Evolution of the Software-as-a-Service model: The analysis from a business model perspective

Evolution of the Software-as-a-Service model: The analysis from a business model perspective

Azimbayev, Z.

Ortt, R. (mentor)

Technology, Policy and Management

Technology, Strategy and Entrepreneurship

Management of Technology

2011-10-27

Software as a Service (SaaS) model allows subscription to a wide variety of application services that are developed specifically for and delivered over the Internet on an as-needed basis without the need to install and manage third-party software in-house. According to Salesforce.com Inc the wide adoption of SaaS model will eventually lead to the end of on-premise software era. Currently the success of SaaS model goes hand-in-hand with popularity of cloud computing. For instance, recently Google in collaboration with Samsung introduced to the mass-market their Chromebook with cloud-based operational system Chrome OS on board, which is also delivered as a service. Nevertheless, the idea of outsourcing the software or hardware is not new. Before SaaS there was Application Service Provider (ASP) model that in the past considered being very promising as well, but failed to meet the requirements of the wide market and serves a niche market today. The interesting fact is that ASP and SaaS models are very similar and some authors even don’t make distinction between them. However, we believe that there are differences between them that affected the adoption of the models. Thus, we have set two objectives for this study. First is to conduct comparison analysis of two software delivery models from business model perspective and study factors that possibly affected the adoption. Second is to identify components of the business model that require changes in order to make a shift from one software delivery model to another and barriers that hamper these alterations. Therefore this research raised the following main research question: “Why is Software-as-a-Service model more successful today than the model applied by Application Service Providers?” In order to answer the main research question above, we have formed four sub-questions, answers for which were used as a foundation for the final analysis. We have adopted two theoretical frameworks to answer research questions. Firstly, in order to get an overview of the past and current state of the cloud computing industry, the diffusion and development patterns theory was used. Secondly, for the purpose of software delivery models comparison we took the STOF business model framework through which it was possible to highlight differing components of SaaS and ASP. Subsequently, we have formed and validated six propositions through two completely independent methods – case studies and expert interviews. The results showed that business models of SaaS and ASP differ in four components: Technical Architecture particularly Software Architecture, Pricing, Cost and Market Segment. As predicted the most important component turned out to be the Technical Architecture that practically co-determined differences in other aspects. We confirmed that the Technical Architecture of the SaaS model is better in reaching ‘economies of scale’ compared to the ASP model, therefore the SaaS model was able to cut costs, drop service prices and serve wider markets which positively contributed to the large-scale diffusion of the model. 2 Evolution of the Software-as-a-Service model Furthermore, a set of recommendations for managers on ways of switching from one software delivery model to another were formed. We also conclude that although the SaaS has more advanced software architecture that makes it more successful on the market, it is still not a perfect solution for all types of companies. Mainly because of security issues that multi-tenant architecture entails, the enterprise application delivered over the ASP model could be a solution for certain market niches dealing with sensitive data, lacking IT expertise and willing to pay extra for the service. Therefore before committing to a certain model, providers have to carefully consider which type of companies they are able and willing to serve. It is also very important for companies that already have large installed base of customers and legacy software with single-tenant architecture. We found that virtualization technologies are rapidly developing and practically enable single-tenant applications to “fake” multi-tenancy and run on comparatively high levels of resource utilization as the SaaS model. Therefore the first recommendation for the traditional enterprise software providers would be to decide whether they are willing to maintain their current market segment or capture a wider market of SMEs and even individual end-consumers. Based on that decision, the most suitable architecture could be chosen. However, this study has some limitations among which the most serious is the lack of attention to external macro economical factors that could play an important role in diffusion and development of the innovation. Although, to partially cover that topic was done, it still requires more careful and extensive research. Therefore suggestion would be to consider it as an opportunity for the further research in this field.

Software as a Service (SaaS)
Application Service provider (ASP)
Cloud computing
Diffusion and development pattern of high-tech innovation
Business model

http://resolver.tudelft.nl/uuid:e70c4d92-43aa-41c3-8829-22270162da67

2011-12-01

Student theses

master thesis

(c) 2011 Azimbayev, Z.