SaaS has a distinct meaning that’s essential to understanding its role in your application portfolio. With SaaS, there’s just one code base for the software, used by all customers, in what’s called a multitenant architecture. While the software might be configurable by users to their individual needs, the code itself is the same for all and is not customizable for any individual customer. Any enhancements made based on one customer’s requests immediately become available to all customers. So forget competitive advantage or differentiation based on the software itself.

The underlying data model and system architecture of SaaS is also not customizable. The advantage in this for the vendor is that it spends less time managing compatibility and upgrades across several versions of the software. It also spends less to support customers, as they all use the same version and they don’t run it on their own equipment. That’s one reason that venture capitalists have glommed on to SaaS. The VCs also like the fact that SaaS can reduce startup costs, promising faster time to market, notes Warren Weiss, a general partner at Foundation Capital, which has invested in SaaS startups since 1996.

For CIOs, this all translates to several advantages: faster implementation (because there’s no on-premise deployment), easier access to current technology (because changes are made just to the one code base) and fewer bugs (because having one code base reduces the complexity that can lead to errors), says Michael Mankowski, a senior vice president at Tier1 Research. It can also translate to lower costs for the enterprise if the SaaS vendor passes on the savings. SaaS is thus a new wrinkle in long-available, on-demand, outsourced IT models, such as the application service provider (ASP), business process outsourcer (BPO) and managed service provider (MSP). (See “Awash in Acronyms,” this page.) “It’s the next step in the evolution of software development,” says Gartner’s Pring. Examples include Salesforce.com CRM; Everdream help desk management; SuccessFactors employee performance management; and Ketera spend management software.

Where SaaS Makes Sense
The prime reasons for a CIO to consider SaaS are its faster deployment times, its lack of up-front license and infrastructure costs, and its ability to address vanilla business processes so you can focus your resources on custom processes that make a real difference, says Accenture’s Modruson. “Your startup costs are not as large, and you have the ability to get up and running quickly and change direction if needed. I don’t have as much flexibility with packaged applications,” he says. Equally as important, says Modruson, SaaS “gets us to having standard processes and a standard system across all units.”