The Emergence of SaaS

With the ubiquity of the web browser, a new channel of software delivery has emerged. Software as a Service (SaaS) vendors allow enterprises to ‘out-task’ specific business applications with a single vendor specialized solution. The motivation for customers is applications can be “…built more quickly, less expensively, more securely and more precisely attuned to your company’s business goals” [1]. “Software as a service (SaaS) is a software application delivery model where a software vendor develops a web-native software application and hosts and operates (either independently or through a third-party) the application for use by its customers over the Internet” [2].

A relatively recent phenomenon, there are very few if any research articles published specifically to study SaaS. There are some trade publications, newspaper articles and blog entries, but little activity on the academic front. Commercial research and consulting firms are highlighting the emergence of SaaS vendors. According to McKinsey consulting [3] areas where SaaS is emerging are:

1. Infrastructure management: security management, storage management, system management.
2. Development, integration tools: Application development, deployment.
3. Core business applications: Enterprise resource management, supply chain management, collaboration, content applications, information marketplaces and other niche applications.

Interestingly, a new breed of SaaS services companies has emerged (refereed to as Services 2.0) that work with the SaaS vendors [4]. One other sign of SaaS’s rise is the increased level of acquisition activity. Recently Cisco Systems purchased SaaS vendor WebEx Communications for more than USD3 billion [5].

The SaaS model does have its fair share of critics. The concerns include security of network, security of data, service level agreement management and long term viability of the new firms [6]. Furthermore, a series of outages in early 2006 at salesforce.com created a negative series of press articles and sullied the reputation of SaaS (e.g. [7]). These outages lead Nicholas Carr to pen on his blog, Rough Type, about SaaS: “The fears about security and reliability may be rational or not - usually, they're a little of both - but they're real, and the onus is on suppliers to allay them. No trust, no business” [8].

1. Lindquist, Eric (2007), “The summer of SaaS: Services advantages are too good to ignore – even by Microsoft”, eWeek, July 2003, www.eweek.com.
2. Wikipedia (2007), “Software as a Service”, http://en.wikipedia.org/wiki/Software_as_a_Service.
3. Dubey, Abhijit and Wagle, Dilip (2007), “Delivering Software as a Service”, The McKinsey Quarterly, Web Exclusive, May 2007, downloaded from http://www.mckinseyquarterly.com/High_Tech/Strategy_Analysis/Delivering_software_as_a_service?gp=1.
4. Barbin, Chris (2007), “Services 2.0 – A New World for Systems Integrators”, April 5th 2007, downloaded from http://sandhill.com/opinion/editorial_print.php?id=129.
5. Shearer, Brent (2007), “Finding the Next Frontier: Cisco's acquisition of WebEx reflects a trend in the IT space to build new platforms through consolidation”, Mergers & Acquisitions: The Dealermaker's Journal, 00260010, Aug2007, Vol. 42, Issue 8, SourceMedia Inc, New York, NY, USA.
6. Kaplan, Jeffrey M. (2007), “SaaS: Friend or Foe”, Business Communications Review, June 2007, p 48-53.
7. Cowley, Stacey (2006), “Salesforce.com crashes again”, InfoWorld Online, 31st January 2006, IDG News Service, downloaded from http://www.infoworld.com/article/06/01/31/74930_HNsalesforcecrashes_1.html.
8. Carr, Nicholas (2006), “Salesforce.com’s Hiccups”, Rough Type (Nicholas Carr’s Blog), 1st February 2006, downloaded from http://www.roughtype.com/archives/2006/02/salesforcecoms.php.