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By Mark Wesker, President and
CEO of Artifact Software (Published April 30, 2007)
One of the most-asked questions I get these days is “What
is the difference between SaaS and ASP? Isn’t it the same
model in a different wrapping?” The answer I give is always
an unequivocal “no.”
It is fair to say that Application Service Providers (ASPs) were
the forerunner to the Software as a Service (SaaS) delivery platform,
but that is where similarities end. ASPs arose in the late 1990s
in response to the frustration and cost associated with IT infrastructure.
ASPs were able to capitalize on this because businesses were spending
a significant amount of resources on purchasing, deploying, maintaining,
and managing software applications. Hence, ASPs offered to relieve
organizations of these burdens, take those applications out of the
enterprise, install them within their own data centers where they
would manage, upgrade, and maintain them on behalf of their customers
in exchange for a fee.
So was borne the concept that customers could free themselves from
the complexity of software overhead and licensing, and simply “rent”
a service that delivered applications over the Internet, typically
through a browser interface. If the application didn’t work
in a browser, they could use remote access programs like Citrix.
ASPs were hot. Stock prices soared, and customers lined up to jump
on this new trend. It wasn’t long, however, before the bloom
began to fall off the rose. The applications customers wanted were
not designed for delivery over the Internet; rather, they were designed
by companies like SAP, Seibel, Oracle, and others to be installed
within a single organization, where there was a one-to-one relationship
between the software and customer. The analogy to this would be
a single-family home where the entire infrastructure is architected
for one family. Put multiple families into a single-family home,
and all sorts of problems begin to develop.
ASPs discovered this quickly. Each client required a separate installation
of the software, separate hardware, and an individual network and
security configuration. ASPs began to spend tens if not hundreds
of millions of dollars expanding their technical and employee infrastructure
to deal with needing a separate and distinct infrastructure for
each and every client.
Imagine taking hundreds or thousands of different customers, jamming
them into one data center, and trying to support all of their different
needs. Not surprisingly, the ASP model just didn’t scale and
companies begin to hemorrhage red-ink, prices began to rise quickly,
customers became unhappy, and the investment community lost confidence
in the ASP model.
But the fundamental concept of “outsourcing” the overhead
of software applications wasn’t flawed. Instead, the ASP model
suffered from it being new, where the technology had not yet caught
up with the market’s need. So emerged a new approach –
Software as a Service, or SaaS.
Creative entrepreneurs figured out that the key to solving the
ASP problem was to eliminate the need for each customer to have
its own instance of software, hardware, network and security infrastructure.
Instead, if technology could support an unlimited number of customers
running a common application on a single software, hardware, network
and security configuration, great economies of scale could be achieved.
This led to the “multi-tenant” architecture for software
products – the SaaS model.
Think of a SaaS application like an apartment building, rather
then a single-family home. Unlike a home, an apartment building
is designed from the ground up to have a single infrastructure (plumbing,
heating, water, electricity, etc.), support multiple tenants, where
infrastructure is shared by all. This is exactly what SaaS is all
about. Fundamentally, SaaS delivers software applications as a service,
over the Internet, in a way that scales.
Further, unlike the ASP model, the costs associated with SaaS scales
inversely proportional to the number of customers. Hence, the more
customers, the cheaper it becomes to deliver SaaS applications.
The cost of delivering SaaS applications simply gets spread over
more and more customers, without a proportional increase in the
costs of delivering the software to those customers. Again, not
unlike an apartment building, after the initial investment is made
to construct the building, as the number of tenants grows, the cost
per tenant begins to decrease to a point of profitability.
ASPs didn’t disappear, however. There are still good reasons
to have applications hosted by ASPs, but the model has changed.
Now, instead of hosting any application the customer wants, we now
see ASPs that only host certain applications. For example, one of
the more popular ASP models is the hosting of Microsoft Exchange.
Entire companies are now built around hosting just this application
for customers.
So, like all products and services, divergence is king. A study
of great marketing minds such as Al and Laura Ries and Jack Trout,
reveals that most products and services don’t converge, but
they diverge. So, as new business models evolve, they tend to offer
us more choices, not less. Hence, in the hosting arena, we now have
vertical ASPs, SaaS offerings, and managed hosting facilities. We
can buy hardware and set it up inside a hosting facility, have the
hosting provider buy the hardware and charge us for its use, or
we can now actually buy computing power, in a utility-like model,
where we’re only charged for the computing power that we actually
use.
Technology will continue to offer us more and more options. It
will evolve, expand and contract at light speeds. Our lives will
be dominated by the speed with which technology advances invade
our personal and professional space. And, we will continue to be
challenged every day as technology advances weave themselves into
the very fabric of our lives.
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