Software as a service

Source: Technology Digital

Date :29/05/2007 12:05:42

For decades, companies ran their software on their own infrastructure. Software as a Service is a new delivery model

By John O’Hanlon

In the SaaS model, a software provider is responsible for its availability (maintenance, scalability, disaster recovery, etc.). This is what the companies pay for. It is simply the idea that instead of paying for the bits and running them on your server, you ought to be able to buy the service you want and let somebody else manage it.

James Bennet, Executive Director for Technology at Ernst & Young has been tracking this massive shift in the technology industry as more and more applications are being run on the internet, with a corresponding change in the way software platforms are rolled out because at last the whole package is in one easily accessible location. As one analyst from Credit Suisse, Jason Maynard, put it: “Most firms don’t own generators. They buy electricity from the grid.”

Soon all applications used by organisations, except made-to-order applications that provide competitive advantage, will be delivered as web-hosted services via a browser. This revolution was predicted as long ago as 1995 by Bill Gates, who described the software services revolution as a tidal wave.

It is a change that puts customers in control. “there is much greater availability and flexibility too,” says Bennet, “because as well as being able to access it over a fixed line people can access it from a mobile handset or a laptop with either a web link or some sort of WiFi connection or a 3G card.”

Moving applications online

His clients at Ernst & Young are seeing their clients moving their applications online, and enterprise software companies like Sage, SAP, Oracle or Symantec are increasingly changing their solutions to have an online version as a software as a service solution. “That is a huge change. Then you have the pure-play software to service companies, the best known of which would be Salesforce.com, which has grown very rapidly using this tool.” Salesforce.com has been described as the rising star in the CRM business: its business grew by 77 percent in 2005, and it is continuing to grow despite challenges from rivals such as FrontRange.

James Bennet identifies two principal challenges to the growth of SaaS, bandwidth and security. Bandwidth is rarely a problem for fixed line customers, but when using mobile access it can be another story. “I was at a big software trade event recently, where for some reason the organisers hadn’t had the foresight to provide enough WiFi bandwidth. Many of the exhibitors were having the greatest difficulty in demonstrating their products!”

It is quite rare for a WiFi hotspot to be overloaded like that, though, unless you have a concentration of users. “If you are in Starbucks or at Heathrow, generally speaking you are ok on bandwidth. Anyway most companies that have a wireless network have a fixed line network too. If the WiFi goes down they can still plug into the network.”

Less risk than you’d think

The other issue is security – and that is more a question of consumer perception in the judgement of Bennet, who thinks perhaps that it is a bit like the fear of being mugged – possible but statistically unlikely. In fact, the internet unlike the streets of our cities is well lit and policed all the time. “The idea of the web being less secure from a wireless connection than on your PC is unfounded really, because the protection a company can build round its own website is often higher than some companies have for their own networks. The whole integrity and credibility of a company like salesforce.com is bound up in their ability to be absolutely secure. I think that these days web security is more of a perception problem than a reality.

It would be very hard to track all the applications of SaaS, but Benet cites an online accounting package recently launched in New Zealand. “It is designed to provide SMEs with accounting services, but entirely online. It is a really interesting concept whereby you do all your books on line. You have a completely secure environment. Your accountant can do all his work of updating and checking accounts online, and you can do this wherever you are in the world. You would get a direct feed from your bank that updates your cash in and cash out. You can make payments online and you can make immediate payments to clients. You can do automatic bank reconciliation.”

And all this without any investment or implementation headaches! Another company that has to be mentioned here is Monitise founded by Alistair Lukies and provides a mobile banking service for HSBC, RBS and Alliance and Leicester. Rather inelegantly it claims to ‘have a completely unique mix of software platforms, technology products and are thought leaders in monetisation of the digital high street.’ But unpacked, this is the future of banking using mobile phones.

The tipping point

“Tools like these will very much change the way people behave. I think we are now at the tipping point where people get much more comfortable with how secure the web is,” says Bennet.

SaaS is just one, if an extremely important one, of the ways companies can leverage the internet to control costs and optimise sales. Tesco stole a march on its competitors when it very effectively embraced the internet and used it to diversify its offering, Play.com has combined the tax advantages of a Channel Isles location with smart internet utilisation to become one of the biggest media retailers on the planet and of course Amazon.com demonstrated the principle that to be the first in any market is clever: to stay there after ten years takes genius.

To return to the software tidal wave, it has been predicted that global spending on SaaS, which totalled $4 billion in 2004, will reach $10.7 billion by 2009 and that 61percent of North American companies with revenues over $1 billion plan to adopt one or more SaaS applications in the next year.