Software as a Service (SaaS) is a new delivery model for software solutions that can be defined as the ability to provide business functions at a given price under a Service Level Agreement (SLA), utilizing the concept of pay-as-you-go pricing. This model is fundamentally making software better because vendors are forced to pay much closer attention to their customer’s satisfaction and therefore respond more quickly to problems and enhancement requests. In fact, SaaS is quickly becoming a ‘disruptive technology’ because it is completely changing the way that software applications are being developed and delivered. Large traditional enterprise software companies are experiencing stiff competition from companies offering SaaS solutions and many of them are attempting to respond with on-demand offerings of their own.

The traditional model of application deployment, in which the customer acquires a perpetual license and assumes responsibility for the software’s implementation and ongoing management, has many disadvantages for end users. Increasing dissatisfaction with the costs, complexities, and length of time that it takes to recognize value from their investments have left software buyers frustrated and looking for a better way. SaaS changes the dynamics and definition of traditional software and service providers and requires that successful SaaS offerings merge these concepts into a single entity.

With SaaS, customers access the functionality of the application via a web browser and all of the infrastructure running the actual application and the associated operations staff are the responsibility of the ISV or a SaaS enabler (in the event the ISV is outsourcing the delivery of the software service). This delivery model is becoming increasingly popular with end users because they no longer have to bear the cost of infrastructure, IT staff and operational issues such as application management, monitoring, availability, disaster recovery, etc.

SaaS is an evolution from the old ASP model that emerged and then fizzled in the mid to late 1990s. Although SaaS appears similar to ASP, it differs in that the Independent Software Vendor (ISV) is now providing their own application as a service, rather than depending on a third party to aggregate a selection of applications for sale and availability. SaaS offerings also facilitate the delivery of fine-tuned and more configurable offerings while ASPs tend to be more standardized applications. The new SaaS model is poised to undergo rapid growth and to play a very meaningful role in redefining the software industry. Today, the impact of SaaS can be felt with new companies performing well and changing the dynamics in certain software sectors. Companies such as Salesforce.com, RightNow Technologies and NetSuite are all experiencing triple digit year over year growth in this space. Large established ISVs are attempting to adapt to the SaaS model, due in part to the competitive pressures being applied by disruptive, pure-play SaaS firms.

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