Web 2.0 offers fertile ground for SAAS

Despite hype and venture capital money, the ASP (application service provider) model of the late 1990s failed in spectacular -- and very public -- fashion. But industry leaders and analysts who gathered this week at the Software as a Service Summit in Napa, California, said that current market conditions give the new generation of ASPs, which the industry now calls software-as-a-service (SAAS) providers, a far better chance at success.

Affordable high-speed Internet access, customers' growing comfort levels with doing business on the Web and technology vendors' willingness to embrace open standards are just a few factors that have created a rich environment for SAAS to flourish, SAAS proponents said.

Back when ASPs were trying to convince customers to let them host their IT systems and software, doing business over the Web was still a novel concept, especially because Internet access was not as widespread or fast as it is today, said Amy Wohl, an analyst with Wohl Associates.

Now broadband Internet access has become widespread, at least in the U.S., and it's easier and more cost-effective for companies to access applications over the Web. This has created demand in the SAAS market, a luxury ASPs did not have, Wohl said. "You now have a market where people are interested in buying something," she said.

Furthermore, because the cost of acquiring and maintaining IT systems can be expensive, companies are more willing to give up control of their software and their networks to someone else, Wohl added. "We have overcome the notion that you have to do everything yourself," she said.

People in general also are becoming more comfortable with doing transactions over the Web, another trend that is driving the success of the current crop of SAAS providers, said Chris Clark, an executive at SAAS company Deposco Inc., which is based in Atlanta and is gearing up for its official launch.

Now that customers are doing online banking and other common transactions over the Web, they are more apt to embrace other Web-based business services, such as Salesforce.com Inc.'s highly successful CRM (customer relationship management) service, he said.

The emergence of open technology standards over the last several years and the willingness of companies such as IBM Corp. and Microsoft Corp. to allow their systems to interoperate also is helping to foster growth in the SAAS market.

Sal Visca, senior director of engineering for Business Objects SA, said the creation of Web services standards such as XML (Extensible Markup Language) has enabled the Web to move from a transport mechanism to a platform for building services, a phenomenon called Web 2.0. These standards not only changed Web development, but also provided companies with a way to allow their software to interoperate better, something that had to happen for SAAS to succeed technologically, he said.

"As we all get pushed out onto the Web, we've all -- as enterprise vendors -- built systems in a way that become much more componentized and service-oriented," he said.