Everybody is jumping on the SaaS bandwagon these days, often claiming to be SaaS when they are not. I think it's important for buyers to be able to make informed decisions, so I want to shed some light on what the differences are in software delivery models and why you should care. What are the vendor behavior and investment patterns that go with each model?
- SaaS - Software as a Service; aka, on-demand - the software runs on a server and the customer accesses it over the web with a login-id and password. A key aspect of SaaS is that it supports a multi-tenant architecture that allows multiple customers to coexist (in a secure way) on the same application instance. This is important because a vendor has a single code base (version of the software)to install and support and a simpler server infrastructure, therefore being able to invest more into the software. Upgrades and new features are made available on an on-going basis without disruption to the customers. Implementations are a fraction of on-premise software.
- Hosted - Software is also accessed on-demand, but lacking a multi-tenant architecture, it requires separate servers and installs for each customers. This is much more costly and also requires support for multiple releases, which is very resource intensive. Typically vendors who sell on-premise software go to a hosted model for on-demand offerings and often misleadingly call it SaaS. Implementations and upgrades to new releases are as painful and costly as in an on-premise model.
- On-premise - Software is installed and run on customer's hardware, requiring administrative resources and additional cost for databases and infrastructure. Implementations are huge and upgrades to new releases are almost as big. Supporting multiple platforms and releases can drain over 50% of the development resources of a vendor.
- SaaS - Customer success - Small upfront sale. On-going partnership: if customers do not get value from the software they do not renew their subscription. It's pretty simple!
- Hosted - Depends on licensing model. If subscription based, same as SaaS; if perpetual license plus hosting fee, then the biggest motivation is to sell as much as possible upfront.
- On-premise - Big sale upfront - Put as much software and services into the upfront deal and move on to the next deal.
Pure vs. Hybrid Models
Most vendors are going for a hybrid model either mixing on-premise with hosting or SaaS with on-premise because of their legacy. The problem is that you end up with a schizophrenic organization pulled in opposite directions with simplicity and speed on the SaaS side and feature over-bloat and long release cycles on the on-premise side. With a pure on-premise model it is hard to stay competitive. Clearly, vendors with a pure SaaS model have a distinct advantage and are better suited to serve the interest of their customers.