What makes an application software as a service or SaaS? There seems to be a lot of confusion about what this means. More specific, companies want to know the ROI implications of using a SaaS application over a traditional software license model.
SaaS applications have been in the market for quite a while now. Most online marketing software companies—those that provide functions such as e-mail, Web analytics, ad serving or behavioral targeting—operate in this model.
What this means is the vendor who developed the software also supplies the infrastructure to manage the software. The customer then pays a fee for its particular usage of the software. This is done either as a monthly commitment or possibly a variable cost based on volume.
Contrast that with a standard software license purchase. After an initial upfront fee and implementation fee, the customer also needs to:
- Purchase and set up a server to install the software (sometimes several)
- Buy any necessary ancillary software licenses (database system, operating system, middle ware, etc.)
- Pay ongoing support costs for the hardware (electricity, security systems, IT staff), plus an annual license and maintenance fee (a percentage of the list price of the software)
- Handle all system upgrades and ongoing maintenance
- In many cases, pay upgrade fees for new versions of the software
All of these costs can add up over time. One thing often overlooked in a traditional software purchase is the ongoing expense of upgrading the systems to support the core application itself.
SaaS applications are most often purchased as a subscription. You pay a recurring fee for the right to use the software and the support of your use of the software. The vendor manages the infrastructure to support the software and supplies all of the necessary training and ongoing maintenance of the software.
When a SaaS supplier improves its software, all customers receive the upgrade at the same time. (That’s of course if the company that you work with follows the real tenets of SaaS). This alleviates your IT staff from costly upgrade projects.
Some companies may be fine with using SaaS for marketing functions, but they’re wary about using it for the Website and warehousing systems. It shouldn’t be a concern, though: The key to outsourcing these functions, as is the key with any hosted solution, is that you work with a vendor that you trust.
You want your vendor to provide you with the right software for your needs so pick your partner wisely. And whether your issues concern security, volume or both, make sure that the system that you select answers those questions effectively.
SaaS may not be right for every company, but it offers quite a few advantages. Especially if you’re looking to keep costs in check, a SaaS application may help you improve the value that you get out of your software expenditures.
Jeff Hassemer is vice president, product management, of software provider Entiera (www.entiera.com).