Cloud computing has only begun to show its profound effect on the way software and services will be consumed from this point forward. Already many business productivity software categories such as CRM (Salesforce), Project Management (Basecamp), and even Word Processing (Google Docs, Microsoft Office 365) are either completely or well on their way into the cloud. Acceptance of Software-as-a-Service (SaaS) has risen due in part to the marketing dollars invested by leading cloud companies such as Salesforce and Google. Their efforts have popularized the benefits of and reduced the fear of relying on hosted services. Sentiment towards hosted services has turned remarkably quick from fear to mass adoption. As a result, many legacy companies have decided to put the shinny veneer of new and trendy on their old and tired products, in the process frequently misleading customers.
Salesforce is largely credited with coining the term Software-as-a-Service (SaaS). SaaS is an architecture that goes back to the era of time-sharing main frame computers in the 60s, subsequently with its modern iteration growing out of the Application Service Provider (ASP) model of the 90s. ASP’s popped-up with the proliferation of broadband Internet connections. Distributed software then began moving from the in-house corporate data centers to colocation facilities of the software vendors. This allowed companies to offload the work of maintaining servers. However, someone still had to do it and one layer below the surface it didn’t vary by much. Although there were now many clients in the same data center (and in certain cases on the same servers via virtualization), each instance had to have the appropriate technical headroom (storage space, bandwidth, etc) and be maintained individually per client. This is the single tenant model and has inherent limitations.
Enter SaaS. A new breed of companies began treating their software as one large network. One set of hardware resources, one code base, one database, and many customer accounts. In other words: multi tenant. All of a sudden getting a client up and running required very little incremental effort, time, or cost. The resources are shared and therefore customer accounts no longer required 95% headroom. When the software is updated, it is done once for all customers at the same time. As a result, the maintenance costs for SaaS providers and the ownership costs for their client’s are far lower than an ASP’s. Coincidentally, without the SaaS model entire categories such as social networks would not be possible, as they rely on the network effect of multiple users interacting with each other.
The fact that print service providers have to transition online is no longer controversial. Choosing the right solution and understanding the disparity in return on investment between the different software delivery models is crucial. While the old Client-Server model is obviously the wrong solution today, the difference between ASP(single-tenancy) and SaaS (multi-tenancy) is equally as distinct. Paying an ASP for individual maintenance on 20 times more infrastructure than you actually need is just as outdated as paying for software license fees. Not to mention you’ll be missing out on the network effects (for example the Keen plugins which you’ll be hearing more about soon) and rapid deployment only possible with SaaS.
Based on the typical upfront cost, upkeep, and ramp-up time, we’ve done the ROI comparison for you. All the technical details aside, the dollars and sense are undeniable:
Licensed: High upfront cost, high maintenance cost, annual license renewal, long lead to first transaction, and because of the effort involved in each deployment applicable to limited segment of orders.
ASP: Still relatively high upfront cost, high monthly subscription fee regardless of actual order through-put, Still relatively long lead to first transaction, and still applicable to limited segment of orders because of the effort involved.
SaaS: No upfront cost, monthly cost tracks usage, sign-up to transactions in 2 days, designed for entire order flow, and because of virtually no additional effort applicable to most orders.
So the next time someone tries to sell you an outdated ASP in a SaaS costume, be skeptical. You can spot them by: setup fees, a long startup process, high maintenance fees, and the inability to work with other online services and partners.