Bursts on the exploding Software As A Service Industry

According to InformationWeek, “On-demand software startup Workday has clinched its biggest deal yet — and the largest known in the software industry — to provide an electronics company with a human-capital management software service for 200,000 employees. It’s the strongest proof yet that large companies have started to embrace the software-as-a-service delivery model.”

This is pretty interesting as its (a) ERP software that we are talking about (and not the popular CRM or collaboration) (b) its a large enterprise deal (and not small businesses) and (c) Workday beat SAP and Oracle to the deal.

A recent SearchCIO-Midmarket.com survey found that although 22% of CIOs plan to purchase an ERP system this year, only 9% of those plan on a SaaS product and 15% plan on a hosted product. A full 52% plan to use a traditional on-premise product and the rest selected “I don’t know.”

Though, ERP is tightly integrated into the business process its much harder for companies to move to an on-demand model. Common concerns are integration, security, lack of customization, business critical information hosted remotely. Though, this deal puts these to rest. Sooner or later, businesses will have to move to the on-demand model - why bother about data centers, development, integration, etc. when you can cut cost, pick someone else’s brain and focus on the things that you do best!

Its amazing to see a startup come this far. I attended Workday’s presentation by Dave Duffield & Aneel Bhusri  at last years (2007) SaaSCon in Santa Clara, California. 

SaaS is a new model of how software is delivered. SaaS refers to software that is accessed via a web browser and is paid on a subscription basis (monthly or yearly). Different from the traditional model where a customer buys a license to software and assumes ownership for its maintenance and installation, SaaS presents significant advantages to the customer.

SaaS is faster and a cost effective way to getting implemented. There are no hardware, implementation or acquisition costs involved to run the application from the customer’s side. It’s the responsibility of the SaaS vendor (us) to manage and run the application with utmost security, performance and reliability.

Since customers pay a subscription, they have immediate access to the new features and functionality. Unlike traditional softwares where upgrades would happen once a year or once in 6 months (with the vendor coming to your office with a CD), the SaaS vendor continuously pushes new updates, fixes to the application, which is immediately accessible by the customer. This reduces the length of time it takes a customer to recognize value from the software.

Since the software application is delivered as a service, its important for the vendor to focus on customer service and experience. Since this is on a subscription model, the vendor is judged on a month-month basis and the pressure to innovate or risk losing business is greater.

SaaS can be used by Windows, Linux, or Max users, providing true platform independence over the Internet.

Some examples of SaaS based services are popular email services like Gmail, Hotmail, CRM software like SalesForce, collaboration tools like BaseCamp, Zoho, Huddle, DeskAway etc. Basically, any service that you consume via the web is SaaS.

According to Gartner, Inc., the worldwide SaaS market reached $6.3 billion in 2006 and is forecast to grow to $19.3 billion by year-end 2011. Similarly, accordingly to IDC, the SaaS market will reach $10.7 billion by 2009.