Customers always have the most recent version of the software and they never have to worry about upgrading or migrating data, both of which are high-risk activities. The vendor does this automatically, with no added cost, little or no risk, and with minimal disruption to service.
Multi-tenancy: While ASP vendors had to add hardware or virtual servers to add customers, both Salesforce and Workday are engineered for “vertical,” rather than “horizontal,” scaling. This means that multiple customers can be stacked across a single delivery platform, with each customer protected from other tenants by the inherent product design
Cost-effectiveness: Multi-tenancy enables SaaS vendors to deliver services very cost effectively. RightNow Technologies, a SaaS vendor whose products include a hosting platform and a CRM product, has stated their hosting costs are only 6 percent of their overall service delivery expenditure. This enables them to deliver service to consumers at a very reasonable cost, especially when compared to the average 60 percent to 80 percent of budget that goes toward IT administration and support in the average enterprise.
Open source: When SaaS vendors write and host their own applications, they can choose their technologies. RightNow uses no Microsoft or Oracle products and, instead, relies heavily on open source in its product delivery. This is another area of savings that helps keep costs down.
With SaaS evolving and maturing every year, it is becoming an increasingly attractive alternative for IT organizations struggling to deliver business services at a reasonable price. SaaS vendors are reporting they can host an entire application for less than in-house IT organizations pay for product technical support.
Obviously, such cost advantages are difficult to overlook in an industry that is being pressured to deliver an ever-increasing laundry list of business services with minimal budget increases.
Both IT organizations and some traditional vendors, including Symantec and IBM, are viewing SaaS as an opportunity. The final article in this series will discuss this in more detail.
Our take is those vendors who are actively planning SaaS platforms, reengineering for SaaS delivery, and strategizing on ways to capitalize on the SaaS wave will become the clear leaders in their markets during the next few years. Those counting on SaaS going the way of ASPs will likely be disappointed.