Little considered aspect of Software as a Service

Making technology investments in tough times

Some commentators have opined that more customers will turn to SaaS-based solutions inasmuch as the cash crunch will hit buyers' capital ("CapEx") budgets first. If that's the case with you, you'll want to weigh reduced initial cash outlays against potentially higher operating costs on a long-term basis under a SaaS model. Depending on the type of service provider, you're shifting at least part of the capital burden to your SaaS vendor, so you'll want to weigh their liquidity very carefully.

More generally, it's prudent to examine the financial health of all your major technology suppliers, current and prospective. We've always counseled looking more closely at balance sheets rather than profit-and-loss statements. Many vendors still remain cash-rich, even as they become customer-poor. I'm no financial expert, but I'd value short-term assets over things like "goodwill."

Keep in mind that bigger does not always mean more solvent.

Specifics of Software as a Service (SaaS)

The Truth About Software as a Service (SaaS)

SaaS has a distinct meaning that’s essential to understanding its role in your application portfolio. With SaaS, there’s just one code base for the software, used by all customers, in what’s called a multitenant architecture. While the software might be configurable by users to their individual needs, the code itself is the same for all and is not customizable for any individual customer. Any enhancements made based on one customer’s requests immediately become available to all customers. So forget competitive advantage or differentiation based on the software itself.

The underlying data model and system architecture of SaaS is also not customizable. The advantage in this for the vendor is that it spends less time managing compatibility and upgrades across several versions of the software. It also spends less to support customers, as they all use the same version and they don’t run it on their own equipment. That’s one reason that venture capitalists have glommed on to SaaS. The VCs also like the fact that SaaS can reduce startup costs, promising faster time to market, notes Warren Weiss, a general partner at Foundation Capital, which has invested in SaaS startups since 1996.

Definitions: Cloud Computing, Utility Computing, Grid Computing, SaaS

Cloud Computing:

Cloud computing is Internet ('Cloud') based development and use of computer technology ('Computing'). The cloud is a metaphor for the Internet (based on how it is depicted in computer network diagrams) and is an abstraction for the complex infrastructure it conceals[1]. It is a style of computing where IT-related capabilities are provided “as a service”[2], allowing users to access technology-enabled services from the Internet ("in the cloud")[3] without knowledge of, expertise with, or control over the technology infrastructure that supports them[4]. According to the IEEE Computer Society it "is a paradigm in which information is permanently stored in servers on the Internet and cached temporarily on clients that include desktops, entertainment centers, table computers, notebooks, wall computers, handhelds, etc

Utility Computing

Utility computing is a metered service where computing or storage resources are provided on a needed basis similar to the way public utilities (water, electricity, telephone, etc.) are provided to homes and paid for as they are used. The purest form of utility computing requires two service characteristics metered billing and dynamic resource allocation. Customers of utility computing are not billed for a specific computer or server but are billed just for the computing or storage facilities and cycles used. In the simplest terms, utility computing implies the capability to use more resources temporarily and on-demand during peak periods.

Grid Computing

Grid computing allows the virtualization of distributed computing and data resources such as processing, network bandwidth and storage capacity to provide a unique system image, granting users and applications access to vast IT capabilities.

Software as a service (SaaS)

A software application delivery model where a software vendor develops a web-native software application and hosts and operates the application for use by its customers over the Internet. Customers pay for using the software itself, not for owning the software.

Cloud Computing, open source, and business models

From a comment on the Slashdot discussion of Stanford Teaching MBAs How To Fight Open Source:

resistence is futile

unless your product is targeted at such a small subset of users that noone in the OSS world would bother to create a competing product there will always be some geek out there willing to dedicate all their spare time to create something that will compete with your product... for free. What proprietry vendors need to do is charging for software as a service and provide support packages that the OSS world don't bother to do.

In a world of Software as a Service and Cloud Computing, where the developer charges for the initial work and usage, the role of intellectual property in guaranteeing a return on investment will diminish.