It seems a little late in the game for me to be asking a question like “What is SaaS?” But, I’ve always harbored a few embarrassing little secrets on the subject and I think it’s time I came clean.
There is a classic Harvard Business School case study called Marketing Myopia by Theodore Levitt that is familiar to every MBA student since the 60’s–the moral of which is not to define your business too narrowly lest you become obsolete. Well I don’t think software is going away any time soon and neither is service, but what about software-as-a-service? Between the rise of the cloud and the fall of the browser, SaaS seems so passe’.
What is SaaS?
Is SaaS software delivered as a service? As in renting, not owning the software. Or, is SaaS a service layered over software? As in a complete solution, not a tool. SaaS is both.
Software delivered as a service means on-demand. It means eliminating the feed and caring of the software itself through automation. Notice that I say eliminating, not obscuring or outsourcing. Automated deployment. Automated maintenance. The software simply arrives and runs as needed in a fashion that is all but invisible to the customer, so the customer realizes the benefit of the service without incurring the headaches of managing the technology.
Service layered over software means the software solves a problem without creating new problems of its own. Not only is the customer freed from managing the technology, but the customer is freed from understanding the technology. A service doesn’t require the customer to master a bunch of technical mumbo jumbo in order to use it.
Software-as-a-Service Myopia
One of my embarrassing little SaaS secrets is that I’ve always harbored a fondness for desktop anti-virus and security software. It doesn’t run in a browser. It has a huge client footprint. Yet the best desktop security software I’ve used takes care of itself without any help from me. It updates the virus definitions everyday. It updates the client. It cleans my computer in the background. It maintains a firewall and figures out what applications should get through. And, it keeps intruders from co-opting its own processes. Yes, I have to click OK here and there, maybe turn it off to install OTHER software, but by and large it runs and runs without interruption. I have always viewed it as SaaS. It certainly requires less deployment, maintenance and technical know-how than a lot of enterprise SaaS solutions.
Now along come mobile apps. Yes, you have to click OK once in a while, but this is largely about permission and privacy. The seamless-ness of the process is what counts. The more service I get and the less software I have to understand, the more SaaSy it is.
SaaS is software transformed into service, regardless of the technical architecture.
Whether it comes through a browser, a smart phone, or a tablet does not matter as long as the software remains invisible and the service is valuable. Restricting the definition of SaaS to software applications delivered through a Web browser is marketing myopia. As Internet bandwidth expands and mobile clients evolve, the distinction between client and server will continue to blur. The software flows effortlessly throughout the network. What matters is the service it delivers.
SaaS succeeds when software IS service.
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I mean definitely one of the biggest reasons companies are moving to Saas is they are simple selling the same product but now licensing it and not captures revenues up front but over 5 – 10 years. It takes the same product and stretches the amount of money companies are pulling out of it. I thought about making my company http://www.softwareforseo.net a Saas product but because of the nature of it, I chose not to at this time. Maybe it could generate more money in the long run if it was saas.
Joel,
I completely agree. SAAS has been thought of as web based applications delivered over the internet. This is a small part of what SAAS will be in the next 5 years. Citrix technology is developing quickly that will allow any desktop based application to be converted to a SAAS application with no programming involved. Desktop applications are usually more flexible and feature rich than the 1 size fits all SAAS applications currently being sold. My company, http://www.novelaspect.com has been offering SAAS based Quickbooks for 6 years and we are rapidly expanding our application offerings.
Thanks for your information.
now i know the concept of SaaS. http://www.meghdot.com/training/cloud.htm
Well SaaS is one of the best on demanding solution for big companies, also thanks for the article this really worth a lot.:)
Thanks joel for the wonderful explanation of the software as a service..:)
(I just realized this comment is probably too long. Sorry, I don’t have time to rewrite it concisely.)
I’m the founder at a SaaS startup and couldn’t agree more with the service component as being as important as the software component of the SaaS business model. And while the definition can be broadened, I do not think that adopting the business model and vernacular is enough and furthermore, I believe that technical architecture does matter, and here’s why…
While raising our seed round, my investors pointed out to me that the customer doesn’t usually care about the technical details, they only care first about their functionality and then the value (defined as TCO vs benefits). And, with virtualization becoming easier and cheaper, why should they (the customers) or they (the investors) or us (the company) care about differentiating from our competition via the purist definition of SaaS architecture?
