Posted: Thu, May 18, 2006
Software as a Service: Is on-demand software the solution for SMEs?
by Sali Earls
 With software companies vying for position and trying to find a competitive
differentiator that works for them, the business model of "Software as a Service" (SaaS) may offer an option.
Rather than sell a boxed solution, a software company can now deliver the software, and provide maintenance and technical support to their client online. Using this method, software can be
delivered to any market segment, from home consumers through to large businesses, anywhere in the world.
According to analysts IDC, key characteristics of SaaS are
- Network-based access to, and management of, commercially available (eg, not custom) software
- Activities that are managed from central locations rather than at each customer's site, enabling customers to access applications remotely via the Web
- Application delivery that typically is closer to a one-to-many model than to a one-to-one model, including architecture, pricing, partnering, and management characteristics
While sharing some of the characteristics, Software as a Service is not the new name for Application Service Provider (ASP). In the ASP model, a customer may buy software and pay a third party to
host it for them, or a hosting company may make software widely available for use by a range of customers. As they are not the software developers, the ASP may lack the application expertise required
to manage and support the solution.
In March 2006, managed services company 7global carried out research into the current and future trends of SaaS in the UK, and have
provided a unique snapshot of UK companies views. The UK businesses surveyed, 23 percent of which were SMEs, provided some interesting results, including:
- The main events which would trigger companies to purchase SaaS are a drive to reduce IT costs (52.4%), a major software upgrade (39.5%), to increase employee productivity / efficiency
(35.2%), and a new service launched by suppliers (27.5%)
- The main applications being used or considered for SaaS are email / message management (20.8%), accounting (20.1%), payroll / time & attendance (19.5%), CRM (18.8%), desktop applications
(18.8%), and HR (18.8%)
- Concerns over the security of data outside the business (55.8%) is seen as the main hindrance to adopting SaaS followed by internal concern over loss of ownership (46.8%), reliability of the service
(42.9%), migration from current in-house applications (41.1%), and integration concerns (40.7%)
For the buyer, the low cost of ownership, quick time to market, low maintenance, increased choice, technology flexibility and no the need for application upgrades are some of the motivators behind a
preference for SaaS.
 Welsh local authorities need to provide information to the local community
bilingually, and a bilingual website can require twice the maintenance. With the highest percentage of Welsh speakers in
the country, Gwynedd Council recently implemented a new content management system with data in Welsh and English, and use this with
the SaaS search solution, KBroker Portal from Open Objects Software. With this software, Gwynedd Council are able to offer
every piece of information on their website in both languages allowing users to search in Welsh, English or both. The solution has replaced the Council's in house SQL software, which was returning
irrelevant results to searches.
Richard Walker, IT and eGovernment Policy and Performance Manager for Gwynedd Council, commented, "We tried the searches that we knew previously gave useless results - and the results
were fantastic. For example, if you search for Pwllheli Library, you go straight to their home page, showing their facilities and opening times. The search engines usually supplied with a CMS did not offer
this ease of use."
With revenue funding often hard to obtain, the Council opted for Software as a Service, with Open Objects Software supplying the solution online. This was an unusual move for Gwynedd Council,
but when the cost of ownership, staffing and maintenance were investigated, SaaS was an attractive option.
 Phil Rothwell, Managing Director of leading ecommerce software provider Actinic has reservations about the model. "SaaS was
much-hyped in the dot-com boom as a kind of nirvana where all business applications could be delivered on a pay-as-you-go basis via the internet. It didn't live up to its billing, because of the slow
connection speeds that were available at that time. The advent of broadband has breathed new life info the idea, and for some applications, in particular ecommerce, it offers a great way for small
businesses to get up and running quickly,"
"It isn't perfect. Business risk is a real issue for any company with more than a few employees. After all, if you choose a small provider and it goes bust, so do your critical business applications. On
the other hand, if you go with a large vendor, you may find your service being cancelled with minimum notice. That's why the vast majority of businesses continue to license software - to stay in control
of their business."
Software as a Service is not going to be the panacea for all ills, and will not work for all organisations. As Rothwell points out, it can help small companies get up and running quickly, and can reduce
overheads, but while this is still something of an unknown, and there are concerns about sensitive company data being stored on a third party's servers, licensed software offers greater security and
longevity.
Clare Barclay, Head of Small Business at Microsoft, thinks that SaaS can offer advantages to SMEs. "The main benefit software as a
service offers small businesses is that it frees the small business
owner from the maintenance and daily operation of the software. This allows the business owners to concentrate on their business rather than the technology that enables them to run it,"
"Also, by employing software as a service, businesses don't need to worry whether or not they have the IT capabilities to ensure the software works effectively and securely as this is also managed by
the provider. Financially, it can be a good investment, especially for small businesses, as you don't have to pay a large amount up front as, using software as a service means that businesses make
small, monthly payments, helping to manage their finances better."
 Clare Barclay continues, "If small businesses are going to get the best use out
of software as a service, they need a service tailored to their specific business needs that's delivered in a way the
business needs, when it needs it. In effect, they need software with a service that allows them to do what they want when they want. Nowadays, many businesses need more than online, web
based access - they need to access the same software offline. An example of software as a service would be where a business's email, for instance, is purely stored on the service provider meaning you
can only make the best use of the software when you're online. Software with a service, however, means that the business user can access the software from their PC, whether they're connected
or not. For example, storing Microsoft Outlook on your PC means your access to the software is unlimited and you can use as you want. Through a web browser, your access to the software is limited,
restricting what you can and can't do."
Barclay makes an important point, and any company considering their software options must bear in mind how and when they want to use it. Suppliers of SaaS have the responsibility for ensuring that
their solutions are always available, and the much publicised downtime of Salesforce.com for a few hours on 21 December 2005, brought
about by a software problem with a database cluster, gave a stark reminder to users that on-demand cannot take into account unforeseen outages. However, users must take responsibility for their
connectivity to the outside world.
While SMEs may shy away from SaaS until their larger counterparts have tried and tested all options, an opportunity is presenting itself for small software developers to get a foothold on the
international software ladder by offering their solutions online to larger organisations and the public sector. Working within this model, companies can develop software applications without the need to
adhere to conventional business practice - for example, development may be outsourced, or the team may collaborate to work at several locations across the country or world, thereby saving costs and
increasing opportunities to work remotely. This added flexibility can be passed onto customers via an on-demand online offering.
 Like all other software solutions, Software as a Service is only useful if it serves a
business need. Companies that invest in technology for technology's sake as clients are doing themselves no
favours; and developers who do not consider the business requirements and implications of their software will find themselves going out of business.
This business model is gaining momentum in the US with successes of companies like Salesforce.com, and the UK will not be far behind, so UK software development companies cannot afford
not to consider it as an option.
It's certainly true that Software as a Service has not reached these shores with any momentum, and for small businesses looking for software, the licensed model may well remain the best option
for some time. However, analysts Gartner claim that by 2010, 30 percent of new software will be delivered via SaaS as businesses continue to
adopt this approach, so software development companies of all sizes now have a real opportunity to carve a niche for themselves at an early stage by offering their Software as a Service.
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