Thankfully, the past few years have seen the growth of a new Web 2.0 based industry that has once again leveled the playing field, allowing even the smallest businesses to compete with industry giants. Software as a Service ("SaaS") vendors provide users with powerful software solutions at bargain-basement prices. Better still, SaaS removes the need to install and run applications on an internal server - users can pick and choose the services they want and access them over the internet as and when they need them.

Web-native business solutions

The benefits that SaaS provides stem from the fact that SaaS products are 'web-native' - that is to say, they have been designed and constructed from the ground up to function entirely over the internet. Web-native software is not a new concept; in fact there are a number of web-native applications that have become household names. Consider, for example, email applications such as Microsoft's Hotmail or Google's Gmail. These applications, and many others like them, enable users to perform a number of functions without any need to download and install software. This makes them extremely practical, as they allow consumers to access their email accounts from any computer with an internet connection, anywhere in the world.

Email applications are an example of Business-to-Consumer ("B2C") web-native software. SaaS is distinct from these products in that it is geared towards businesses, not consumers. The principle, however, is the same: software is deployed as a hosted service to customers over the internet, without the need for installation.

From ASP to SaaS: the development of a new industry

At first glance, SaaS may seem to be very similar to the Application Service Providers ("ASPs") that first appeared in the late 1990s. Indeed, ASPs aimed to provide quality business software to customers over the internet, hosting applications on their own servers. However, these internet startups became victims of the dot.com bubble that crashed in the early 2000s. Part of the problem was that internet connections were not fast or reliable enough a decade ago to make such a scheme practical. As a result, although investors showed initial excitement in ASPs, they failed to gather much interest from customers.

Many companies, including most of the major software firms, gave up on the ASP concept after this initial setback. However, several smaller firms kept going, improving and refining the ASP model. Today, SaaS has a number of characteristics that make it different from ASP.

First of all, ASPs were essentially taking software produced by traditional developers and making it available online. These programmes were not designed to be hosted remotely and accessed by a large number of users. With SaaS, on the other hand, applications are made by the providers themselves, and are purpose-built to be deployed online.

Another big change is the way that applications are paid for. In the case of ASPs, software developers did not want to move away from the one-time license fee when charging for their products. As a result, purchasing software through an ASP was not significantly different from buying it retail; it was still beyond the reach of many small enterprises. However, as SaaS providers develop the software themselves, they are able to charge for it however they want. Most operate on a subscription basis, either charging a regular fee for unlimited access to an application, or by varying the charge depending on how often features are used or how many of a client's employees use them.

In just a few years, the range of services and applications offered by SaaS providers has expanded dramatically. Early SaaS solutions were largely restricted to the customer relationship management ("CRM")field, with providers offering a limited range of niche products. Today, SaaS industry listings website SaaS-Showcase.com shows more than 1,300 different applications, covering almost all operations of a typical business. Many providers offer tailor-made systems by combining the applications that a client needs. Modern SaaS providers have also modified the way they host their services, allowing individual systems to be accessed by multiple clients (often referred to as 'tenants').

Taking advantage

Less than a decade after it first began, the SaaS industry is booming. According to IT research and advisory firm Gartner, the worldwide SaaS marketplace was worth over USD6 billion by 2006, and is expected to reach almost USD20 billion by the end of 2011. There are many factors driving this rise, including the simple fact that widespread broadband access has made the model more feasible. However, the prime reason that SaaS is being so well received in the business world is that it offers a wealth of advantages over more traditional software solutions.

Perhaps the single most important factor is that SaaS is significantly more cost-effective, especially for SMEs who cannot afford to put up a large amount of capital to install a dedicated server and software on-site. Once a company subscribes to a SaaS application online, it is generally up-and-running within half an hour. As all software maintenance is performed by the provider at the source, customers do not have to waste time and resources ensuring that their software is running properly. New users can be added to the system smoothly and efficiently, and if things are not working out, it is just as easy to opt out of the service as it is to opt in.

Most importantly, setting up a SaaS system requires significantly less investment up-front: not only do customers save on a high initial license fee, it is also unnecessary to buy expensive server equipment. This means that smaller companies, who would have found the initial expense in purchasing a traditional system beyond the limits of their budget, can now find similar solutions on a much lower budget.

Looking to the future: seamless collaboration, both online and offline

SaaS providers have already achieved a lot, and in a short period of time. However, there are several areas currently in development which could mean even better solutions for customers in the future.

One example would be the web-native office applications that are already offered by several companies. These applications offer all the functions provided by a typical suite of office software, including word processing, spreadsheets and more. Instead of saving documents to an individual user's hard drive, they are stored on the software provider's server. This offers several advantages: first of all, users can access their documents on any machine anywhere in the world, simply by logging on to their account. Moreover, access to documents can be shared with others, allowing multiple users to collaborate on the same document in real time.

As useful and productive as these features are, there is one feature that remains solely lacking from all SaaS applications: the ability to function offline. It may sound strange to say the future of applications based entirely on the internet will be offline access, but this is one feature that many users are asking for, and one that several providers are beginning to develop.

Going web-native

SaaS applications already have a large client base in the United States, and it is thought that Asia will be one of the next markets where these products take off. Not only are the potential advantages from using this model incredibly high - especially for SMEs who cannot afford a traditional client/server system - important developments in functionality and security over the years have meant that there is now very little reason not to adopt an SaaS system for your office. Indeed, many industry analysts are now saying something that would have been unthinkable just a decade ago - that, in the not too distant future, SaaS may hold a bigger market share than traditional software. It seems that, in the future, more and more businesses will be going web-native.