Software as a Service: Business models Pawan K. Gupta pgupta@cs.uml.edu University of Massachusetts Lowell Dept. of Computer Science 91.514 Internet and Web Systems II Spring 2011 Abstract Cloud computing buzz is everywhere and software-as-a-services are one of the key reasons, there are many people talking about it. Software-as-services model is not just a proof of concept anymore; it s a model that many business successes depend on. Frankly, many companies adopted this model and double their profit. This paper will be an introduction to the Software-as-a-services and will talk about the types of tenant model and its advantages and disadvantages. Introduction The Software as a Services (SaaS) concept has changed from dream to reality. Before SaaS was a proof of concept and now it s become a business need. It feels like Software Companies found a new toy SaaS to play with. Tradition web apps are fading away and SaaS is taking a charge. No more buying software, installing it, and then maintaining it. The Economist magazine believes that the SaaS market is growing 50% a year. The SaaS concept has the power to change the way companies use software; many top software company CEO s believe in it. An amazing thing about Cloud Computing is that no new inventions were discovered to do Cloud Computing; researchers took the existing components internet access and collaboration and put it together and gave us Cloud Computing. Companies used to sell software on the CD s, but now there is no need to download software in order to use it. Users
can simply go to a product website and start using it without downloading it to their machines. No more buying the software CD s from Best-Buy, and no need to worry if the product is compatible with your system. With the help of SaaS, users just buy a service and it gives them the freedom to use the software on multiple machines, locations, and frees them up from installing headaches. They don t need to save data on their own systems and the software is always up-to-date. Name background In February 2001, the Software & Information Industry Association (SIIA) wrote a paper Software as a Service: Strategic Backgrounder [1]. Before everybody agreed on Software as a Service name, many people were calling SaaS with different names such as: application service provider (ASP), application infrastructure providers (AIPs), Internet business service (IBS), business service provider (BSP), solution service provider (SSP) etc. IBM used the word on-demand or blue-group to describe SaaS. An acronym such as ASP also known as Active Server Pages was confusing to a lot of people, therefore SIIA decided to use only one name: Software as a Service to avoid confusion. Benefits SaaS solves the major Data-backup issues. Some people do not backup their data at all and some may only backup once a week or once a month. But if we use SaaS our data is always safe, data gets backed up everyday by Cloud Computing providers. Google Docs is a classic example of SaaS. To do any work in Microsoft Word, Excel, or PowerPoint related work, users do not need to buy the Microsoft Office Suite. Instead, they can simply use Google Docs to do any of it. Google Docs is free service and it allows users to store documents on Google systems. Users do not even have to store it on their systems and worry about
cluttering their system with all their documents. Netflix is also taking full advantage of SaaS. To watch a movie at home, you used to have to rent a movie, which comes via postal mail and could take 2-3 days to arrive. But now, you can stream any movie without having to wait. Just go to the Netflix website and start watching it. Think about it; users no longer have to worry about the return hassle or late fees. Many Universities and companies do not have their own email systems anymore. They hire Cloud providers such as G-mail, Yahoo, and other vendors to provide email to their customers and students. For example, Universities could pay five dollars per account to Google and Google will create an email account for that particular student. In return, Universities do not have to maintain email servers; worry about running out of disk space, or potential viruses that students may introduce, it will all have to be handled by Gmail. To prove SaaS is really useful for the business, The CEO of the NetSuite claims that, by using SaaS multi-tenancy model, their gross margin went over 70% [7]. Software Magazine (www.softwaremag.com) did the research and provided some data to back-up their arguments. They reviewed a small manufacturer that was able to save 63% by outsourcing their application [1]. Following data taken from Reference [1]. Cost Comparison Between Having Software In-house vs. Renting It From an ASP (Costs of Nine-Module Tier 1 ERP App for 50 Users calculated over 3 years)4 In-House Deployment ASP (aka SaaS) In-house Budget Items Year 1 Year 2 Year 3 Years 1-3
Hardware 70,000 70,000 20,000 Included (Database and Application Servers) Software 800,000 200,000 500,000 Included (50 Seat, 9 Module ERP License) Personnel 265,000 265,000 265,000 Included (DBA & Tech Support) Yearly Total 1,135,000 485,000 785,000 Total + + $2,405,000 $900,000 Average Cost/Month (3 years) 68,800 68,800 68,800 25,000 For a small or start-up companies, the SaaS approach makes a lot of sense. This approach does not require a lot of money up front to buy servers and applications. Companies can buy per user licenses based on their needs. By using the SaaS approach, companies have the option to decide whether to use the latest technology or keep the old version around without too much cost. But, if companies buy software and a new version comes along, the money the company invested in the old software will be a waste. In January 2004, Microsoft decided to cut the support of Windows 98 systems, but many people were still using the same operating system and could not afford to update their operating systems. They protested it and Microsoft was forced to change the date to June 2006 [3]. People were lucky to get that extension, but
