Software? As a service? I don’t understand…
You’re not the only one. What we’re talking about here is the use of ‘software’ (for want of a better word) that is accessed via your browser. You may variously hear this model referred to as ‘on-demand’ or ‘hosted’. This is because it is hosted by the service provider, rather than being installed on your own PC, or within your own office. So this means you just fire up your browser and log in. No install, no hassle, no management overhead – that’s the theory.

And does the theory work in practice?
By and large, yes it does – though there are still relatively few companies making a real name for themselves in this space compared to the real big names who are still shipping box-loads of CDs with software the user must install.

You say “by and large” as if there are still some problems…
There are always problems. But the vendors in the software as a service (SaaS) market will tell you their problems are slighter than those faced by customers of on-premise solutions. However, issues such as downtime have arisen. However, computers fail – we all know this – and the SaaS vendors claim they would not trade their uptime for that of their users’ servers and computers. Likewise there are some concerns about security – do users really want important data outside of their own four walls? Again though the SaaS vendors will tell their users the security they have in place is better than anything the user has – given the economies of scale – protecting thousands of customers, and a reputation, rather than just one business.

However, the on-premise vendors maintain SaaS simply will not fly with some businesses which have a guarded attitude to their data and this may prove to be true – or at least for the foreseeable future.

You what… ?

Bust through tech jargon with silicon.com’s Cheat Sheets.

And also, don’t forget you have to be online if you really want to get the most out of your hosted solution. Internet access is pretty ubiquitous now but it can’t be taken for granted. A system is only as good as its weakest link, so a company bedevilled by downtime on its internet access, or one that has been slow to ensure staff have multiple channels of internet access and an always-on capability, might struggle.

So what kind of software are we talking?
To date a lot of the innovation we’ve seen in this space has been in the world of customer relationship management (CRM) and business apps such as enterprise resource planning (ERP) and…

Whoa there! You’re losing me…
OK, so beyond those very business-focused areas there are all manner of other applications – some of which you probably know better than you think. Applications such as Writely.com – which was bought by Google – and offers an application that looks and feels a little like Microsoft Word. It is hosted by Google, meaning you can access it and continue working on your document whether you are in your office or working on a strange PC in an internet café in Tibet. This is what they mean by on-demand. And because it is online and exists normally in just one version, collaboration is also a lot easier. No more emailing somebody to find out which version of a software program they are using before swapping files. Similarly there are on-demand offerings out there that will offer users a hosted alternative to Microsoft exchange, outlook calendar, Excel…

I’m spotting a trend here. Should Microsoft be worried?
Back in the days when the on-demand vendors were very small fish in a huge pond, Bill Gates pretty much laughed off the idea that the CDs which built this house would one day no longer be shipped. Now the company he founded is preparing its own partially hosted offerings – representing something slightly more considerable than dipping a toe in the SaaS waters.

Similarly companies such as Oracle – owner of Siebel – and SAP are also rolling out their own SaaS offerings – in part to combat the grinding effect the likes of Salesforce.com – regarded as the flagship of the SaaS movement – are having on their new business revenues.

Any other benefits?
There are, though this is an issue businesses must consider for themselves on a case by case basis. However, there is a major boon for the vendors: no CDs, no piracy – suggesting others will see the sense in moving in this direction. So in parts of the world where piracy is rife – such as China and the Far East, where it is estimated more than 75 per cent of software is counterfeit, SaaS becomes a compelling alternative. As those countries come online and the demand for increasingly sophisticated business software grows, expect the SaaS vendors to be near the front of the queue.

So this is definitely happening then?
Count on it. Analysts have mixed feelings about the growth of SaaS but the only real differences they see are in just how quickly it might grow. Some, such as Gartner say a quarter of all business software revenues will go to SaaS offerings within five years. Others say that will be the case within a couple of years. It’s definitely a boom area.