Originally posted on on the e-Sourcing Forum [WayBackMachine] on Friday, 23 June 2006

On Demand or SaaS (Software-as-a-Service) is the delivery of software functionality over the Internet from an application instance that may be shared across many clients. It is not simply ASP (Application Server Provider) re-invented. With ASP, you bought a license to a traditional piece of software designed to be installed within an enterprise and paid someone else to host and manage it for you. With on-demand, you rent a license to a software module designed for the internet from the ground up and the provider hosts and manages it for you.

On Demand is becoming the new paradigm in software delivery and “the emergence of on-demand software is not an isolated trend; it is a fundamental, market-altering shift in how software is built, bought, delivered and used.” (Bill McBeath, Chief Research Officer @ ChainLink) It’s the frontrunner of the new “utility” computing movement in which technology is provided in the way power or water is delivered to your business, as a service.

A look at the sharp increase in on-demand adoption statistics verifies this trend. A study by IDC (recently summarized on Forbes) last year determined that almost 33% of respondents were using software on demand and another 48% were considering doing the same. This is a sharp turnaround from a study 18 months prior that determined 70% of companies were not willing to consider on-demand.

A study by Aberdeen Research earlier this year focusing on the use of on-demand applications in the supply chain, one of the business functions that was not an early adopter of on-demand, determined that half of the study participants said they now use or are considering using on-demand applications to manage select portions of their supply chains. Finally, Gartner claims that by 2010, 30 percent of new software will be delivered via SaaS as businesses continue to adopt this approach.

Furthermore, on-demand software-as-a-service comes bundled with a slew of benefits not found with traditional software models. Fifteen of these benefits are:

( 1) Pay As You Go

No more spending thousands, tens of thousands, hundreds of thousands, or even millions of dollars up front for a software license only to spend that much again on implementation and training costs. You pay a fixed, relatively small, monthly, quarterly, or yearly fee (often less then the maintenance costs associated with traditional licensed software).

( 2) Instant Deployment

You can start using the software the minute you pay for it and your provider activates your accounts. Most of these offerings come with easy-to-use streamlined data import utilities that allow you to fully set-up your instance in a matter of weeks, or even days, not the months or years associated with traditional enterprise software deployments!

( 3) Single Instance

All you see is a single instance of your software when you log in, regardless of how many instances and boxes are required to support your software behind the scene. No more one instance per unit, department, or division.

( 4) Economies of Scale

The fact that on-demand software is built from the ground up to be a multi-tenancy model allows a provider to share the hardware and software instances required to support your instance across clients and pass on the savings generated by economies of scale to you.

( 5) Provider handles administration, maintenance, and headaches

Software-as-a-service is the ultimate in computing from a utility perspective – and the only hassle-free computing model out there. All of us know how much of a hassle it can be just keeping our windows PCs working on a regular basis – enterprise software can be much more complicated. But neither you nor your IT department need to worry about that, the provider takes care of all the administration, regular maintenance, and associated headaches.

( 6) Free Upgrades

On-demand software is updated automatically by the provider when new features are available. With many providers, this often occurs frequently, and some providers offer significant free upgrades three to four times a year. Compare this to traditional enterprise software where you might get an upgrade once or twice a year if you are lucky, and willing to pay for it.

( 7) You, the customer, have the leverage

Many on-demand offerings are month-to-month (after an initial sign-up period, depending on the provider, which is typically never more than three to six months) and you can leave at any time if you are dissatisfied. A provider’s success is not measured on the income from the initial contract but by adoption, satisfaction, and, most importantly, your renewal. Unlike a traditional installed enterprise software provider who gets all the money up front and disappears, on-demand providers are in it for the long haul. SaaS providers continually strive to make their offering the best it can be.

( 8 ) Anywhere access

Because on-demand is internet-based, you can typically access the full-functionality anywhere you have an internet connection. This is different from traditional web-access to enterprise applications which requires a VPN connection and specialized client software.

( 9) Buy what you need, and only what you need

With the on-demand model, you can buy just what you need and not a bundled package where you may never use more than half the features. Recent studies have suggested that the vast majority of product features go unused by a customer. If you do not believe it, count how many features of Microsoft Word you use on a regular basis. Maybe 20 or 30 if you’re a real pro. Now compare this to the 300+ (or is it 400+?) features that Microsoft Word has. With on-demand, if you do not need it, you do not have to buy it.

(10) Single Accountable Entity

With traditional installed behind-the-firewall enterprise software, if something went wrong the software provider would blame the third party integrator who installed it and the third party integrator would blame your in-house administration team and so-on. With on-demand, there is a single entity involved with and responsible for the software and so a single point of accountability.

(11) Regular, Automated Data Backup

How often does your internal IT department back up your data? And, more importantly, how often do they test the backups in recovery drills? (Warning: If you are faint of heart, do not ask this question if you want a real answer!) As an ex full-time developer/architect, I found it quite shocking how little time most IT departments actually spent on data backup and disaster recovery planning. Moreover, very few stored critical data backups off-site in a secure facility and those who followed the practice generally did not do so nearly often enough. However, an on-demand provider, who knows that up-time is their business, usually has a much deeper understanding of IT-as-a-service then an internal IT department and generally has backup, recovery, and disaster avoidance as part of its daily operating procedures.

(12) Built for Change

Your business never stands still, so why should your software applications? However, that’s what happens when you buy traditional enterprise software – you’re locked into a single operating mode until you upgrade the software, which could be years when you consider the up-front costs you generally have to sink-in to buy the initial license. On-demand applications are built for change, since the providers know that if they do not keep up with the forward pace of the industry, you will have no reason to renew when your initial term is up.

(13) Unparalleled Collaborative Capabilities

Unlike most applications, on-demand applications are built as native web-based applications and, therefore, allow unparalleled collaborative capabilities as compared to traditional enterprise applications.

(14) Integration with office applications

The vast majority of on-demand applications recognize that Microsoft Office is the defacto standard for professionals everywhere and build-in integration capabilities for data import from and data export to these applications, making them easy to use and populate.

(15) Low Total Cost of Ownership (TCO)

On-demand dramatically restructures the economics of developing, delivering, and supporting business software. Triple Tree and the Software and Information Industry Association (SIAA) found that SaaS deployments are 50% to 90% faster with a total cost of ownership (TCO) five to ten times less expensive than traditional software!

On-Demand users report overwhelming benefits when they compare their software-as-a-service offerings to traditional enterprise installations. Aberdeen’s study from earlier this year found that:

• 66% of respondents said on-demand platforms were easier to upgrade
• 64% of respondents said on-demand platforms had better ROI and, furthermore,
  • 35% quoted time to ROI as under 6 months, and
  • 65% quoted time to ROI as under 1 year
• 57% of respondents said on-demand had a faster implementation time and
  furthermore,
  • 61% gave an implementation time of under 3 months, and
  • 84% gave an implementation time of under 6 months
• an even number of respondents said customer service was better,
  with the other half saying customer service was the same

The ultimate impact is that on-demand allows an organization to escape, or bypass, the IT backlog and get a solution, and results, faster while improving the alignment between vendor and customer goals, lowering risks, and decreasing capital expenses. Furthermore, the release from the mundane administrative and maintenance tasks frees you up to focus your efforts on higher-value strategic initiatives.

Of course, still not everybody has such a rosy view of on-demand, so tomorrow we’ll review the myriad of concerns that have been presented and see that not only are most of them unfounded, but that some of them actually reveal additional advantages of the on-demand model!