Monday, September 6, 2010

What Does SaaS Really Mean?

Software businesses today all seem to be interested in pursuing SaaS (software-as-a-service) business models.  Trailblazers like have shown that delivering functionality to customers over the Web can be beneficial to customers and vendors, alike.  For the software vendor, SaaS should allow them to more efficiently support clients by updating one set of code that instantly flows through to every single client.  Additionally, the annuity revenue stream that is generated through SaaS subscription pricing models tends to be preferred over the traditional "feast and famine" model employed by software companies that rely on selling up-front licenses to clients.  For the client, the up-front price should be lower and they shouldn't have to deal with any on premise hardware or software maintenance.  

So the debate about what SaaS really means comes into play when asking a group of software companies whether or not you have to maintain only one common, truly multi-tenant code base to be considered SaaS vs. deploying multiple hosted virtual instances of the code to support various clients.  The commonality between both of these options is that the pricing model is generally subscription-based on the software is provided over the Web without any on premise deployment on the part of the customer.  

So the question is whether or not you have to truly be deploying a multi-tenant architecture to be considered a SaaS offering.  I followed a heated debate about this on the SaaS group on LinkedIn and can see convincing arguments both ways.  I also know successful SaaS companies like Exact Target who are truly multi-tenant as well as successful companies such as Angel Learning (now part of BlackBoard) who are not.  Again, the common thread is the subscription-based model and lack of on premise hardware required to utilize the software functionality.  I suppose regardless of how you define them, the most important labels they can undoubtedly both claim would be high-growth and financially successful!

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