RJ Burgess, CEO at GoIWx, says:

There is a lot of buzz these days about cloud computing in general and software as a service (SaaS) in particular. So much so that you may be asking a simple but important question: what is software as a service, anyway? In the SaaS model, software applications and their associated data are centrally stored in “the cloud”- a remote location that is accessible over a network such as the internet. End users can access these cloud-based SaaS applications through a web browser or mobile app; the back-end business software and user data are stored on remote servers managed by the SaaS provider. For many businesses, the cost savings, operational efficiency and ease of access associated with the SaaS model make it an attractive alternative to traditional on-premise hosting solutions. According to research from Gartner, the SaaS market is expected to grow to $22.1 billion by 2015.

Given the increasing relevance of SaaS in business, I thought it would be useful to explore the topic in more detail. Specifically, I want to summarize the characteristic elements of SaaS and then relate them to on-premise alternatives; I’ll then review the most widely perceived benefits of SaaS and offer up a few things to consider when weighing its potential as a business solution.

Characteristics of SaaS

With SaaS, the cloud user (your business) does not manage the cloud infrastructure and platform running the software applications; instead, this task is handled by the cloud hosting provider. A move to SaaS cloud hosting eliminates the need to install and run applications on your own computers, lowering IT maintenance and support costs. Cloud-based software applications are also regarded as more scalable than on premise applications, as they can run various tasks on multiple virtual machines to meet changes in work demand.

To accommodate the needs of organizations with varying usage needs and security requirements, SaaS cloud hosting applications can be single-tenant or multi-tenant. Single-tenant hosting refers to cloud-based solution that services a single organization, whereas multi-tenant hosting arrangements service more than one cloud user organization.

The characteristic differences between on-premise and SaaS applications fall into three areas: how the software is licensed, where it is located, and how it is managed.

Licensing – On-premise applications are often licensed in perpetuity with a single up-front cost for each user or site; custom-built applications are owned outright. SaaS application licensing is sometimes based on usage, in which the customer is only billed for the number of service transactions used, or on a time-based subscription model, in which the customer pays a flat fee per seat for a particular time period. This time period typically ranges from a month, quarter or year. During the contract period, the customer is allowed unlimited use of the service.

Location – SaaS applications are installed at the location of the SaaS provider, while on-premise applications are installed within a company’s internal IT environment.

Management – In the on-premise model, the IT department is responsible for providing all aspects of service to its users, ranging from managing network, server, and application platforms to providing support and troubleshooting and resolving security, reliability, performance, and availability issues. On the other hand, SaaS applications are completely managed by the vendor or SaaS cloud service provider. Service-level agreements (SLAs) govern the quality, availability, and support commitments that the provider makes to the company (subscriber).

Benefits of SaaS

Supporters of SaaS argue that cloud computing gives businesses an opportunity to avoid hardware/infrastructure installment and upgrade costs. In this way, companies can expend more resources, IT and otherwise, on improving their core business. SaaS cloud computing is also considered by many to provide greater efficiency in software application deployment and upgrades, reducing IT management and maintenance costs, and flexibility in resource management, allowing companies to nimbly adjust resources to meet fluctuating business needs.

All of these factors hint to the overall cost-reduction benefit of SaaS. For example, unlike on-premise applications, SaaS is considered an operational rather than a capital cost. This differentiation can be a huge tax benefit to some organizations. Many argue that SaaS cloud hosting allows companies to reduce energy consumption expenses. In short, SaaS is considered to offer greater accessibility, efficiency and cost-savings than on-premise alternatives.

A Value-Add for IT

One of the biggest questions relating to any discussion about SaaS cloud hosting relates to the potential effect of SaaS deployment on a company’s IT department. In a nutshell, proponents regard SaaS as a good thing, in that it frees IT professionals from mundane tasks such as application deployment and maintenance and testing and installing patches, freeing up their time for higher-level activities that will better help the business move forward.

Additional Considerations

While SaaS cloud hosting can provide many benefits to your business, certain technical, financial, and legal factors should be taken into consideration before you make any definitive move to the cloud.

Technical – Today’s leading SaaS providers offer a high degree of flexibility for customer configuration. However, certain applications may require specialized technical knowledge to operate and support, or levels of customization that a SaaS vendor cannot offer. In extreme cases, it might not be possible to pursue a SaaS solution for such an application.

Depending on the type and amount of data that will be transmitted to and from the SaaS provider’s remote servers, and the distance of your provider’s server network from your business, data transmissions might take longer than expected. This is especially true if your provider is located across the country. Given this, you should consider a geographically centralized solution provider that takes network latency into consideration.

Financial – It’s important to consider the total cost of ownership (TCO) of a SaaS solution compared to an on-premise solution. The initial cost of acquiring software capabilities through SaaS is usually lower than that of on-premise applications. However, the number of licensed users and the amount of custom configuration you will have to perform to integrate the SaaS application with your infrastructure can reduce the cost savings of SaaS.

Legal – If your industry is subject to special reporting and recordkeeping requirements, make sure your potential SaaS solution can accommodate your needs. In addition, you’ll want to ensure that any candidate SaaS providers are able to meet your internal standards for data security and privacy in order to avoid legal exposure. Consider any legal obligations you have toward customers or other parties, and whether SaaS will allow you to continue to meet them.

SaaS has the potential to add unprecedented efficiency and scalability to your business. When considering a SaaS cloud solution, make sure you end up working with a provider with the knowledge and experience to help you fully leverage this exciting technology.