The next wave of SaaS

Software-as-a-Service (SaaS) has gone from a curiosity to the mainstream in just a few years as businesses turn to the technology to take advantage of the inherent economies of scale. Yet that's only the beginning.

The reality is that businesses have just begun to leverage the real power of SaaS to transform the way they work, compete and survive. With thousands of companies using the same solution every day, SaaS companies can develop new applications and intelligence solutions that would be impossible to deliver in a software or managed service environment.

After all, in a traditional, on-premise software environment, the vendor is far removed from the customer and has little insight into their day-to-day challenges. They cannot foresee important shifts in client businesses that will foretell future needs and remain more or less in the dark about how they can truly add value for clients. The result: Much needed functionality often does not emerge until a dire need bubbles to the surface. This lack of agility can cause irreparable harm to a client's competitive position.

And it is no picnic for the customer, either. Unless the customer is a major player, it has little clout when it comes to requesting changes from software providers.

SaaS analyst Jeff Kaplan of Thinkstrategies says, "companies that purchased legacy applications are denied the benefit of keeping pace with innovation in two ways. First, there is no mechanism for the customer base to contribute feedback to vendors in an effective fashion. Second, they often are leery of software upgrades for fear of disrupting their business. In a SaaS environment they needn't worry about that because all customers are working off essentially the same code base. Moreover, the iterative process of code updates in a SaaS environment alleviates business disruptions, enabling customers to benefit from enhancements immediately."

It's also important to note that SaaS providers today recognize they're in the service business, not the software business. Every aspect of the software development process is about taking responsibility for the client's success, as opposed to past models in which a vendor built a product and imposed the burden of success on the client."

Operating in a vacuum

According to a report from Forrester Research, TechRadar for Sourcing & Vendor Management Professionals: Software as a service, about 21% of enterprises are piloting or already using SaaS, and another 26% are interested in it or considering it.

Many businesses that initially held back on deploying SaaS for fear of losing their ability to customize the tools have realized they made a poor tradeoff. Often the customizations they created did not deliver the desired business benefits they were hoping for, and many times they actually hindered the organizations, making them more vulnerable to reliability problems and cost overruns.

By modifying software to meet one very specific environment, they boxed themselves in and cut off opportunities to benefit from the lessons learned (and enhancements gained) by their peers. In these turbulent times, that model is simply not practical.