Krishwords

As cloud computing grows and matures, there are many vendors who venture into Software as a Service model (SaaS) targeting small and medium businesses. Recently, I was talking to a CEO of a small firm from across the world and he asked me the difference between SaaS and ASP (Application Service Providers) of the previous decade. I thought I will write a post here explaining the difference in case if others have similar questions as well. For those of you who came here with an expectation to see posts related to Open Web, I would like to point out that Cloud Computing is also part of the open web and this post highlights the importance of SaaS models built on the cloud. Since cloud computing and the business based on clouds is of interest to me, I will post some posts on these topics too.

SaaS and ASP have a somewhat similar philosophy but there are many differences that makes SaaS more competent in the marketplace than the ASP in the previous era. Lemme, explain the differences in this post.

• ASP was single tenancy whereas SaaS has multi tenancy. This offers SaaS the much needed ability to scale. ASP was limited to single organization and hence high cost of implementation. Since SaaS is shared by multiple organizations, without compromising on the reliability, security and privacy, the cost for businesses is very minimal compared to the implementation of ASP.
• In many cases, the underlying cloud is built upon open source software. The application stack also uses open source software overwhelmingly. This reduces the cost of infrastructure by several fold, thereby, bringing down the cost of implementation to a much smaller level. Today, a small business having three employees can have CRM fro free and a company with 5 employees can have it for as low as $24 per month. I am not sure about Zoho’s infrastructure but many SaaS vendors rely heavily on open source software and the associated cost savings (plus the cost savings due to multi tenancy) is passed on to the customers.
• Some SaaS vendors offer the source code under one of the open source licenses. This helps organizations some reliability in the case of SaaS vendor going out of business. As I have explained in some of the previous posts, businesses can take the source code and their data and host it anywhere in the cloud. Since the cost of cloud infrastructure is almost close to zero, this option saves a huge amount of money for businesses compared to the ASP approach.
• Unlike the ASP approach, SaaS vendors can release a particular version and it shows up for all the customers. This reduces the time and cost involved in support and security implementation. Unlike ASP, all the SaaS customers will be using the same version of the app.
• Another important aspect of SaaS vis a vis ASP is the pay as you go model (which I forgot to add in the original post and Peter Laird pointed out in the comments). This is very important from small business perspective. This kinda approach is akin to utilities where you pay only for what you use rather than a fixed amount every month.

There are various other advantages of SaaS over ASP. I am just pointing out to some of the advantages that are important according to many industry analysts (including me :-)).

PS: The basic structure of this article is based on one of the old articles on the topic by Julie Craig in one of the Internet.com reports. I added my ideas about cloud computing and open source to that structure.