Software as a Service (SaaS) is a software distribution model in which applications are hosted by a vendor or service provider and made available to customers over a network, typically the Internet.
Traditionally, the model requires customers to acquire licenses and be responsible for the applications infrastructure, as well as the installation and management of the software.
The benefits of SaaS include the use and support of software applications over the Internet, lower capital expense costs, resulting in dramatically lower capital expenses, faster implementation, and improved return on investment (ROI).
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An increasing number of companies, large and small, are looking at software-as-a-service (SaaS) as a viable option for expanding existing product and channel markets, as well as developing new routes to market.
Companies have already started to adopt SaaS in order to get solutions implemented more quickly, achieve faster ROI and lower their IT costs, reports the Aberdeen Group in a recent study focusing on SaaS trends.*
The research shows that businesses are also adopting SaaS for a greater variety of applications than ever before, and for the first time a majority of U.S. companies are incorporating SaaS models into their business plans.
According to the study, more than half of all companies plan to make a three year commitment to SaaS procurement and sourcing solutions, as a precursor to a full commitment. Also, 74 percent of the companies contacted by Aberdeen have implemented a SaaS customer relationship management (CRM) solution in two months or less. These companies report they have reached ROI targets in six months or less.
The Aberdeen study disputes the common perception that SaaS is limited to small and medium sized business (SMBs) needing a CRM solution. However, CRM remains the most widely adopted SaaS solution, with 84 percent of SMBs and 69 percent of larger enterprises using or considering the adoption of an on-demand CRM solution, notes the Aberdeen Group. Other areas, like financial management, product lifecycle management (PLM), procurement and sourcing, and supply chain management (SCM) are also adopting SaaS, says the research company.
For example, 26 percent of companies currently use SaaS as a financial management solution, although 76 percent of the polled companies are considering or willing to consider adopting an on-demand solution in this area. In addition, 64 percent of large and midsize firms would consider using SaaS as a financial management solution.
In Western Europe, SaaS is being driven by the promise of a relatively fast implementation and low initial investment, reports International Data Corp. (IDC), another leading research firm. In particular, SaaS is being viewed as a viable alternative for applications involving human capital management (HCM) and the payroll market, including recruiting, incentive management, and HR performance management (estimated to be worth about $US1.6 billion in revenue in 2005).
IDC predicts in a recent report ** that the acceptance of SaaS delivery models, which include software-on-demand and hosted application management (hosted AM), continue to gather momentum and customer mindshare. SaaS providers, notes IDC, will pay particular attention to developing and increasing partnerships in order to expand revenue streams and customer adoption in the upcoming year.
IDC goes on to describe SaaS as a “disruptive business model” that will “ripple throughout a variety of software markets in 2006." Among the research firm’s predictions for SaaS for this year are:
* The Aberdeen report, “The Software as a Service Buyer’s Guide”
** Top 10 Predictions for 2006: Software as a Service (IDC #34872)
