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A Brief History of SaaS

Modernizing Enterprise Software
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Table of Contents
A Brief History of SaaS
The Past: Traditional Software Application Service Providers (ASPs): From Hope to Meltdown The Future: True SaaS When SaaS Makes Sense Key Questions to Ask when Evaluating SaaS Alternatives Conclusions 1 1 1 2 3 3 4

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A Brief History of SaaS

IDC recently projected that the 2009 market for software-as-a-service (SaaS), would grow 42% when compared to the 2008 market. In its study*, IDC also projects that more than three-quarters of U.S. organizations will use at least one SaaS business application by year-end 2009, and that growth prospects are strong in other world regions as well. These findings come weeks after research published by ThinkStrategies and Cutter Consortium found that year-over-year SaaS adoption doubled. The reasons cited by most survey respondents were elimination of additional infrastructure costs, deployment acceleration, and the pay-as-you-go subscription pricing model. The market trend-spotters agree: SaaS is the next big step in the logical evolution of software. Just as businesses replaced the water wheel with electric power from a grid, IT and software have moved far beyond sneakernets, fat fingers, patches and CDs. But not every alternative to traditional software includes all of the benefits of true SaaS. For users to better ensure their business needs and goals are addressed, its important to understand the differences between traditional software, software offered by Application Service Providers and the different flavors of SaaS. This paper will provide a brief history of SaaS.

The Past: Traditional Software

The new economy is marginalizing the value of legacy software applications. Traditional software involves significant up-front acquisition costs and requires recurring maintenance, support and upgrade costs that are multiples of initial acquisition costs. Organizations soon find that while traditional software can be customized, it often leads to version-lock and the inability to preserve changes through an upgrade. Simple upgrades become costly, resource-intensive reimplementation projects. To alleviate upgrade woes, traditional software vendors often recommend organizations refrain from customizing the application and adhere to the vendors out-of-the-box configurations. Shrink-wrapped software cant realistically support the specific needs of todays modern enterprise. These challenges particularly dont make sense in todays economic environment. Many traditional software vendors are starting to pay lip service to the SaaS model. But the legacy software development, support and delivery channels currently in place severely limit the ability of these vendors to offer customers a viable alternative. Providing a true SaaS application would cannibalize existing core revenues and substantially increase the risk of alienating Wall Street and the vendors sales force.

legacy, client / server software installed in customers data center

Application Service Providers (ASPs): From Hope to Meltdown

At the turn of the century, ASPs tried to provide an alternative to on-premise software. ASPs became brokers of legacy software that businesses didnt want to own or manage themselves. Each ASP would be responsible for buying and maintaining the client / server software, and making it available to customers from data centers owned and operated by the
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* IDC press release, Software as a Service Market Will Expand Rather than Contract Despite the Economic Crisis, IDC Finds, Robert P. Mahowald Jan 26, 2009.

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ASPs. In theory, customers were supposed to get out-of-the-box functionality with minimal requirements for on-premise software or infrastructure management. However, the ASP model was doomed to failure from the start. As ASPs began to proliferate, the cost and challenge of delivering client / server applications efficiently and successfully became more difficult, time-consuming and expensive than even on-premise installations. The cost of maintaining these legacy applications did not magically go away and the end users were left holding the bag. ASPs were challenged by extensive and expensive maintenance, support and upgrade requirements. These challenges frequently resulted in version and feature lock that limited users' access to needed or desired new functionality. Because of the inherent limitations of traditional software, the ASPs eventually failed.

