Known as “on-demand software” or “hosted software,” the SAAS model goes by several names. Nearly everyone in the field of information technology has heard of this four letter acronym, but the majority of people in business industries have yet to become familiar with it. Standing for Software-as-a-Service, SAAS has the potential to dramatically change the software industry, the small business environment, and the relationship between the two.

Gaining most of its momentum in the past five years, SAAS is a delivery model for business applications made possible by cloud computing. Basically, Web-based software is hosted on a provider’s website and data center, simply rented to clients for use. Through standard web browsers, users can access the application, which is operated by the software developers themselves. A monthly subscription fee is generally paid to the provider by the customer.

This differs from the traditional approach that the software industry has relied upon to provide services to customers. Under this model, clients have to access their applications through PCs over a corporate WAN, or wide area network. This set-up requires a perpetual software license fee, which must be paid upfront upon software installation, as well as annual royalties for maintenance. The client company’s IT department is responsible for managing and upgrading the software.

There are obvious business benefits that will arise from converting to the SAAS model. The largest one might be the immense cost savings that this conversion presents. Subscription-based licenses are much cheaper than their perpetual license counterparts. Typically, SAAS providers will bundle necessary hardware, software, and support services such as implementation and training into one fee, a fixed total cost of operation that the potential user can know in advance. Licensed software models generally have unknown or estimated costs to deploy and operate.

Aside from not having to sign on to expensive multi-year contracts, businesses using SAAS do not have to worry about purchasing the most advanced hardware for all of their system users, since SAAS applications are accessed through the Internet. Because files and data are stored in the cloud, it is less important for every system user to have a computer that is built with a lot of storage space. Thus, SAAS can help companies to cut down on hardware costs.

The SAAS model is also extremely flexible and scalable in comparison to the licensed software model, since corporate SAAS clients pay only for what they use. When dealing with the implementation of licensed software, client IT departments must predict how large the employee community will eventually grow in order to determine how many end-user software licenses are needed. Frequently, this number is overestimated, resulting in companies purchasing licenses that remain unused. With the SAAS model, business need only pay for active users of their system, not the estimated amount of potential users.

Therefore, SAAS subscription costs can be scaled up or down according to a company’s current amount of capital and human resources. The dynamic nature of the model makes it a wise investment for small and medium businesses, whose staff and resources can tend to fluctuate.

Additionally, SAAS poses less of a financial risk to corporate users than the licensed software model. Potential clients can “try before they buy” without difficulty, since SAAS applications can be accessed and implemented immediately through the Internet. The “pay as you go” option offered by SAAS means that users pay for their applications monthly, removing the risk of large upfront installation costs.

The lack of software licenses and contracts in the SAAS model also allows for corporate clients to switch vendors with ease. In the traditional software model, businesses would be bound to a vendor after purchasing software and licenses. Since the vendor had already made a sale, there would be no initiative for the vendor to provide quality customer care afterwards. Corporate clients could become dissatisfied with expensive software, only to find themselves stuck with an unresponsive vendor.

SAAS affords corporate clients with more control and power in the process of choosing and keeping vendors. If users are not satisfied with their SAAS provider, they can just cancel their subscriptions and transfer to a new vendor. No extra fees would be incurred, as no software or licensing costs would have been paid.

Another benefit of SAAS in comparison to licensed software is that performing system updates becomes much simpler. When new software is released by a vendor, the onus is on the customer to migrate to it. Corporate clients might spend days or even weeks attempting this migration, sometimes having to work hand in hand with the vendor. SAAS, contrarily, updates automatically; as soon as a customer logs on to the application, they are viewing the latest version. Whereas traditional software may get upgraded only once a year, all SAAS enhancements are deployed centrally to hosted applications, generally two to four times a year with several minor updates in between.

For the reasons outlined above, SAAS not only has the potential to revolutionize the small business environment, but also the ability to make major changes to software in an industry-wide paradigm shift. Software vendors are used to delivering products in multiple separate application releases, ending the extent of their service there. They leave the buyer responsible for customizing the feature set, managing the operations, and realizing product benefits.

The SAAS model necessitates vendors moving away from the product-centric approach and adopting a more service-oriented one. The vendor then becomes accountable for the whole customer experience, including implementation, testing, training, troubleshooting, maintenance, hosting, upgrades, and security.

Essentially, the vendor will begin to work for the buyer, instead of the buyer being at the whims of the vendor. This idea of vendor accountability further lowers customer risks with SAAS. If the vendor’s software is broken or running incorrectly, the vendor will have solid motivation to fix the problem; if the issue was left unchecked, then the vendor would lose money from their customers. Also, a top priority is given to security, as vendors understand that not providing a secure environment for customer data means that they will be out of a job quickly.

Given the advantages that SAAS offers to companies, it is only a matter of time before it becomes commonplace, replacing the licensed software model altogether. The use of SAAS is steadily growing, taking away more and more business from traditional software vendors. They will either have to switch to providing SAAS or chance going out of business, because the popularity of SAAS only has room to grow.