Software as a Service (SaaS) looks and feels like the applications you are used to, but its underpinnings are so different that it is frequently defined by what it is not.

The Gartner Group defines SaaS as “software that’s owned, delivered, and managed remotely by one or more providers. If the vendor requires user organizations to install software on-premises using their infrastructure, then the application isn’t SaaS.” Likewise if the vendor requires a perpetual software license, the offering isn’t SaaS; SaaS is purchased on a “pay as you go” or subscription basis.

Saugatuck Technology drills down on the operational side in its white paper, “Cloud Financials Come of Age.” Saugatuck points out that “SaaS is considerably more than software – it is a business service, providing the software and managing it for the customer. Included in this business service is the entire range of data center infrastructure services: networks, storage, operating systems, databases, application services, Web servers, and of course, disaster recovery and back up services. Moreover a full range of data center operations services – authentication, availability, identity management, production monitoring, patch manangement, activity monitoring, software upgrades and customization – are also provided.”

In addition to not having to manage any of the items above, Saugatuck’s list of desirable negatives includes no annual maintenance surcharge and no lock-in. ” And if the needs of the business should expand or contract significantly, it is simple enough to add or subtract … seats without any worries about purchasing or disposing of computer hardware, software, or networking – or hiring or firing the trained IT technical staff to manage it. In fact, that may be the most significant unstated and and unexpected benefit of SaaS: It is a completely scalable business resource that does not require large capital expenses at any time.”

So what’s not to like? CFOs almost always express security concerns when they think about having their financial and ERP data reside in the cloud. They also worry about integration challenges with other applications and they worry about total cost of ownership. These topics will be examined in upcoming posts.

Related posts:

1. What is Cloud Accounting?