Study of software as a service (SaaS) model for enterprise applications

Abstract

Software as a Service (SaaS) is a broad term that refers to a model for hosting commercial software that is delivered remotely to customer organizations for a subscription like fee. This model of software delivery is also referred to as 'On Demand' model. This study pertains to the use of SaaS model for Enterprise Applications. SaaS offerings have been on offer since Primarily there are 3 models of SaaS. These are Application Service Providers (ASP), Application Management (AM) and Pure-SaaS. As ASP models are hardly in use, we have focused primarily on Application Management and pure-SaaS models of software deployment. In Application Management services, the customer owns the software but the software is installed on a vendor's data center. The customer accesses the application, usually through the web browser for a monthly maintenance fee. The vendor could either be the software seller himself (ex. Oracle) or a third party (like Accenture / IBM), and he also provides application maintenance services in addition to hosting services. In a case of Pure-SaaS scenario the vendor owns the application, hosts and maintains it, while the customer accesses it for a subscription fee. The pure-SaaS applications is built such that one single instance of the software can provide services to multiple customers. This is called a "Multitenant" architecture while the traditional software is "Single-tenant" architecture. The Multitenant architecture provides the least cost due on account of maximum economies of scale. The key value propositions that a SaaS offering provides are low cost of software deployment, freedom from IT infrastructure maintenance, better support and application uptime and predictability of cash flows. The constraints however are limited integration, customizability and currently smaller feature sets. However, this offers a very good value proposition to the Small and Medium Enterprises (SMEs), who otherwise would find it difficult to afford complex enterprise software. We undertook a Total Cost of Ownership (TCO) study to ascertain the extent of the cost savings possible for pure-SaaS offering in comparison to AM and Traditional modes of software deployment. We selected a typical CRM system for an 5MB segment, selected suitable pure-SaaS product (Salesforce's Unlimited Enterprise CRM Suite) and a traditional Software package (Siebel's Enterprise CRM Suite), and arrived at the deployment costs over a period of four (4) years. The study shows, the TCO for a pure-SaaS offering is typically about14% of the traditional software deployment process, while for AM model it is about 90% of the traditional software deployment process. Although the absolute values of savings are debatable, there is a consensus that the SaaS model is cost-effective and very attractive. If the SaaS value proposition as as good as the numbers reflect, why does SaaS contribute to only 5% of the global software market (based on the 2005 data) This is the central inquiry that we have tried to understand. We have explored the evolution, strategic and innovation perspectives and adoption trends and have arrived at the following conclusions and recommendations.1. SaaS lowers the cost of using the enterprise software drastically. This makes it affordable to a large majority of SME players.2. SaaS is a disruptive paradigm and promises a huge cost benefits to the users. SaaS isre-setting the rules in the software industry and forcing the large traditional software players in the industry like Microsoft, Oracle, SAP to offer SaaS solutions.3. The theoretical frameworks reviewed justify the adoption of SaaS as a viable alternative to traditional software. The growth trajectory is expected to be steep. This co-relates will the predictions made by technology analysts.4. The recent developments in the technology field like Service-Oriented-Architecture(SOA) and Web 2.0 are going make SaaS more attractive, as they are likely to redress the integration challenges to a large extent. Consequently, new SaaS offerings that are SOA compliant are likely to have significant advantages over the rest. So we recommend that the companies in the SaaS domain or entering the SaaS domain should focus on these technologies and integrate them in their product development efforts.5. SaaS vendors, for now should consider ways and means of reducing the constraints of integration and customization, improving the data center effectiveness and efficiency.