Today in a world of specialization, organizations just want to focus on their core business and outsource other work to specialist organizations better equipped for handle it and at cheaper prices. Nowadays companies want their business portals to be managed by specialized third-party IT firms that take complete ownership and responsibility for managing the show.

Software-as-a-service (SaaS) redefines the software deployment model of packaged applications with its upfront licensing fees and lengthy implementations into a subscription-based Internet-delivered service relationship.

This article explains SaaS, its characteristics and benefits, and touches on designing and architecting SaaS applications.

Before we start discussing SaaS let's recap the software's evolution. Figure 1 doesn't capture all of software's evolution here, but definitely hit its major milestones.

What Is SaaS?
"SOFTWARE DEPLOYED AS A HOSTED SERVICE AND ACCESSED OVER THE INTERNET."
SaaS is defined as software-as-a-service and provides access to software and its functions remotely as a Web-based service over the Internet. It supports Service Oriented Architecture (SOA) and Web 2.0 standards like Web Services and AJAX, and a SaaS provider maintains and manages the applications.

An SaaS application is offered either directly by the vendor or by third-party SaaS providers responsible for the application's availability (maintenance, scalability, disaster recovery) from their locations and it is good for the SME under constant pressure to reduce IT operational costs. The SaaS model can help save time and money by shifting responsibility for software delivery to a service provider.

The SaaS model is found mainly in line-of-business services like CRM, e-commerce, and finance to facilitate the business processes of enterprises and organizations of all sizes and is also applicable to consumer-oriented services.

SaaS Characteristics
The SaaS sector is one of the fastest-growing segments in software. IDC believes that telecom companies like AT&T and Softbank and professional service providers will act as viable sales channels.

Some of the characteristics of SaaS mentioned by IDC are:

• Network-based access to and management of commercially available software (i.e., not custom)
• Activities managed from central locations rather than at each customer's site, enabling customers to access applications remotely via the Web
• Application delivery typically closer to a one-to-many model (single instance, multi-tenant architecture) than a one-to-one model, including architecture, pricing, partnering, and management characteristics

Multi-tenancy means hosting multiple customers on a single server, which is how on-demand service applications are provided. The code for the software runs on a remote machine, and a single instance of it is accessed by 'n' number pf end users of multiple customers. In SaaS-speak the word tenant refers to the customers for whom installation and configuration is done. In the SaaS model we have four main stakeholders: (See Figure 2)

1. SaaS End Users - The application users or, say, Internet shoppers in the case of an e-commerce application
2. SaaS Customers - Enterprises that buy the services and use it
3. SaaS Aggregators/ISVs - Software vendors or intermediate parties that bundle the different SaaS applications.
4. SaaS Hosters - They host the SaaS applications on their Web/application farms.

It's quite possible that in some cases only one party plays the roles of ISV, SaaS aggregator, and SaaS hosters or it's possible that the aggregator/hoster is one party and the ISV is different.

Types of SaaS Provider
If we talk to 10 different experts about what SaaS is and how it's related to ASP and on-demand, we are bound to get 10 different answers. Some will say SaaS, ASP, and on-demand applications are variants of hosted or managed services and some would say SaaS is more generic compared to ASP and some might say SaaS is the same as ASP. But it would make more sense to say SaaS providers are classed into two categories:

1.  Hosted AM - The hosted application management (hosted AM) model is similar to traditional ASP. In this model a customer buys software and asks a hosting company to host it for him or a provider hosts commercially available software for customers and delivers it over the Internet. In this model applications typically support a single-tenant architecture and their ability to share data and processes with other applications is limited. HAM is based on a one-time licensing in which the software manufacturer is paid license fees and the hosting company hosting fees.

2.  On-Demand - In this model the provider offers customer an application that support multi-tenant architecture, i.e., software built for one-to-many hosting in which one copy of software is installed for the use of many companies and accessed over the Internet. On-demand is a subscription-based model where the client pays subscription fees (per user, per transactions, number of hits, per project, monthly, yearly, usage, transactions) to the provider for using the application.

Note: There is one more model referred to as an appliance model. Here the vendor supplies a hardware/software component as a "black box" that is installed at the customer's/end user's location, instead of being at the vendor's like the PDAs with special software used in life sciences or shipping, and special devices are provided for application to end users.