Software as a Service (SaaS) Model

Over the past two decades India has emerged as a software services provider and is still evolving. All the businesses require to store or maintain their data to make business decisions. As per increasing business needs the stored data should be accessible anywhere at all the times to make smart business decisions. Hence the data can be stored into a database which is accessible to users as a web application. Not all the companies can develop this infrastructure to store data, due to budget constraints, time involved in developing the infrastructure and maintaining the infrastructure. If the company’s core business area is not software development then it becomes very difficult for a company to afford such expenses.

Consider a company A whose core business area is to print magazines. Such a company cannot afford to develop the IT infrastructure to maintain the employee details and other ERP (Enterprise Resource Planning) software. Instead they can approach company B which has ERP software which they can lease out to company A at nominal charges. This concept of leasing out the software as service is known as “On Demand Software” or Software as Service widely known as SAAS.

Use of software on lease not only reduces the costs considerably, it also removes the overhead burden of maintaining the software. There are certain serious parameters to consider the software on lease because the data you want to store is stored on to a database of a cloud computing service provider and there could be serious legal complications if the data is compromised. Consider a company storing all its employee details on a server of other company. These details like name, SSN number, telephone number and bank account details etc. can cost dearly if compromised. Hence, a Trust agreement is signed between the vendor and the user to maintain the integrity while handling such details.

Some of the key advantages for Consumer by using software as a service are as below:

  1. Consumer can focus on the core business competencies.
  2. Consumer can access the software anywhere because the software is delivered through internet and is accessible anywhere and anytime.
  3. The consumer has a freedom to choose between the application that are no longer needed by them and can stop using them anytime.
  4. The consumer has to pay less for the ownership and can opt for the required features in software.

The revenue model for the vendor of SaaS is subscription based, where the customers pay a fixed recurring amount over a period of time. This fee is calculated on the basis of actual software utilization and includes a commitment on the actual number of users. Subscriptions are usually written on a per-seat or named user basis. The subscription pricing models doesn’t involve upfront, one-time large license revenues whereas the customers pay smaller recurring fees over the contract period.

As the SaaS service model is designed to deliver business applications anywhere, anytime so this in turn requires the SaaS vendor to employ dedicated support teams and staff that are available to customers on short notice. The service provider has to be proactive enough to forecast demand well ahead of actual usage else this would increase risks for the business.

For example, if the business grows well (more than expected) there can be shortage of servers and on the other hand, if the demand is over-forecasted, there would be low asset utilization and increased fixed operating expenses.

Some of the advantages for the Vendor by providing software as service are as below:

  1. The software is protected from unauthorized access as the software is present only with the vendor.
  2. The Intellectual property is safe guarded as the copying and piracy is not involved.
  3. Easy extension of software for multiple consumers with minor efforts and less maintenance.
  4. Development of a new feature for one consumer can be extended to another consumer without significant development costs.

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