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What is SaaS (Software as a Service)?

Software as a service (SaaS) is a cloud-based software delivery model in which the cloud provider develops and maintains cloud application software, provides automatic software updates, and makes software available to its customers via the internet on a pay-as-you-go basis. The public cloud provider manages all the hardware and traditional software, including middleware, application software, and security. So SaaS customers can dramatically lower costs; deploy, scale, and upgrade business solutions more quickly than maintaining on-premises systems and software; and predict total cost of ownership with greater accuracy.

In the early 2000s, the first generation of SaaS solutions was siloed, inflexible, and designed to solve a single business problem. Since then, SaaS has evolved dramatically. Today, modern cloud applications can span—and connect—everything from financials, human resources, procurement, and supply-chain processes to commerce, marketing, sales, and service solutions. Other benefits of a modern, complete SaaS solution include:

Be smarter on SaaS with a new Dummies book

Improve your knowledge about—or help your colleague better understand—why SaaS applications will help your enterprise evolve beyond on-premises software. Get up to speed with our comprehensive, but easy-to-read guide.

History of SaaS

In the 1960s, mainframe computers were connected to dumb terminals that shared the mainframe’s software—a software delivery system known as time-sharing. As the cost of computers began to fall in the 1980s, many businesses created their own local version of time-sharing, which was called a local-area network (LAN). However, the business (not the technology provider) was responsible for supplying and managing the hardware and network.

With the advent of the internet in the 1990s, providers began hosting software and making it available to customers via the internet. This forerunner of SaaS, called the application service provider (ASP) model, had serious limitations, however. For example, each customer required their own version of the software, which meant they had to install some software on users’ computers. Configuration was costly and time-consuming. And, finally, ASP solutions typically didn’t offer a way to collect and aggregate data efficiently.

The first SaaS solutions emerged in the late 1990s, when the term SaaS was originally coined. This new model delivered much greater efficiencies than the ASP model. A single instance of the application could serve multiple users and even customers, thanks to its so-called multi-tenant architecture. Local installation of software was no longer required. And it provided a way to collect, aggregate, and centralize valuable application data.

While the delivery model has remained constant since the early 2000s, SaaS has evolved significantly from first-generation siloed solutions to modern SaaS suites that enable high visibility across the business and can extend the power of SaaS through embedded technologies such as AI, machine learning, chatbots, digital assistants, IoT, blockchain, augmented reality and virtual reality.

Software as a Service business benefits

Software vendors spent the last several years bombarding IT professionals and business executives with messages about the advantages of cloud computing in its various forms. Some of these messages targeted the accountants and number crunchers by discussing the advantages of operating expenses (OpEx) compared with capital expenditures (CapEx). Others targeted the IT community with messages about scalability, on-demand capacity and the cloud's ability to take over the mundane tasks of infrastructure management and allow IT talent to focus on business problems.

There is a great deal of truth to each of these arguments, but little energy has been devoted to explaining to LOB managers why business applications delivered in the cloud via the SaaS model and paid for on a subscription basis not only make a great deal of sense, but are key to bridging the innovation gap executives often complain about to their IT organizations.

SaaS is not a new concept. In fact, web-based applications delivered by application service providers (ASPs) actually pre-date the "cloud computing" concept as we know it today. Early applications delivered using the SaaS model often focused on sales force automation (SFA), customer relationship management (CRM) and web content management. Today Oracle delivers an entire suite of business applications for enterprise resource planning (ERP), project portfolio management (PPM), planning and budgeting, financial reporting, human capital management (HCM), talent management, sales and marketing, customer service and support, social networking, social marketing, and social engagement and monitoring.

Unlike those offered by many of the first-generation ASPs and other SaaS vendors, Oracle's SaaS business applications are modern and next-generation and backed by the Oracle name as well as the billions of dollars it has invested in software development and infrastructure to build and deliver its applications. If you’re a line of business manager looking to get your hands on the latest capabilities without the headache often associated with hefty upgrades, let's dive in and explore the benefits of SaaS applications.

From its inception, the SaaS model was designed to deliver a core set of business benefits over on-premises applications:

Lower up-front costs Eliminate the need for additional hardware and middleware.
Reduce installation and implementation costs.
Validate and correct errors before making updates to your master data.
Predictable ongoing costs Eliminate unpredictable costs of managing, patching, and updating software and hardware.
Turn capital expenses into operational expenses.
Reduce risk with experts managing software and overseeing cloud security.
Rapid deployment Get up and running in hours instead of months.
Turn on and use the latest innovations and updates.
Automated software patching.
On-demand scalability. Scale instantly to meet growing data or transactional demands.
Reduce disruptions while maintaining service levels.