ASPs failed due to rigid and expensive deployments of client/server software

The Future: True SaaS

The advent of software-as-a-service offered significant improvement over ASP-hosted software, thanks in part to modern applications that were built from scratch using Internet technologies. The original SaaS applications, like Salesforce.com, are multi-tenant and allows multiple customers to utilize a single application set and database. Theoretically, multitenancy allowed vendors to keep the cost of infrastructure and associated maintenance low so that they could make some money in the hosted software market and pass on savings to customers in the form of reduced subscription fees. Next generation SaaS providers are delivering single-tenant SaaS while keeping costs low through data center automation and virtualization. Each customer receives a unique instance of the application and database. Single-tenant SaaS applications are fully supported by the application experts - the software vendor. Fully automated upgrades are scheduled throughout the year and remain invisible to the end user. Single-tenancy also gives the customer additional opportunity for extensive customization, data security compliance peace of mind, more deployment options, and preserved customizations through upgrades while providing the same user benefits that are driving the popularity of SaaS. Basically, the ASP meltdown occurred because hosted legacy applications were a fish out of water. These old client / server applications were not built to be delivered via the Internet and still had all of the same maintenance costs associated with a traditional deployment of a legacy application. The work to upgrade and customize didnt go away, it was just outsourced. The ASP model broke under the weight of dated client / server technology. In stark contrast, modern SaaS applications are built on Web-based
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SaaS delivered in a signle-tenant model enables greater application flexibility

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technologies and services that are highly configurable and always current. These key differentiators provide SaaS and its users a flexible, economical and dynamic environment in which software can be delivered where and when it is needed, and readily configured to meet specific business requirements. Modern SaaS solutions can be demonstrated, delivered and deployed rapidly, via simple, predictable and controllable subscription-based costs.

When SaaS Makes Sense

SaaS solutions are broadly applicable across multiple business functions in many types and sizes of companies. One area experiencing growing levels of user and vendor attention is IT operations, particularly IT service management. Corporate decision-makers now more than ever need the IT organization for IT service strategy and process execution, not just for infrastructure and application management. Why not leave the dirty work to the application experts? While almost every legacy vendor of IT infrastructure and service management solutions has jumped on the SaaS bandwagon through crafty messaging and PowerPoint presentations, few, if any, are offering true SaaS. Some are merely serving up the same old client / server applications via an ASP delivery model and calling it SaaS. A Web interface on a client / server application is not SaaS. Traditional software vendors have numerous barriers to entry to the SaaS market. Old technology cannot morph into SaaS. A SaaS application needs to be built from scratch using modern Web technologies. Legacy vendors also have to deal with organizational challenges that include converting to a subscription license model, retraining sales and fulfilling a new compensation, disruptions to revenue streams and stock valuations, and converting customers who are using the old technology. Users must exercise caution and diligence when considering SaaS. The following recommendations and conclusions can help in the process of discovering true SaaS.

Key Questions to Ask when Evaluating SaaS Alternatives

Businesses should start by asking vendors some specific questions. These include, but are not limited to, the following.

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Conclusions
True SaaS solutions offer users the ultimate in flexibility and low cost. True SaaS replaces rigid, complex, expensive and difficult-to-modify applications with solutions that increase productivity, TCO and ROI. True SaaS solutions also replace limited out-of-the-box functionality with close alignment to key business processes and priorities, and easy adaptability as priorities change. The advantages of true SaaS solutions enable companies of every size and type to be more efficient, provide better IT service, and enjoy truly integrated and customized solutions at an affordable price. True SaaS also enables businesses to do business as dictated by specific processes and goals, and not constrained by technological or vendor limitations. And simplified subscription licensing, combined with zero maintenance costs and predictable operating costs, means that users not only enjoy ROI, but return before investment. These benefits have helped decision-makers alter culture and business mindsets at their companies. Or as IDC put it in the announcement of its recent SaaS study, the harsh economic climate will actually accelerate the growth prospects for the software-as-a-service (SaaS) model as vendors position offerings as right-sized, zero-CAPEX alternatives to onpremise applications. Buyers will opt for easy-to-use subscription services which meter current use, not future capacity, and vendors and partners will look for new products and recurring revenue streams.* Businesses should focus their software modernization efforts on true SaaS solutions. ASP and other SaaS impostors do not benefit the customer. Meanwhile, SaaS vendors are challenged to demonstrate sustainability and scalability of their technologies and their business models. Service-now.com, for example, was born on the Internet and lives on the Internet. Its founder and CEO, Fred Luddy, spent decades in the legacy enterprise software market and intimately knows the difficulty old technologies cause for end users. He started Service-now.com from scratch to build a better IT service management application based on Web 2.0 technologies and delivered via SaaS. Since the first Service-now.com customer in July 2005, there are now hundreds of global enterprise IT organizations getting the benefit of pure SaaS in IT. Service-now.com and other customers of true SaaS are asking, remember when?

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Service-now.com offers a broad range of IT management applications delivered via SaaS

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