To address demands of small-to-medium sized enterprises, some vendors, such as Salesforce.com, have developed a mechanism for Web services-based integration services to allow customers run on their own systems with hosted services offered by the Net-native providers.
With software system hosted on center servers, Saas vendor uses its website as a portal of the system and data center. Paying monthly fee, customers access vendor’s server via browser to use the standardized software and save their data on vendor’s data center. All customers who select the same product version will share the same software function and user interface. By simple customization, customers can redesign user interfaces or functions to satisfy their unique demands. When Saas vendor upgrades its software system, customers will immediately enjoy the upgrading version for free. The main difference between Saas and traditional licensing software is listed on Table 1.
|
Differentiator |
Software-as-Services Vendor |
Traditional Packaged Software Vendor |
| Service-based design premise | Designed from the outset up for delivery as Internet-based services | Designed for customers to install, manage and maintain. |
| Multi-tenant mantra | Designed to run thousands of different customers on a single code base, with distributed, load-balanced application servers to handle requests. Object-oriented technologies and Web standards optimize this hared, distributed environment to create efficiencies over the solution life cycle. | Architect solutions to be run by an individual company in a dedicated instantiation of the software. |
| Embedded service management and security | Tightly couple applications with management, monitoring, metering and security capabilities to serve multiple customers. | Typically must add management, monitoring and security features subsequent to product development to enable application hosting. |
| Frequent, incremental upgrades | Frequent, “digestible” upgrades every 3-6 months to minimize customer disruption and enhance satisfaction. Customers are upgraded simultaneously, eliminating version-control issues. | Infrequent, major upgrades every 18-24 months, sold individually to each installed base customer. Vendor must support multiple versions. |
| Browser-based client interface | Browser is the sole client interface, providing familiar, flexible access. Eliminates the need to develop and support multiple client interfaces. | Many have added browser interfaces, but most support multiple clients—adding to IT maintenance costs. |
| Data transfer and integration | Streamlined, repeatable functionality via Web services, open APIs and standard connectors that facilitate data transfer and integration. | May use open APIs and Web services to facilitate integration, but each customer must typically pay for one-off integration work. |
| Features and functionality | Frequent upgrade cycle helps them achieve feature/function parity with more established players quickly. | Often have greater breadth/depth of features due to longer history. |
| Customization through configuration | Customize above the application layer to minimize professional services required. | Customize at both the configuration and source code level. |
| Streamlined service and support | Closed-loop services model provides immediate feedback on problems; support staff or programmers can directly access users’ accounts to identify and fix problems. Fixing a problem for one customer fixes it for everyone, slashing support costs and keeping most customers blissfully ignorant of the problem. | Customer feedback is often indirect through intermediaries (VARs, SIs, ASPs, etc). Once they fix a bug for a particular customer, they have to distribute a patch and rely on customers to install it to prevent subsequent support calls in other accounts. |
Table 1 Saas vs. Traditional License-based Software
Source: Summit Strategies, “Salesforce.com and web-services united at the integration altar”
Unlike the license-based software approach, customers of Saas don’t need to buy license and install software on a local server. Without operating server and managing software by themselves, customers of Saas don’t have to hire IT professionals to operate system and pay the cost for system upgrading and maintenance each year. Compared with traditional licensing software, Saas greatly reduces the cost users spend on software as shown in Table 2.
|
Total cost of ownership |
Typical Licensing software |
Professional Edition of Salesforce.com |
| Number of Users | 150 | 150 |
| Application License & Subscription | $300,000 | $117,000 |
| Support/upgrade Costs | $54,000 | $0 |
| Implementation & Customization | $900,000 | $29,250 |
| IT infrastructure/Hosting costs | $125,000 | $0 |
| IT personal support | $150,000 | $0 |
| Training cost | $45,000 | $11,700 |
| Total | $1,574,000 | $157,950 |
Table 2 Typical License-based Software vs. Salesforece.com
Source: salesforce.com, http://www.salesforce.com/products/tco.jsp
The risk for customers to use software also greatly reduces. They don’t have to pay a large amount of upfront license fee so that the switching cost is greatly reduced. On the other hand, as a result of having subscription model, a customer is far more likely to revisit their buying decision after subscribing to the solution, which make vendor easier to keep their revenue consistent or increasing.
The Saas market is quickly increasing. Forrester Research’s recent survey has found that between 44% and 59% of small-to-medium size businesses are willing to invest on subscribed applications compared to fewer than 20% in 2000[1]. AMR Research’s survey shows that 28% of large enterprises with more than 5000 employees are also planning to use the subscribed applications in the near future[2]. Software-as-service model based on Web Service technology is becoming the new trend for software application industry.
[1] Source: Forrest Research, Emarketer-CRM 2005 Overview, published by August 2005
[2] Source: AMR Research, Emarketer-CRM 2005 Overview, published by August 2005