Is the SaaS experiment finally over?

Software as a service hasn't had as big an impact as was once expected. Should developers take the hint?

Software as a service (SaaS) has been one of the most important trends in software development in recent years, particularly for the small and midsized business markets. As the sales pitch goes, SaaS offers customers streamlined licensing and billing while reducing costs associated with infrastructure, support, and maintenance. But according to new research publicized by Gartner, the pitch might not match reality for many customers.

At a presentation at the recent Gartner SOA & Application Development and Integration Summit in London, Gartner analysts said SaaS "will have a role in the future of IT, but not the dominant future that was first thought." Indeed, for all the hype around SaaS it has hardly taken the software industry by storm. By Gartner's estimates, SaaS as a percentage of total enterprise spending grew by only 0.6 percent from 2008 to 2009. That should give software developers pause, particularly those who are only now planning to roll out a new SaaS offering.

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Customers question the value of SaaS
Naturally, cost ranks high among customer concerns. In 2009, Gartner published research that suggested vendor claims about the cost effectiveness of SaaS versus on-premise software may be inflated. According to Gartner's figures, SaaS can be cheaper in the short term, but over five years, the total cost of ownership of a SaaS deployment can actually be higher than the cost of the equivalent on-premise software.

Budget issues aside, customers who are considering SaaS for mission-critical applications have further concerns. Chief among these is whether SaaS vendors will truly be able to deliver the uptime performance they promise. Many customers still feel more comfortable relying on their own IT staff to manage and maintain on-premise software, rather than putting their complete faith in a SaaS provider.

And with good reason -- doing SaaS well is difficult, particularly for a large volume of customers. Even the most prominent players have experienced outages. Early on, pioneering SaaS provider experienced repeated blackouts. And in 2009, an outage at Google's popular Gmail hosted email service was attributed to overloaded servers, despite the company's massive server infrastructure.

Software developers who are readying SaaS applications of their own should take note. Such service lapses are virtually impossible to avoid, and they can bite SaaS providers even when their software itself isn't to blame. Last year, leading hosting provider Rackspace suffered three major outages, each of which knocked thousands of applications offline. Meanwhile, Google, having rolled out a business-oriented version of its App Engine cloud hosting service in May, has struggled to keep up with the CPU demands of its data store, resulting in poor performance for many customers.

Gartner's advice to customers: Tread carefully
The bigger picture for developers is that a customer's relationship with a SaaS provider is markedly different than its relationship with a traditional software vendor. While purchasers of on-premise software typically evaluate vendors on such factors as cost, scalability, ease-of-use, security, upgrade path, and licensing model, SaaS customers have to weigh another set of considerations. "SaaS changes the role of IT from implementing its own operations to inspecting a vendor's operations," says Gartner vice president David Cearley.

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