Software as a Service

A New Way of Delivering Business Processes
September 4, 2006


In the past, corporate mainframes were jealously guarded as strategic advantages. More recently, the applications were viewed as strategic. Today, people know it’s the business processes and the data itself—customer records, workflows, and pricing information—that matters. Computing and application licenses are cost centers, and as such, they’re suitable for cost reduction and outsourcing.

Software as a Service (SaaS) is a model of web-based software delivery where the software company provides maintenance, daily technical operation, and support for the software provided to their client. SaaS is a version of business process outsourcing (BPO) that delivers software functionality without the overhead of operating the application. The SaaS provider achieves better economies of scale than its clients can when operating the application themselves.

The SaaS provider offers what is often called software on-demand (see Utility Computing below), where a company offers software specifically built for one-to-many hosting. This means that one copy of the software is installed for use by many companies who access the software across the web.

The traditional rationale for outsourcing of IT systems is that by applying economies of scale to the operation of applications, a service provider can offer better, cheaper, more reliable applications than companies can themselves. The use of SaaS-based applications has grown dramatically, as reported by many of the analyst firms that cover the sector.

SaaS is a model of software delivery rather than a market segment; software can be delivered using this method to any market segment including home consumers, small business, medium and large business. A specialized software provider can target a global market. A hosted application can instantly reach an entire market, making specialization within a vertical not only possible, but preferable. This in turn means that SaaS providers can often deliver products that meet their markets’ needs more closely than traditional “shrinkwrap” vendors could.


Taken from Wikipedia and adjusted to reflect the SQI implementation of the model.

IDC 2005 Software as a Service Taxonomy and Research Guide

Table of Contents

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