The first SaaS generation of the late 1990s promised to make the web a vehicle for application delivery but most of those early, self-styled application service providers, or ASPs, collapsed because of funding issues, limited network speeds and a dearth of specially designed applications. However, over the last several years, the second generation has proven that the on-demand model can work across application types, even for very large deployments.

Why all the fuss about SaaS? The main attractions of the model are that services can be rolled out quickly with a sharp reduction in costs incurred on servers and administrative staff.

All end-users require is a client device that can access the internet, and upgrades and patches are all performed remotely without interruption to service. Charges are predictable and regular, usually paid for on a monthly tariff.

As Steve Jones, head of SaaS at Capgemini's global outsourcing group, puts it, "SaaS represents a quicker time to market and a more business-centric cost model than most other software licensing models. This means that not only can the business provision the software directly, but that the CIO can align the IT costs more directly to its business impact. SaaS is becoming more of a priority because of these two elements; the CXO isn't after SaaS per se, but an answer that is good enough, quickly provisioned and priced in line with the benefit it delivers."

"What we offer is outstanding value," says John Paterson, CEO of customer relationship management (CRM) SaaS firm Really Simple Systems. "Customers are looking at a CRM roll-out costing £50,000 [US$99,565] to £100,000 and we come in at £20,000. Because there's no customization, it's quick to deliver; on the other hand, it won't have the user-specific functionality that you would get with a traditional installation. That's the trade-off customers are looking at. However, they often put us in as an interim solution while they're rolling out a bigger system and in more than 50 per cent of cases we end up staying there. The big system is often delayed so even the 'temporary fix' often becomes a one-year or two-year temporary fix."