Software as a Service Background

The Big Switch

Before electricity was distributed through a grid and charged by usage, large industrial companies would have their own water-wheels producing their own electricity. Although these water-wheels were effective, they only provided a certain level of electricity that was sometimes either too little or too much for what a company needed at the time. Also, these water-wheels required maintenance and a lot of other tedious nuisances. Once electricity entered the grid, the water-wheel became an artifact and companies (and households) could receive power on-demand and electricity shifted into a utility.

Software-as-a-Service (SaaS) is a modern day example of "The Big Switch" from electric water-wheels to electric grides. Traditionally, software is purchased and installed locally on a machine. Software vendors would made additional money by selling service contracts and would then solicit customers to upgrade to new versions of the software. Instead of buying a CD and installing it onto a computer, customers pay software vendors for the right to "rent" software on a per-month or per-year basis. Also, all the software is online, on-demand, and can be immediately upgraded from the developer's central offices. SaaS essentially turns software from a product into… a service.

One of the most influential quotes regarding SaaS came from an internal memo to all Microsoft employees from Bill Gates dated October 30th, 2005. Although the idea behind software being delivered as a service was born in 1994 (and implemented mainsteam in 2000), the date of this memo really marks the birth of the SaaS industry as it lives today:

This coming 'services wave' will be very disruptive…Services designed to scale to tens or hundreds of millions will dramatically change the nature and cost of solutions deliverable to enterprises or small businesses.

What is Software as a Service

First, watch this video, it is a great visual overview of SaaS:

There are four major benefits to Software-as-a-Service: Reduce IT costs, save time, access updates immediately, and interact with a community of users.

  • Reduce IT Costs
    • The traditional sales cycle of software involved customers negotiating a Service Level Agreement and Software Licensing Agreement, implementing the software, maintaining it, and waiting for an updated version to see new features. Software-as-a-Service eliminates all four of those elements by providing immediate access to the software and future updates, pay-as-you-go rates, and instant scalibility.
  • Save Time
    • As mentioned above, the shorter sales cycle results in less time being wasted with negotiation, implementation, and maintenance.
  • Access Updates Immediately
    • With traditional licensed software, you typically have to wait for the next release to benefit from the latest innovations or to move your organization to a new browser or operating system. Given the cost and complexity of moving to a new version, it may not even be practical to upgrade each time a new release becomes available. With a SaaS subscription, on the other hand, you benefit from innovations on an on-going basis. As soon as a new or improved feature appears in the application, you can begin using it.
  • Join a Community of Users
    • Purchasing a traditional software license is very much an individual affair. When you subscribe to a SaaS application, however, you become a member of a community that has the application at the center.

Additional Reading / Sources

The information on this page was found from the below set of sources. These articles and blog entries that go more in-depth on SaaS, it's benefits, concerns, and growth.

SaaS vs. Open Source (Zoli's Blog) - Good blog post that discusses the differences between Software-as-Service and Open Source applications and why SaaS be the future of software, not Open Source.
Seeking the New Meaning of SaaS (ZDNet) - Interesting background reading on how to truly define whether something is "software delivered as a service".
SaaS Myths (Business week Online) - Article which explains and dispels some of the common myths about SaaS.
Cloud Computing Preview (TheLotusPosition) - Cloud Computing and SaaS go hand-in-hand so it's an interesting and important article to look at.

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