Johannesburg, 26 May 2009
The idea of buying software as an ongoing service rather than a shrink-wrapped product is not particularly new. Buying software-as-a-service (SaaS) is a bit like buying a pay TV subscription: you're paying for something to happen, whether it's having your payroll processed or being entertained.
By contrast, buying software as a product is like buying a microwave or a TV: there's an assumption that you'll plug it in, use it until it's no longer working and then buy a new one (that's what upgrades really come down to).
The SaaS model has its roots in the payroll bureaux of the 1970s and the application service providers of the 90s, but the mechanics of delivering the service were always a hurdle. Today's resurgence of SaaS is due partly to the recent global bandwidth explosion which means it's possible to deliver more data and more functionality, more cheaply than ever before (yes, even in South Africa!).
Bandwidth is part of the story: the other part is that software providers have finally worked out how to use the Internet effectively to deliver functionality, whether it's through Web services or new rich browser technology. The early success stories - Salesforce.com is the classic example in the CRM market - have put pressure on other providers to match the services they make available.
A couple of early false starts have left lingering objections to SaaS in some minds, but most of the obstacles have now been overcome. South Africa may not have as much bandwidth available, as cheaply as in some other countries - but we have a lot more than we did five or even two years ago, and the situation will only improve as new undersea cables come on line in the next couple of years.
Security concerns are also no longer an issue. The range of new options made possible by better technology and better bandwidth includes sharing secure space on an off-premises server, having your own dedicated server off-premises or even having a third-party managed server at your own premises. Independent hosting can also confer a market advantage, particularly for companies that handle sensitive customer data.
There are several factors driving the move to hosted software services. First, it eliminates the need to make large capital investments in hardware and software licences. Pay-per-use options also make it easy to scale operations up and down in response to changing requirements, making for lower risks and more predictable costs.
This flexibility also offers very rapid speed to market: operations can be up and running in the time it takes to recruit and train employees, without waiting for complex infrastructure to be installed and configured. A third, related benefit is the hassle-free factor: it's the service provider's job to keep the service up and running at maximum efficiency, and to have the skills on hand to do that.
SaaS also offers automatic upgrades, without extra cost and inconvenience - and it enables a range of new functionality that wouldn't be possible otherwise. With hosted CRM software, for example, it becomes much easier to design, implement and monitor e-mail campaigns, creating powerful new marketing opportunities.
Finally, SaaS also leads to subtle but important changes in the ecosystem of vendors, implementers, integrators and hosting providers. With the promise of annuity revenue from long-term service contracts, vendors have an incentive to build great, sustained customer relationships rather than chasing the next projects or the next licence sales. For clients, that translates into an expectation of much better service.
With all of these reasons to move towards hosted software, more and more major vendors are beginning to offer SaaS as an option. This includes Microsoft, which already offers an option to buy its CRM, Sharepoint and Office software as a service.
If you're considering any kind of software investment, from now on you should always seek to include hosted services as one of the options you evaluate. Especially as we enter times of economic uncertainty, the increased flexibility alone may be a deciding factor.
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