Information Age: News, analysis & insight for IT & business leaders

Information is power. That is the credo of the information age, and it explains why many companies have in the past been cautious of the software-as-a-service (SaaS) application delivery model.

“If our data is our principal asset,” they ask themselves, “why would we want to hand it over to someone else?”

But that attitude is changing. According to a recently conducted survey of CIOs by management consultancy McKinsey & Company, 61% of US-based businesses with sales over $1 billion intend to adopt at least one software service in the next year. The same survey conducted in 2005 found that, at the time, only 38% had that intention.

SaaS' growing appeal is down to cost and convenience. Using a remotely hosted application means there are no up-front capital costs associated with deploying new systems, while ongoing maintenance and management can be paid monthly without the need to recruit and retain expensive IT staff. Lead times to SaaS deployment, in theory, can be measured in hours, or even minutes.

However, recent Forrester Research analysis suggests that SaaS isn't always the most economical option. Using a total economic impact metric that takes into account the benefits, risks and flexibility of the deployment option as well as the total cost of ownership (TCO), Forrester found that SaaS' credentials looked good in companies with fewer than 100 staff, but that on-premise deployment may work out to be the most economical option for most larger companies.

Still, in recent times, reasons to adopt SaaS have emerged that go beyond simple cost considerations, not least the AJAX development platform. AJAX is a set of guidelines that encourage usability and interactivity in web design, and importantly it frees SaaS application developers from having to take the users’ browser into consideration.

“Since Microsoft released Internet Explorer, the web browser hasn’t evolved,” says Philippe Courtot, CEO of on-demand security company Qualys and a SaaS evangelist. “So in the beginning, [pioneering on-demand CRM provider] Salesforce.com had to work very hard with Java, because it was very complicated to make an interactive application in the browser.” With AJAX, interactivity is much simpler and scalable, he adds.

In an age in which web services such as Google, eBay and Amazon are among the applications that people use most often, the web application is arguably more familiar, and so more usable, for people now entering the workforce, than traditional on-premise applications.

Community spirit

Historically, one of the biggest barriers for SaaS adoption in the enterprise sector has been a lack of customisability. To begin with, SaaS providers offered customers off-the-shelf, one-size-fits-all applications, (unlike the application service providers to which they are often compared, who would recreate their customers’ internal infrastructure but host it at a remote location).

Any customisation of the application beyond renaming data-fields involved supplementary code executed on a company’s internal infrastructure. This was seen as the pay-off for the low cost of entry of SaaS applications.

The technology that allowed SaaS providers to achieve the “stack-‘em-high, sell-‘em-cheap” business model was multi-tenant database architecture. This granted them the economies of scale associated with putting all the instances of the application in one large database, while partitioning each individual customer’s data and keeping track of what updates had been made.

But recent advancements in multi-tenant architectures allow SaaS customers to customise the underlying code of the application they use, while still running the application from their supplier’s data-centre.

The most forward-looking example of this is certainly Salesforce.com’s APEX on-demand development platform, which allows businesses and independent software vendors to alter the business logic of its on-demand CRM application to such a degree that entirely new applications can be created, the company claims. All the supplementary code is hosted and executed on Salesforce.com’s servers.

These capabilities on their own, however, would again simply be a web-based copy of what on-premise applications can already do. But by building communities around the application, such as Salesforce.com’s AppExchange or on-demand financial application supplier NetSuite’s SuiteSource, in which users and developers can share and trade customisations and add-ons to the basic application functionality, SaaS suppliers are creating something genuinely new: an on-line development eco-system, where software developers need no infrastructure to run and distribute their software.

This could have huge implications for the whole software industry. Today, the kind of application that is considered ripe for deployment as a service is the application in which functionality is fairly undifferentiated between vendors, such as CRM. But this development ecosystem makes it possible for small development teams to tailor applications for highly specialised verticals, for languages usually neglected by the business applications providers or for uncommon job functions.

Since SaaS is Internet-based, small ISVs can reach a global audience with little marketing expenditure through purpose built development communities. This could render SaaS not the budget option, but the more specialised, more verticalised, and more differentiated software deployment option.