Exploding the jargon

SaaS, web 2.0 and cloud computing explained. PAUL WALLBANK

By Paul Wallbank

After 10 years out in the cold, the term “software as a service” has come thundering back into fashion. But what is SaaS?

Last week’s announcement of Telstra and Microsoft’s joint venture in providing services online is the latest in a burst of local and international providers releasing software-as-a-service products.

Before explaining what this means, let’s deal with the jargon: SaaS stands for Software as a Service and means it runs on someone else’s system rather than on your computer. Web 2.0 is the same thing done through a web browser.

The computers that store the data and run the web 2.0 or SaaS applications are off in “the cloud”. Cloud computing is a group of computers connected across the internet, sharing the job of running software and storing files.

Like many IT buzzwords, there’s nothing new about software as a service. In the “big iron” days when companies like IBM and Digital supplied office-block sized computer mainframes most software was provided this way.

When computers started appearing on people’s desktops, the service model died as it was too difficult to keep track of who had paid for what. It was only the arrival of the internet that made software as a service feasible again.

The idea of SaaS is you pay a regular fee to use the software as opposed to paying up front for a licence in the form of a box with a disk in it or a note giving you permission to use it on a certain number of computers.

For the software companies, the licence model can be extremely profitable ­­– most of Microsoft’s profits come from flogging boxes of Office and giving computer manufacturers little bits of paper allowing them to install Windows on the computers they sell.

However the one-off fees mean the software developer gets a lump sum upfront, and little recurring income for years afterwards until the buyer decides to upgrade. In most cases this means years between purchases.

So the attraction of SaaS is it gives software developers a steady cashflow rather than just big lumps of money coming in at irregular intervals.

For the buyer, this has some positives and negatives. The positives are you get more timely updates and no upfront costs, while the negatives include being held captive to one provider, known as vendor lock-in, and you may pay more than if you’d bought the disks at your local computer superstore.

The pricing issue is why SaaS failed in the first dot-com era. Most software companies saw it as an opportunity to rip off customers, and us mug punters quickly sussed it was cheaper to stick with buying small disks in big boxes from the computer shop.

This time around the software companies are being more sensible with pricing, and this makes the services attractive.

Other pluses are that software as a service scales with a growing business, also business owners don’t have to worry about upgrades and the risk of breaching licences.

For many new and growing enterprises the fact there are no upfront costs outweighs any concerns about vendor lock-in or trusting data to the anonymous cloud computers.

As the recession bites, we can expect to see a lot more businesses renting their software to conserve capital. So it’s worthwhile keeping track of what’s available for your business.

Paul Wallbank speaks and writes on how business owners can meet the challenges of the new economy. A business owner himself, Paul has spent over 15 years helping businesses achieve their potential. He has two computer advice websites; PC Rescue and IT Queries, and appears monthly on ABC Local Radio’s Nightlife program and Sydney 702 weekends.

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