With this software-as-a- service model, the application is hosted at a service provider’s secure data centre instead of the customer buying the software and installing it in-house.
“Already, more tools and applications, such as office software, e-mail and customer relationship management (CRM) are being served from such centres, and we can expect the range of applications and services available to grow,” says David Mitchell Smith, vice-president and fellow at Gartner Research.
Gartner predicts that the worldwide market for software as a service will grow to nearly $19bn in 2011, when 25% of all new software purchased will be delivered as a service.
It says more enterprise software will be accessed by users as a service, although companies will continue to run some applications in-house.
Gartner says that e-mail is one of the applications that will be hosted increasingly on a software-as-a-service basis instead of being stored on corporate servers.
The company says by 2012 at least a third of business application software spending will be as a service subscription instead of companies buying a software licence.
Major software suppliers like Oracle, SAP and Microsoft are adapting their business models to accommodate the emerging trend.
Microsoft and Google are already offering application services online and Adobe’s CE Bruce Chizen announced late last year that the company plans to move to a web-based distribution model.
He said there could be a charge for subscriptions or advertising, but to get to this point broadband speeds will need to increase.
Microsoft’s Office Live Workspace provides a free, hosted, online file sharing service that allows users to store, access and share documents.
Google Apps offers communication tools like Gmail, Google Talk, Google Calendar and Google Docs, which allows users to create text files and spreadsheets, and Google Sites for developing web pages.
In their basic form these tools are free or users can pay for a premium version that has more functionality.
In the same way, LucidEra provides business analytics services for sales, marketing and finance and NetSuite is offering an integrated web-based business software suite that includes accounting, ERP, CRM and e- commerce functionality.
Callidus Software provides sales performance management solutions,
Ketera Technologies provides electronic procurement software and RightNow competes with Salesforce.com and NetSuite in customer relationship management.
Then there is Coghead, which offers an application on its website that can be used to create business applications and share them online.
Its website provides a catalogue of applications that have been developed in this way, ranging from finance and project management to productivity and human resources tools.
Software-as-a-service fees range from 5 per user per month for the SuccessFactors’ employee performance management software to $200 per user per month for Salesforce.com’s highest-level CRM solution.
Prices typically include all upgrades and maintenance, plus limited customer support.
However, it is as well to check for hidden charges for items like extra storage capacity and around-the-clock service, and companies will need to establish how to get their data back if they stop using the service.
As the number of applications that are available on a pay-per-use basis increases, and as competition becomes fiercer, suppliers are likely to begin differentiating their services, for example by charging only for the functionality that is used.
Even criminals are getting in on the act, with hosted applications that buyers can log into and use to gather data from thousands of company servers without the owners being aware of it.
It will take time for companies to abandon the culture of owning all their own software, but as Forrester Research points out at least 25% of all organisations outsource some of their IT infrastructure.
This includes automated online backups and accessing application services on the internet such as sales-force automation through SalesForce.com.
Another facet of software outsourcing is when service providers host their clients’ systems in their data centres instead of them being run in-house.
This model is becoming increasing popular in SA due to the power outages, which service providers are often better equipped to cope with in their data centres.