Cloud vs SaaS: What's the difference? Cloud applications as the platform for innovation.

While cost reduction and IT efficiency drove the development of first-generation cloud apps, modern SaaS applications have become platforms for innovation to meet the competitive challenges of the digital age, such as:

  • Extending the functionality of your SaaS applications to support collaboration apps like Slack and Zoom.
  • The power of small. Cloud, mobile, and social are enabling small and startup enterprises to create innovative products and reach markets with unprecedented speed.
  • The age of consumer discontent. Armed with mobile and social, consumers have more choices and more information than ever before.

In response to these competitive challenges, a modern SaaS suite can drive innovation across the business by supporting faster innovation, providing superior customer experiences, and enabling better business decisions with built-in analytics and a holistic view of the entire business.

Modern SaaS suite capabilities

Connected, cross-business solutions. Connect and optimize cross-departmental business processes.
Gain a holistic view of your entire business.
Faster, more flexible update paths. Access new capabilities on a quarterly basis.
Choose to update at the speed of your business, not on a provider’s timetable.
Easy personalization. Quickly personalize solutions for your business needs.
Preserve valuable customizations through updates.
Data portability. Share and/or move data across SaaS, on-premises, and private cloud applications.
Quickly prepare, visualize, and analyze data to see trends and patterns.
Incorporate third-party data for rich analytics.
Built-in analytics. Access data in real-time.
Avoid expensive, time-consuming data-egress costs.
Faster innovation leveraging embedded technologies. Enhance productivity with built-in self-learning and adaptive intelligence.
Innovate quickly and continuously across the entire value chain with AI, machine learning, chatbots, digital assistants, IoT, blockchain, and other emerging technologies.

A single SaaS suite of applications, built for the cloud

Some SaaS providers simply move their on-premises software to the cloud and call it SaaS. This model has its drawbacks and does not take full advantage of the cloud delivery model. In fact, you may end up with many of the same limitations as with on-premises solutions, including significant support bills, high IT-related overhead costs due to the same slow upgrade process, and disconnected systems—all of which reduce innovation and agility in your business.

However, a SaaS suite engineered from the ground-up for the cloud can provide:

Rapid application development and access to innovations

Because innovation is so critical in the digital age, businesses want to take advantage of the latest capabilities. SaaS engineered for the cloud speeds innovation cycles and gives you faster access to the latest innovations and applications. By contrast, the on-premises in-the-cloud SaaS model requires you to wait for innovations because of the longer development cycles typical of on-premises solutions and applications.

Connected SaaS business processes

Businesses want a SaaS solution that supports like procure-to-pay or order-to-cash in the cloud—without costly integrations and complex management. To make this possible, a modern SaaS suite is built on a single, standards-based platform that includes a common, enterprise-wide data model; a unified user experience (including mobile and social); shared security levels; synchronized release schedules; and more.

The future of SaaS–Software as a Service roadmap

Market experts agree that the future of SaaS is strong. According to a 2017 Gartner report, sales of SaaS solutions will continue to grow at over 23 percent per year, from US$270billion in 2020 to over US$332 billion by 2021.

Innovation in the SaaS solutions themselves is expected to help drive that growth, including:

AI With adoption of AI solutions on the rise, AI is expected to become an increasingly baked-in part of enterprise SaaS applications, including adaptive intelligence (which learns and adapts to user data and behavior).

Autonomous IT management AI and machine learning will also play vital roles in driving more autonomous, less human-reliant management across the IT stack.

AI, Machine Learning, Chatbots, Digital Assistants IoT, Blockchain, Machine Learning, Virtual Reality, Augmented Reality Each of these technologies is increasingly vital to digital innovation and forward-thinking providers are already finding ways to offer them in their SaaS offerings.

Industry SaaS: Vertical depth and horizontal connectedness While SaaS began as a way to quickly provide vertical solutions to a single department, businesses increasingly need and expect cross-business visibility as well. Look for more vertical depth from providers offering cross-business suites as well as more APIs and turnkey integrations forhybrid cloud solutions.