In most applications, everyone in the value chain should care, because all overhead has to be paid for somewhere, either in absolute (i.e. higher cost) or nominal (i.e. opportunity cost) terms. Simply put, resources not being expended on packaging, distributing and supporting “distributed” components, can be expended elsewhere [or eliminated] and hence, add more value.
After 2.5 years in business, we’re now adding our third paid feature/service to our SaaS platform. We spend less than 13% of our expenses on the development and maintenance of our technology, yet we manage around 10 releases a year, all adding functionality and fixing bugs. In our industry, these three features are typically three separate platforms, usually provided by 3 separate vendors. Obviously our R&D budget is a fraction of our traditional competitors’, so how did we do it and so fast? I argue that it’s largely because our implementation and techinical support is the smallest component of our service. We never have to ask customers what version they are on (other than browser) and we never have to see what else is installed locally. In fact, 95% of our support is helping customers with business issues, not technology environment issues.
SaaS business models, when combined with SaaS architecture (i.e. single instance, multi-tenant, ~zero footprint and native browser based) are typically far more nimble than other architectures which require either deployment of client components, or centrally deployed “client instances”. Nimble eventually leads to better; ergo, SaaS leads to better software, not just better monetization of software.
For instance, I pay for my server OS licences with a Microsoft SPLA contract (per CPU per month), the OS can update itself with regular patches and all modern Microsoft OS’s send user experience feedback back to Microsoft to help improve their software (if I so elect). So do we define Windows as SaaS? What about MS Office? Now same question, but with Google Docs? Definitely, SaaS!
Joel’s message is on point — we should expand the definition of Saas beyond just browser based software based on the benefits received — however, it’s the technical architecture which lowers the hurdles of providing these extra benefits, so much so, that software providers actually do so regularly and the benefits grow non-linearly over time. My point… Internet Architecture enabled the SaaS business model, not the other way around.
Joel, thanks for a great blog and for this post. I agree with you about a broader definition of SAAS with regards to architecture.
I wonder if you would expand more on your thoughts about business model and how important that is to an offering being SAAS. You mention SAAS being software as a service, “as in renting vs owning” But I think, like you, that many mobile apps are software as a service even though they are bought not owned.
Jeff, I agree with your comment too. SAAS “is also the ability to immediately benefit from the continuous enhancements and innovations generated by the provider as determined by the crowdsourcing affect of capturing the aggregated behavior of the user population.” I think the ability to measure user interaction with the software and use this to improve the service and better serve the customer is a profound difference between SAAS and other forms of software. Its so key to the model that it should be included in the definition. I wrote a blog post about this: http://www.apptegic.com/blog/2011/8/22/online-services-enable-better-customer-service-if-you-measur.html
It is always useful to reiterate the fundamental differences between SaaS and legacy software. But, SaaS is more than the convenience of gaining software functionality via a network on a pay-as-you-go basis. It is the shifting of the burden of successfully deploying and utilizing the functionality from the customer to the provider. It is also the ability to immediately benefit from the continuous enhancements and innovations generated by the provider as determined by the crowdsourcing affect of capturing the aggregated behavior of the user population. In sum, SaaS is not only a new architectural approach to designing and delivering software applications, but a new mindset to satisfying users’ evolving needs.
Hi,
This is a great blog! You’re certainly right that the definition of SaaS has been limited to applications through the web browser. This post is a great start towards broadening the general public’s knowledge.
As SaaS gains traction, the headache of calling service centers to maintain desktop software will be eliminated.
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Excellent post and certainly agree with the point. Technical architecture of delivering through the browser is just one of the means of automated deployment. Your point about “as mobile clients evolve, the distinction between client and server will continue to blur. ” makes me think of the future.
By the way I had an international flight a few weeks back and had downloaded a section of your blog for reading on the 18 hour flying time that I had – certainly one of the best SAAS reading I have ever done. Some of the posts about churn and LTV made me go back and review all of our data. Great blog and a super help to entrepreneurs!
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