The ubiquity of the Internet has enabled companies of all sizes to take advantage of the power, simplicity and flexibility of services-based computing.
As a result, what was once known as application service provision (ASP) has evolved into today`s software as a service (SaaS) offering, which is based on the premise that users should regard software not as a product, but as a service.
The South African market is responding, with many companies choosing to move their applications to a services-oriented architecture so they can reap the benefits of this highly efficient method of software delivery.
For new economy companies and organisations which are continually changing their business processes to remain competitive - where system boundaries are subject to constant urgent change - SaaS has much to offer. This is because in the "software as a product" world, software components are engineered into system solutions, making the software expensive and difficult to change. SaaS operates in a completely new way.
According to SaaS portal, www.service-oriented.com, a demand-user view of software is set to dominate, with suppliers making software available on central servers on a pay-per-use basis. But more important is a change in the way the software itself is constructed - rather than software components being developed and "bound" together to form a single, rigid solution, systems are being developed as a "federation" of services which are only bound together at the point of execution. This will enable alternative software components to be substituted between each use of a system, allowing much finer grained flexibility.
A simple analogy is the making of a telephone call: the caller does not own the means of production, but simply pays for the use of a range of third-party facilities.
A changing ASP market
The application management services market is booming. Research company IDC`s "Worldwide and US Application Management Services Forecast and Analysis, 2003 - 2007", and "Worldwide and US Software as a Service Market Analysis and Forecast, 2003 - 2007: Beyond ASP", show a rosy outlook for this space over the next five years. IDC says new growth opportunities include Web services and business models such as subscription pricing for software.
The application management services market is booming.
Rick Parry, MD, Progress Software South Africa.
The traditional approach of ASPs, however, has been to focus more on outsourcing and hosting than on providing an application as a service. However, the evolving requirements of business dictate that it`s time to move on from this model. The way in which application service provision has been defined and deployed needs to be revisited and emphasis must now be placed on applications and services.
Service providers which are prepared to take a different approach to the provision of software services need to throw away the traditional software licence model, which is typically based on a product and a number of users. An organisation is licensed for a number of users to use the application, and an annual maintenance fee covers support and new releases of the software.
With SaaS, all this is discarded. There is no talk of product, users, or price; there is no up-front payment, and no annual maintenance fee. Rather, the focus is on value, which is defined in relation to the business value that the customer/end-user derives from the use of the software service.
Bear in mind that ASP and outsourcing are two very different models. The traditional software supplier knows little about networking and hosting; their expertise lies in software. For this reason, ASP should have nothing to do with outsourcing or hosting, and should apply specifically to providing applications as a service, or what is now referred to as SaaS. The SaaS model focuses exactly on that - providing applications as a business service to companies. It`s an approach which has nothing to do with outsourcing.
Delivering business solutions as service
Business solutions that are delivered as a service share several characteristics:
* The focus is on applications - service providers provide access to, and the ongoing management of, an entire application or group of application modules.
* Application access is provided - Web-enabled applications are provided for rent or lease to customers.
* Remote application management - many service providers offer remote application management services through which they can remotely manage applications at the customer`s site.
* A one-to-many service - the service provider partners with other suppliers to deliver a standard offering that is customised through the dynamic integration and secure access to multiple application modules. Minimal customisation of the application`s core logic is required.
* Guaranteed performance and reliability via service level agreements - the end-user can expect the service provider to deliver services with a guarantee that certain metrics are met, such as reliability, accessibility, an overall performance and a guaranteed response time.
* The delivery of SaaS should not be limited to an outsourced basis. If the customer wishes to retain his systems on-site, with his own hardware and infrastructure, he should be entitled to do so. The basis of SaaS delivery should have nothing to do with how an application gets delivered to the desktop.
Many industry analysts believe the model makes the most sense for the small to medium enterprise (SME), although I have found that it can be implemented with equal success by large corporates. However, the business challenges faced by SMEs make them ideal candidates to capitalise on the SaaS business model. Because it is a subscription model, the customer does not have to make the massive up-front investment necessary for all the hardware, operating systems, databases, licences, IT staff and ongoing overheads.
This also removes the risk of investing in a solution that does not meet organisational needs.
The delivery of SaaS is based on a whole new metric: linking the cost of the software to the service that is provided. Take pension fund administration, for example. A pension fund makes its money based on the number of members - the more members there are, the higher the level of contributions received every month. Providing SaaS in this kind of scenario would be based on a per member, per month basis - as opposed to the traditional ASP model where costs are determined according to the number of users of the software.
It`s all about the use of the software service and about the value associated with the value that the customer derives from that usage. The customer is then charged an amount per month for the use of that software service, based on the value derived. The key here is that it`s a real risk and reward-based model - as the customer derives more value, so he pays more; if he derives less value, he will pay less. For example, a private hospital running its administration system according to the SaaS model will pay an amount per patient processed per month. The greater the number of patients processed, the greater the revenue for the service provider and vice versa.
This model gives service providers and their partners business that they may not otherwise have had access to, and can yield significant annuity-based revenue.
From the customer`s point of view, costs are linked to the manageable and measurable success of his business. The value of the service can be defined upfront and measured, with both customer and service provider agreeing on the value that is derived.
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