The days of being locked into software licences for years are over. Thanks to the software -as-a-service revolution, writes Kelly Piesley.

Small to medium-sized enterprises (SMEs) are in pole position to take advantage of what has been dubbed by analysts as “the single most important IT trend of the decade”. Within the next five years, the introduction of software as a service (SaaS) may irreversibly alter current software-licensing regimes that lock businesses in cycles of pricey software upgrades. Essentially, SaaS is the delivery of remotely hosted applications to business users, on a pay-as-you-go basis. Accessed over a web browser interface, the applications offer similar functionality to their in-house equivalents but without the capital costs and management overheads. The concept is far from new. In the late 1990s, application service providers attempted to get a similar model off the ground. “But there were too many bad operators and the solutions were awful,” says Bruce McCabe, the managing director if an Australian analyst group called S2 Intelligence. Back then most SMEs had dial-up connections so the model was untenable. Now, the majority of SMEs have broadband connections, infrastructure for hosting solutions has improved and applications are more sophisticated.

The strategy is fast gaining popularity with IT companies such as Salesforce.com, and big vendors such as SAP, Oracle and Microsoft are getting in on the act. By 2011, according to analyst firm Gartner, 25 per cent of new business software will be delivered as SaaS. Uptake is anticipated to grow seven times faster than on-premises software deployments during the next three years.

A very small percentage of Australian businesses directly use SaaS today. However, McCabe says that the applications are creeping in without people realising.”Most organisations already use these applications unknowingly when they use tools such as Google Maps over the Web.” He believes that the transition to SaaS will benefit SMEs, as they often have resource constraints and they don’t always have IT departments to manage software and patches. By opting for hosted applications, businesses aren’t locked in to a type of software so they can use different applications when technological advancements occur and if their needs change. This way, technology infrastructure costs are kept low and upgrade costs are avoided. “Paying per month also has the enormous advantage of keeping vendors honest as they can be unplugged relatively easily if they perform poorly,” says McCabe...

Doug Farber, the vice president of Asia Pacific operations for Salesforce.com, says “There is a relentless drive for innovation. We produce three to four releases per year. Compare this with Microsoft and Vista – they have to carbon-date their releases and the customers then have extremely limited input into the releases.” Salesforce.com, which has more than half-a-million subscribers worldwide, has launched AppExchange, an internet-based service through which companies can purchase software and have it hosted remotely as an adjunct to the CRM platform. AppExchange now offers more than 500 applications, ranging from human resources to recruitment applications to financial services.

Farber believes that concerns about data integrity and security are simply perceived rather than real risks.  “The service provided is much greater than what SMEs do themselves as they often don’t have an IT department, so hosted solutions are actually getting the same security as the likes of Merrill Lynch,” he says. SAP took its first major step in the arena, launching a hosted CRM tool early last year. Microsoft launched Microsoft Office Live, Oracle moved into the hosing space by buying CRM vendor Siebel in 2005, and there are predictions that Google will be a big player in the space, as it has already launched a number of applications such as a spreadsheet and word processor. S2 intelligence’s McCabe believes SME technology specialists, such as MYOB, will also succeed if they offer a hosted alternative. MYOB already offers OnDemand for medium-sized businesses and MYOB Australia’s managing director Tim Reed says, “There has been a high rate of adoption as it is fast to implement and easy to access. Though at the small-business level we are not seeing much interest.” Nevertheless, like many others within the industry, Reed believes that there will be a major shift towards hosted software in the next eight to 12 years.

Piesley, K. (2007), “Software without the constraints?”, Voyeur Magazine, June, pp.99