In general, adoption of software as a service, or SaaS, is on the rise. A study released last month by Gartner Inc., the Stamford, Conn.-based consultancy, says that SaaS delivered about 5% of business software revenue in 2005. By 2011, that percentage is expected to jump to 25%.
Gartner defines Software as a Service as "hosted software based on a single set of common code and data definitions that are consumed in a one-to-many model by all contracted customers on a pay-for-use basis." Microsoft's Live brand, which includes its CRM (customer relationship management) product, is an example.
This differs from a managed service, which is when a customer buys a licensed application that is managed by a third party. Exchange Hosted Services is an example of a managed service.
As time goes on, the demand for Software as a Service will likely increase. "This isn't going away," said Robert DeSisto, an analyst at Gartner. "It's not a fad. A lot of [venture capital] money today is being given to companies that provide SaaS." A lot of the innovation will come from this model because it has a better return on investment for vendors, DeSisto said.
IT managers might feel threatened by Software as a Service initially, DeSisto said. That's because the SaaS projects that are most attractive are often the ones that are self-contained in a department with little integration into the company's overall IT infrastructure. "A line-of-business manager can do this himself," DeSisto said.
It is not a threat to IT when there is a lot of complex data that needs to be integrated with on-premise applications, however. "IT services will be required to support that complexity," DeSisto added. "Our advice to IT departments is to get involved."
Although applications such as CRM are the most likely to be acquired as a service, there are others that might more closely encroach into a Windows shop. Asset management or services, which let IT administrators manage hardware assets on different application software, or change management applications may run on individual computers as a service too.
"This will make an IT manager's job easier," DeSisto said. "They have more on their plates than they can deliver. If there is a vehicle that can deliver, then they will leverage it."
One IT manager cautions that even though services may become more mainstream, it's best to remember that it still means handing off company information to a third party.
"You had better trust them," said Clyde Johnson, senior network and systems administrator at HCC Aegis Inc., a New Bedford, Mass.-based environmental equipment manufacturer.
"You have to be careful about outsourcing applications," Johnson said. "You have to do it carefully and plan carefully for all the contingencies. If you [outsource] Word, who has the access, where does it reside and how is it transmitted? And what if your SaaS company is in the path of Katrina? You have to know what to do."