Software as a Service (SaaS), also known as software on demand, is a new model that is causing a profound shift in the way that applications are delivered and consumed. SaaS refers to software that is accessed via a web browser, typically on a subscription basis. Fundamentally different from the traditional model of application delivery, in which the customer acquires a perpetual license and assumes responsibility for the software's implementation and ongoing management, SaaS presents significant advantages to both customers and vendors.

Customer Benefits
From a customer perspective, SaaS is simply an easier, faster, and more cost-effective way of consuming software. With SaaS, customers can avoid resource-intensive deployment cycles that take years and often yield mediocre results, as well as eliminate the high costs associated with acquiring hardware and setting up the infrastructure necessary to run the application. By allowing customers to purchase applications on a "pay as you go" basis, with immediate access to features and functionality, the SaaS model dramatically reduces both the upfront costs and the length of time that it takes to recognize value from the software.

By transitioning the responsibility of deployment and management from the customer to the software vendor, SaaS forces vendors to become more attuned to the ongoing performance, security, and stability of their applications. Furthermore, vendors must be more responsive to the value of the software. Because the application is essentially delivered as a service, the software company must be entirely focused on the customer experience, or risk losing business. In the pay-as-you-go model, vendors are being judged on a month-to-month basis, and there is added pressure to produce rapid improvements to the application.

Finally, SaaS is inherently flexible. As technology is constantly evolving, many companies have found themselves burdened with expensive software solutions that no longer meet requirements. Over time, this accumulation of "shelfware" has heightened resistance toward new investments in enterprise applications. SaaS makes it easy for customers to select the applications that they need, and eliminate the ones that they don't.

Vendor Benefits
Software companies themselves can also benefit significantly from the SaaS model. SaaS broadens sales opportunities, enhances competitive differentiation, provides new revenue streams, and improves relationships with customers.

By offering SaaS as an option, large, established companies can move downmarket and capture revenue from the small and medium sized businesses that may not have been previously able to afford the investment necessary to acquire perpetual licenses. In turn, smaller software companies and newer entrants that are exclusively delivering SaaS can more effectively compete with the larger vendors. SaaS eliminates end-of-quarter discounting pressures and enables software companies to enjoy predictable streams of recurring revenue. Finally, the rapid evolution of the SaaS development cycle lends itself to improved vendor-customer relationships, as it pushes the software company to release fixes and enhancements much more quickly that in the perpetual license model.

For more information about SaaS, please visit our SaaS Resource Center.