in today s technology world, they probably would be forced to update their operating systems to latest version. The SaaS model has changed the way software companies do business. In the past, software companies generated a lot of revenue by forcing customers to upgrade their software, maintaining it for them, and other miscellaneous fees. But the SaaS model has caused revenue to decline tremendously, and to make up for it, companies have started going into the services business. As an ex IBMer, I first saw this change in the 2005. IBM Lotus group and Websphere group believe in the SaaS model very religiously. Single tenant Vs Multi-tenant business model The SaaS model has two approaches: Single tenant and multi-tenant. Owning a single family house is single tenant and owing a condo/town house is multi-tenant. A single family house owner can do whatever he/she wants in their yard, but condo/town house owners must follow the condo/town house association rules and regulations. Each type tenant has its own advantages and disadvantages. Single Tenant Cost is high Systems and resources are not shared by multiple customers; it s dedicated to one customer only. Customer can customize their applications based on their needs and preferences. Some type of security is maintained because Multi-Tenant Cost is low SaaS provider shares the systems. Multiple customers could be using the same systems and applications. Applications may not be customized or preferences may not be changed if it affects other customers. Data could be tampered with because
applications and systems are not shared by others. Safe firewall can be created to protect data. Customer can backup data at certain time. Customer needs to train their staff or hire experts from big companies such as IBM, Oracle, on how to install and maintain their servers and software. Resources are often under used and this is very expensive to many companies. recourses are being shared by multiple customers. Firewall cannot be created because multiple customers need to access the resources. Data can only be backed up when all customers agree to one time. If the customers who share resources are two or more types of businesses, it could really cause an issue. For example, a bank that uses cloud services and has two divisions. One service deals with all of the transactions that happen in the bank during bank hours and another service only deals Automatic Teller machines (ATM) transactions. After 5pm, when bank closed, customers are not accessing any data, so if services are down, it would not affect the bank customers. But ATM s can be used anytime and bringing down ATM servers can really inconvenience customers. Therefore, using two separate systems for each service are really the only solution. Customers do not need to worry about this; it s all the SaaS providers responsibility. Resources are almost never unused. It s shared by many companies, so someone is
always using it. Types of multi-tenancy: (a) Only Hardware is shared (b) separate database per tenant (c) shared hardware and database (true multi-tenancy) Under used CPU cycles using electric power, and storage space, which is very costly. Customer does not need to worry about it, because servers are on the SaaS providers site. Many companies CEO believe in multi-tenancy model to be very cost effective than singletenant model. Multi-tenancy allow resources to be share by more than one companies and that brings cost down significantly To convert traditional web-app to successfully and cost effective SaaS applications, cloud service providers must support multi-tenancy, subscription/billing process in details, acceptable scale efficiency, ways to monitor, configure, and manage the application and tenants, unique user identification and authentication process, and customization [7]. Conclusion The SaaS model is the way to do business and it s a proven fact. The SaaS model brings costs down, energy and environment friendly, allows businesses to collaborate with others, consumers get to use the software without all of the installing/maintaining headaches, it s very cost friendly, and data can be accessed from anywhere in the world with the presence of internet. Security is always an issue with everything, and the SaaS model also has to deal with
it. A lot of progress has been made in the internet security field, many researchers are burning mid-night oil to improve security, but we still have long way to go. Overall, the SaaS model is a great model which has more advantages than disadvantages, and that s always a positive. References [1] Software as a service: strategic backgrounder. s.l. : Software and Information Industry Association. [2] @inproceedings{nitu:2009:csa:1506216.1506221, author = {Nitu,}, title = {Configurability in SaaS (software as a service) applications}, booktitle = {Proceedings of the 2nd India software engineering conference}, series = {ISEC '09}, year = {2009}, isbn = {978-1-60558-426-3}, location = {Pune, India}, pages = {19--26}, numpages = {8}, url = {http://doi.acm.org/10.1145/1506216.1506221}, doi = {http://doi.acm.org/10.1145/1506216.1506221}, acmid = {1506221}, publisher = {ACM}, address = {New York, NY, USA}, keywords = {.net, configurability, saas, software as a service}, } [3] Bowes, G., End of Support for Windows 98, Welland Tribune (Ontario), January 20, 2006, Pg. D5. [4] @INPROCEEDINGS{4076800, author={vidyanand Choudhary}, booktitle={system Sciences, 2007. HICSS 2007. 40th Annual Hawaii International Conference on}, title={software as a Service: Implications for Investment in Software Development}, year={2007}, month=jan., volume={}, number={}, pages={209a},
keywords={software as a service;software development;software licensing;software publisher;investment;software engineering;}, doi={10.1109/hicss.2007.493}, ISSN={1530-1605},} [5] http://thecloudview.com/all-about-multi-tenancy-part-1/ [6] @INPROCEEDINGS{5477915, author={hancheng Liao}, booktitle={information Management and Engineering (ICIME), 2010 The 2nd IEEE International Conference on}, title={saas business model for software enterprise}, year={2010}, month=april, volume={}, number={}, pages={604-607}, keywords={saas business model;software as a service;software copyright licensing;software enterprise;software product selection;software service selection;software upgrades;dp industry;corporate modelling;enterprise resource planning;software maintenance;}, doi={10.1109/icime.2010.5477915}, ISSN={},} [7] http://www.ibm.com/developerworks/cloud/library/cl-multitenantsaas/?ca=drs-