Software As A Service

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Murugan Pal

Murugan Pal
Sep. 26, 2005 01:18 AM

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The terminology "Software As A Service" (SaaS) is gaining momentum and is becoming widely understood.

But, SaaS is used interchangeably and sometimes used to replace the definition of "Application Services Providers" (ASP). Many of you may know about ASPs and ISPs (Internet Service Providers). SalesForce is a good example of ASP. ASPs deliver application functionality (rather than software) as an outsourced service and charge on usage basis. ISPs provide internet service as an outsourced service. AOL is a good example of ISPs. For lack of better term we can call service providers who delivers software as a service as "Software Service Providers" (SSP).

Unlike the existing definitions and differentiations between SaaS and ASPs, I think there is an important distinction between ASP and SaaS. In case of ASPs, the software is not shipped to the customers; the customers access the "required functionality" and use the functionality via a remote client i.e. the software execution happens in the ASPs' end while the customers access the application. In case of SSPs, the software is shipped to (or downloaded by) the customers, deployed within customers' premises (or their co-location) and gets executed within the customers’ environment. Anti Virus Software is a good example for SSPs, where subscriptions are charged for virus definition updates and not for the anti virus software itself. Moreover in ASP model when a service is stopped, the customer has to migrate their data to a different environment, where as in SSP model the customer can still run the software (along with their data) without any associated value-added services (like future updates).

Here are 5 things you want to adopt if you want to be a SaaS provider:
  1. Initial activation cost as low as possible (better if it is free) to gain adoption

  2. The customer must be able to make use of the functionality (out of the box) right from the get go

  3. There must be incremental value-add (updates, patches, validated integrations) on an ongoing basis that are delivered seamlessly to customers and can be charged (like in free printers vs. paid cartridges)

  4. The incremental value-add must be thoroughly tested and should not break backward compatibility. Think of whether you will get antivirus updates if it breaks your existing applications

  5. The customer must be able to stop the subscription and still be operational (no vendor lock-in)

SaaS blends best of both traditional software model (customer owns the software) as well as ASPs (rent or lease the service). Hence in my opinion, SaaS business models will be widely adopted and preferred by customers in future.

Murugan Pal is the founder and CTO of SpikeSource, Inc.