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What Does Software-as-a-Service Mean for Small Companies?
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By Curt Finch

When the Internet burst upon the scene in the early 1990's, the concept of software-as-a-service (SaaS) seemed an idea whose time had come.

It got hyped along with everything else about the Internet, reaching a peak of inflated expectations in early 2000 as venture capitalists funded dozens of nearly identical providers of SaaS solutions.

As venture funding dried up in mid 2000, the cracks in the SaaS model began to appear. The business plans assumed zero customer attrition, an uncompetitive landscape and IPO's in the absence of revenue. Disillusionment set in and the vast majority of the companies ceased to exist. However, the strong did survive. Now, due to the success of companies such as Journyx (for timesheet software), WebEx and GoToMyPC (for desktop sharing), Concur (for travel expense management) and Salesforce.com and Rightnow.com (for CRM), SaaS is back. And it is back with a vengeance: Analysts claim that by 2010, 30 percent of new software will be delivered via an SaaS model.

What is SaaS? Variously termed "on-demand software," the application service provider (ASP) model or "hosted software," SaaS is a scenario in which you rent web-based software that is hosted at the provider's site. For many small companies, SaaS is the best way to roll out new technology. In short, SaaS has proven itself and is here to stay.

Of course SaaS is not a panacea. Just as software from Microsoft or Oracle frequently has problems, some SaaS providers have had problems too. As one example, Salesforce.com has recently had outages, vexing customers and giving the company a considerable amount of unwanted media attention.

In response - which came quickly - Salesforce.com has been working to implement a load-balancing system made up of three separate data centers that will have fail-over capabilities to prevent further outages. It is expected to go live sometime this quarter. CEO Marc Benioff stated Salesforce.com intended to establish a public web page called Trust.Salesforce.com that would detail performance statistics.

Are the SaaS providers generally more or less responsive to critical issues that licensed software providers? It has taken Microsoft years to beef up their security, enabling companies such as Symantec to become very large just by filling in the gaps. If anything, the SaaS model demands quicker response because-like e-coli at a restaurant-it doesn't take much to destroy a business.

Why Should Small Companies Care About SaaS?

In any case, there’s a good chance that SaaS is right for you. Consider…

Low cost of entry. Instead of paying lots of money to roll out a complex solution across the entire company, customers can roll out tests involving one department consisting of relatively few people. The risk is very low if it fails, and they don't have to involve their busy IT staff. This is especially true for small organizations since they do not have the resources available to pay large lump sums in advance for software. Also, small companies often have less capable or more overburdened IT staff and may lack robust systems for backup, security control and high availability services.

The Onus is on the vendor. If the vendor's software is broken, they won't be getting money from any customer for long. The company is motivated to fix the problem.

The vendor works for the buyer. Customers don't have to rely on their IT department to install an application because everything runs securely at the vendor's location.

Less risky investment. Instead of spending $60,000 all at once, for example, customers pay for the software monthly. That less risky--and less scary.

Vendors must provide a secure data environment, or they're out of a job. Most vendors understand that data must be backed up religiously, and security is the top priority. Customers' IT departments are typically pulled in many directions and can't be as focused on one solution. Customers can rest assured their data security is probably better with a hosted solution, not worse.

What’s Available in SaaS?

By far, the most successful project-aligned SaaS initiatives are in the project tracking and project time management arena. Companies that provide project time tracking via the SaaS model include Journyx, Clockware and Unanet.

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Curt Finch is the CEO of Journyx. Bruce A. McGraw is the CEO of Cognitive Technologies.
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