Software as a Service
In the SaaS model, a vendor takes responsibility for not only infrastructure, but also for all of the processes required to manage an entire application solution (patches, upgrades, backups, database management, systems tuning, performance management, etc.). Because SaaS vendors manage many customers on a small number of application instances, they can amortize infrastructure costs over many customers. In other words, the inherent savings of the cloud are compounded when many agencies share a single system.
|The terms Cloud and SaaS are sometimes (incorrectly) applied to hosted applications that are not multi-tenant. The benefits described here accrue from sharing resources. Simply hosting a dedicated system is insufficient. As traditional on-premise solution vendors move to the cloud, they learn that multi-tenant architecture is very difficult, if not impossible, to retrofit into legacy applications.|
The software architecture of such shared systems is called multi-tenancy because a single instance of the software application serves multiple client agencies, referred to as tenants. Databases and configurations are partitioned so that each tenant’s user experience is identical to having a dedicated (rather than shared) system.
Because multi-tenant SaaS applications run on shared infrastructure, the incremental cost of deploying an additional customer is far lower. There is no hardware, operating system or database to purchase, no site preparation, no staging, and no delivery. By contrast, on-premise systems require an initial investment that leaves vendors no choice but to “front-load” costs. The SaaS model opens the door to pay-as-you-go subscription pricing. Of course, there are discounts for pre-payment and for multi-year contracts.
|The SaaS model ultimately provides the same type of products as a software licensing model – but with a better economic model, one that is lower in cost to the customer and structurally inclined to keep getting better for the customer with every new release. Scott Sehlhorst, Pragmatic Marketing, The Economics of Software as a Service (SaaS) vs. Software as a Product – http://goo.gl/T75dQ|
Hurwitz Group estimates that the four year total cost of ownership (TCO) for SaaS based applications is about one third of the cost of a comparable premise based application. But the cost-benefit of SaaS is even greater. Upgrading premise-based systems is expensive. A vendor may release new versions of an application several times per year, but most customers only upgrade when the version they have deployed approaches end-of-life, or when a new version has features that justify the upgrade cost. Except for a short time after initial installation and occasional upgrades, customers are deprived of the benefits of the newest features. Furthermore, because upgrades almost always skip multiple releases, they are disruptive and require retraining.
SaaS applications are upgraded more frequently and in smaller increments. Most such improvements require little or no retraining. All customers get the benefit of all upgrades the moment they are applied, and there is no upgrade cost.When most customers do not take advantage of most upgrades, vendors are encouraged to put most of their development effort into features that will enable them to acquire new customers. In the SaaS model, vendors’ profits depend on keeping their subscribers happy, largely through new features that benefit existing customers.