GXS Insights

What is Software as a Service (SaaS)?

By Steve Keifer, Vice President, Global Marketing, GXS

Industry analysts, software vendors, technology press and even the investment community are all talking about Software as a Service or SaaS. But what is SaaS? And how is it different from traditional software approaches? More importantly, how is it relevant for your business? The concept behind Software as a Service (SaaS) is very simple. Instead of licensing a perpetual software license, SaaS users subscribe to an application for an ongoing monthly recurring service fee. The SaaS vendor hosts the application in its own data center providing all the maintenance, upgrades and support activities. This, of course, differs from the traditional software model in which a corporation customizes, manages and operates the software themselves.

There are several variants of the SaaS model, each with different deployment, pricing and support characteristics. However, the following statements generally apply to most SaaS models:

• End-users access the application over the Internet using a standard web browser. The web-based approach is used instead of the traditional, PC-based client accessing resources over a corporate WAN.
• Rather than being managed by the corporate IT department, the application is hosted and operated by the software developer themselves.
• Instead of paying upfront perpetual license fees and ongoing annual maintenance royalties, the customer pays a recurring monthly fee for use of the functionality.
• Very little customization of the software is necessary. Applications are highly standardized across customers, often hosted in a “multi-tenant” architecture model.
• Functionality enhancements are completely controlled by the vendor. Frequent upgrade cycles occur with new features being introduced multiple times per year.

The SaaS model represents a radical change to the software industry as it requires a major paradigm shift. Software vendors are accustomed to delivering a product. The output is typically in the form of discrete application releases. The buyer is then responsible for customizing the feature set, managing the operations and realizing the promised benefits of the software. The SaaS model requires a shift away from a product-centric approach to a service model approach. The vendor is responsible for the entire customer experience including implementation, testing, training, troubleshooting, maintenance, hosting, upgrades and security.