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Microsoft plays chess with SaaS

Jared Heng | Sept. 4, 2008
Software-as-a-service has grown in popularity recently, putting competitive pressure on traditional software vendors like Microsoft.
When software-as-a-service (SaaS) first appeared, few enterprises knew or seriously considered it as an alternative to the traditional software purchase and deployment model.

SaaS involves the service provider hosting an application and providing it as an internet service to customers. The business case is compelling. With SaaS, enterprise customers need not install applications on-premise, reducing maintenance costs. On-demand pricing through SaaS also allows customers to avoid significant up-front investment costs and pay only when the service is required.

The SaaS delivery model benefits software vendors as well due to stronger protection of intellectual property. Without the physical medium available to contain the application, software pirates have a much harder time carrying out their heinous acts.

SaaS CRM solutions provider,, started out with a relatively small customer base. However, the company has reported exponential revenue growth since 2001, a sign that SaaS is gaining increasing acceptance among enterprises. In fact, the rising popularity of such vendors has put increasing competitive pressures on traditional software heavyweights like Microsoft.

In response, the Windows giant has come up with its interpretation of the delivery model called Software plus services, contending that the name change is to allow customers a choice of whether they want to deploy the application on-premise or have it as a hosted solution.

I cannot help but wonder whether the underlying reason behind this move is an attempt to maintain a strong customer impression that traditional software cannot be fully replaced by SaaS. If true, this would hardly be surprising, given that Microsoft has already established itself as a traditional software provider. Microsofts concerns, if in fact present, would not be unfounded, as there are more established players in the SaaS market segment than the software giant itself.

As an end-user however, I applaud Microsofts approach in seeking to better meet customers needs. Some enterprise customers may still prefer on-premise software for various reasons like information security concerns over SaaS. Highly specialised systems may also pose a challenge to adopting the SaaS model.

All that said, the million-dollar question remains: Will SaaS fully replace traditional software? I do not have the answer, but time will tell as technology continues to develop further.

Jared Heng is staff writer for Fairfax Business Media, where he covers hot topics in the IT industry such as green computing, unified communications and software as a service.