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Recurring Revenue: Article

The Evolution of Cloud Computing

New Challenges...and Solutions

The software-as-a-service (SaaS) model for delivering software, in which a software application is hosted and provided to customers via per user licensing, borrows many characteristics from both traditional corporate IT systems and the Internet. The fusion between the two generates compelling solutions to the many application management issues, such as system configuration, application performance, and availability, etc. that almost all IT organizations face. At the same time, the nature of SaaS delivery also creates new challenges for software vendors, particularly with regard to profitability, data center operations, and customer support. Overcoming these obstacles can make SaaS a much more strategic option for vendors looking to create competitive differentiation, drive customer volume and increase their revenue amid an increasingly crowded marketplace.

This article explores the similarities between SaaS and traditional software delivery models, as well as the differences among them. It then outlines one possible approach to help software vendors - and their end-users - realize the true benefits of SaaS.

Characteristics of Corporate IT
Corporate IT systems have long had a reputation for being dependable, consistent, "workhorses" that provide fast system performance and round-the-clock uptime, which are critical for business success. Systems that do not consistently deliver on these expectations could prevent employees from performing their day-to-day responsibilities. The result may be as severe as diminished credibility and a declining corporate reputation stemming from poor customer service, low employee productivity and an inability to produce materials, such as financial statements or employee records, as required.

Achieving this stability in corporate IT systems requires enterprise IT organizations to leverage the attributes of a strictly controlled application change process, a relatively slowly changing user population, and a generally repetitive cycle of system load. Most users within an organization typically need access to the same applications, which they utilize in a similar way. This, coupled with the fact that IT administrators - not users - control modifications to the software, such as upgrades or patches, ensures that the system remains fairly secure. Added measures, including firewalls and intrusion detection, also help minimize breaches or system instability and restrict most other variables that could potentially alter a program's accessibility or functionality.

The relatively slow rate at which applications are installed or upgraded add to the static properties associated with corporate IT systems. The decision to make changes to the existing system is often based on the cost of the software, as well as the time and manpower needed for installation and maintenance. For a large, global enterprise with hundreds or thousands of employees, these costs can be significant and may cause senior leaders to delay upgrades or new software purchases until they are absolutely essential.

Features of the Internet
Contrasting the characteristics of corporate IT systems are those associated with Internet (business to consumer, or B2C) applications. Perhaps the most notable difference is that these applications are typically not subject to a formal service level agreement (SLA) or guarantee of reliability. Often, the only way to assess a site's performance and reputation is through personal experience or the judgments made by the court of public opinion and the media; however, these assessments may not provide sufficient assurances for enterprises that want to completely eliminate performance issues and related business risk that could damage their reputation.

B2C applications are further differentiated from corporate IT systems by their variability and flexibility. First, they are inherently very dynamic in usage with fluctuations in user volume that tend to place dynamic and unpredictable demands on the system. Significant spikes in Web traffic on a particular site can increase the risk of instability, hamper performance or cause a crash. Second, the near continuous introduction of new functionality adds additional stresses to testing and configuration management.The SaaS model combines some of the best characteristics of both corporate IT and the Internet. It enables more timely access to cutting-edge software and upgrades, and eliminates the need to operate applications within the enterprise. This reduces the manpower and cost associated with software maintenance and support, which helps companies weather the current economic crisis by boosting their bottom line. It may also speed the deployment and adoption of new software throughout an organization, giving employees faster access to enhanced applications. Further, many SaaS models now have a guaranteed level of uptime on par with corporate IT SLAs. Thus, the possibility of slow response times or crashes is reduced, ultimately contributing to a more reliable corporate reputation. The combination of these factors is prompting corporate IT to abandon its legacy on-premise implementations in favor of SaaS solutions, significantly increasing the rate of SaaS adoptions.

The SaaS Model: The Best of Both Worlds...And New Challenges
For all these advantages, SaaS also has some challenges for both the vendor and the enterprise customer. For example, the rigidity of corporate IT systems is reflected in SaaS applications, which are highly standardized. Customization is handled in a very limited fashion; however, integration continues to evolve as SaaS solutions are adopted. The SaaS model also requires payments continuously over the life of the contract, rather than just once at the time of purchase. Another challenge unique to SaaS is its profitability model, which correlates to how well software vendors manage demand and usage. As a subscription-based model, SaaS requires an ever-increasing number of users to make it lucrative; however, a vendor can only drive renewal of existing subscriptions and add new ones if its solution meets client expectations for performance, uptime, cost, support, etc.

It is this last challenge - ensuring a positive, SLA-backed user experience that is, at the same time, cost optimized in the presence of rapidly changing capacity requirements - that can raise significant barriers to success. In fact, this is what makes SaaS application delivery significantly more challenging than either corporate IT or Internet B2C application delivery.

A SaaS hosting provider is one solution that can help software vendors overcome the profitability challenge and effectively demonstrate the rapid time to value that SaaS vendors need. The right SaaS host has expertise in running and managing a carrier-class, global service delivery infrastructure, as well as new, cutting-edge service features - such as end-to-end software development capabilities and cloud-based platforms - to enable fast, economical and reliable deployment of SaaS applications. Additionally, the host should be able to demonstrate that they have established service agreements already in place and offer performance SLA monitoring to cover critical elements of service - from network performance to response times. Finally, a host's global reach and flexibility is becoming critical as its customers, many with new or evolving needs - expand into new markets. Finding a trusted, highly capable hosting provider with these capabilities will help free software vendors from the responsibility of building and managing their SaaS infrastructure, while assuring end-users that the applications they need are readily accessible and operating at optimal performance at all times. This infrastructure as a service (IaaS) approach can provide both core managed hosting and security elements as well as additional application lifecycle services, such as application testing and virtual development. This functionality, in turn, generates greater value for end-users, creating competitive differentiation and, ultimately, increasing customer volume.

Enter IaaS (Infrastructure as a Service)

Conclusion
Software-as-a-Service brings together many of the best characteristics of corporate IT systems and the Internet to form a new method of software delivery that is reliable, flexible and cost effective; however, this model is not without its challenges. Consequently, many software vendors are turning to managed hosting providers to help address their concerns. The right SaaS hosting provider will deliver and manage a reliable, high-performing, global SaaS infrastructure that will drive greater demand and usage, establish credibility with enterprise buyers, enable flexible solutions that meet end-users' emerging and changing needs and, ultimately, demonstrate the profitability of SaaS. As competition among software vendors intensifies, SaaS hosting providers are proving to be the key to advancing this software delivery model.

More Stories By Bryan Doerr

Bryan Doerr is Chief Technology Officer at SAVVIS. Bryan provides technology leadership for infrastructure and product development, M&A support, and next generation platform evaluation.

Before joining SAVVIS, he held positions in management, software technology research, and software development at Bridge Information Systems, Boeing, and the Applied Physics Laboratory. Bryan holds a Masters Degree in Electrical Engineering from Johns Hopkins University in Baltimore, Maryland and a Masters Degree in Information Management from Washington University in St. Louis, Missouri.

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