The concept of "software as a service" (SaaS) originated in 1999 as a new way to implement software with an emphasis on functionality.
The basic approach of this idea is that software is important to users insofar as it allows them to solve a problem, i.e. to the extent that it provides them with a service.
Under this paradigm, the need to acquire a software product, have a related hardware and software infrastructure and the installation and support that this requires would be little more than a hindrance to the end user, who has to put up with them in order to obtain the desired functionality.
Under a software as a service model, all of these problems disappear and the software changes from being a product that can be acquired to becoming a service that can be provided. In this sense, it is important to distinguish between the service companies that we described earlier, which provide software services (installation, maintenance, etc.), and this new model, which provides software as a service (provision of the specific functionality of this software).
To implement this concept, the provider would take care of all the necessary infrastructure, hosting the required software and offering the service on-line through a browser. A sufficiently powerful communications infrastructure is required but the other technological requirements on the receiver side of the service are reduced, allowing the attention to be focused entirely on the functionality offered.
Providing software as a service
More and more companies are using this model to provide enterprise software, such as 37signals with Basecamp (project management tool), and the popular Salesforce.com (CRM or customer relationship management), which allows the software to be tailored to customer needs.
The software as a service model is a low-cost way of providing software to companies, in comparison with the traditional method of selling products. On the one hand, customers save considerable sums on IT infrastructure maintenance and, on the other, providers can offer lower prices because they combine the recurring revenue obtained from the provision of a service and use a single instance of their application at any one time to service a large number of customers.
On-line software
We can also find several examples of web applications aimed at private consumers, although this trend is referred to as "Web 2.0". Many have had great success, such as the numerous Google applications and e-bay.
The presence of both free software and SaaS offers is threatening traditional software vendors, who are feeling the pressure with the entry of these new competitors and will have difficulty maintaining the prices of their products.
Software as a service providers also stand to gain a great deal from the use of free software. On the one hand, using it in their software infrastructure will save them significant sums in licensing or development and, on the other, some companies are using free, GPL-licensed applications to develop their critical business applications, keeping their modifications closed as a way to protect their business differentiation. In this case, they are exploiting a loophole in the GPL: modifications of the code must only be redistributed if the program is redistributed. In the case of software as a service, only the functionality – not the code – is redistributed, so the company has no obligation to share its improvements.