customer's day-to-day operations.

Application availability concerns

With hosted SaaS software the vendor should endeavour to make their applications available 24x7x365; however no hosting environment is 100% downtime free. Every server needs regular software patching to keep it secure and all hardware is susceptible to failure; while the former is an unavoidable necessity, the latter can be mitigated by building hardware redundancy into the server infrastructure. This basically means “at least two of everything”: two power supplies; two internet connections; at least two hard drives etc, etc. This way, if one power supply fails the other will take over, or if one internet provider loses connectivity the other provider will continue service as normal, often with no perceptible impact on the user.

With traditional installed software, the client can schedule maintenance and downtime to suit their own schedule, but with hosted SaaS the vendor must ensure to notify all customers of planned downtime well in advance so that they can either object strongly or work around it.

Again, all of this will be covered in the service level agreement between the customer and the vendor.

Vendor Disadvantages

For a hosted SaaS vendor, the following disadvantages are far outweighed by the benefits:

Building software that is secure and scalable

All customers access their hosted applications on the same server(s) and their data will typically be stored alongside each others’ in the same database – an approach known as single instance, multi-tenancy, meaning a single installation (instance) of the software serves many users (tenants).

This approach presents a unique set of challenges when designing applications that scale to serve many hundreds or thousands of concurrent users efficiently, whilst enforcing a strong security
mandate. These challenges are not insurmountable but they do require a different mindset from creating standalone applications that are installed on a PC and have access to powerful dedicated resources, such as a local hard disk drive, a powerful graphics card and the latest multi-code processor – all for just one user. A SaaS application on the other hand must use a server’s precious (and expensive) finite hardware resources judiciously whilst handling many users at the same time.

Hardware and hosting costs

The investment in server hardware for a hosted SaaS vendor is substantial, especially when you factor in the need for redundancy, meaning a server must contain “at least two of everything”, as discussed earlier.

Furthermore, the cost of hosting the server infrastructure is considerable because vendors have to effectively rent floor space at the hosting company’s secure premises where their server hardware will sit. They then have to rent power usage and pay for the bandwidth consumed by their customers. Of course, if a SaaS vendor has the resources they can build and operate their own hosting environment, but it's not unusual for vendors to outsource this part of their business, leaving them to concentrate on building, selling and supporting their applications.

All of these costs are recouped by the licence fee income and vendors can even charge customers extra when they exceed the monthly bandwidth allowance in their SLA, but if they were to skimp on the infrastructure customers would soon go elsewhere when performance drops and availability is reduced because the servers are overburdened by traffic.

None of the above is cheap.


It is hard to find talented technical people who understand SaaS, such as developers, testers and systems engineers. Designing, building, testing and hosting SaaS applications is different from standalone software and requires a certain mindset and technical skills. There is a scarcity of such people in the marketplace at any given time, so recruiting is a never-ending task.

Providing customer support that is second to none

When a client is paying for software on a subscription basis they expect to receive an excellent level of service in correlation to their subscription fees. When they need to call for telephone support they expect to get through quickly, not sit on hold for hours and when they do speak to someone they expect them to be knowledgeable and expedient. As with hardware, this requires significant investment to recruit, train and retain remarkable support personnel.


SaaS is being embraced the world over by IT executives who are looking to reduce risk and overhead by allowing software vendors to host their applications and look after their data. Dramatic savings can be made in terms of salary and hardware costs when comparing a SaaS application subscription to the ongoing costs involved with in-house developed and hosted software.

Of course, not all software benefits from the SaaS model, but there are an increasing number of useful applications out there today for those of us that follow the edict of "buy rather than build".

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