Few trends in the software world are attracting as much attention as "software as a service" (SaaS). In this delivery model, customers typically access software applications over the Internet and pay a subscription fee that depends on the number of users. Similar to the application service provider (ASP) model, the software is hosted externally. However, ASPs generally host software that is bought and licensed by the user. In contrast, providers of SaaS applications are renting, to multiple customers, software that they own and maintain. SaaS is also referred to as "on demand." The vendor provides software upgrades as part of the subscription.

The appeal of SaaS comes from multiple sources. First, organizations are spared the high initial costs of purchasing the software. Small and midsize businesses are, therefore, more able to contemplate using applications for which the buy-in for an enterprise installation would be too expensive. Companies are able to outsource a function that is usually not a core competency, allowing them to focus on their primary mission. And usage can be scaled up easily as new employees are hired, or cut back if the company downsizes. Drawbacks include concerns about data security and about the stability of the provider, as well as the need for reliable access to the Internet.
Expanding market

A growing number of applications in the KM space are available via SaaS, including customer relationship management (CRM), Web content management (WCM) and enterprise content management ECM). Salesforce.com has been perhaps the most visible SaaS product and the leader in on-demand CRM.
Most indicators point to a rapidly growing market for SaaS over the next five years, including portions of the SaaS market that relate to KM, such as ECM.

"We expect the SaaS market for ECM to grow 30 percent annually," says Karen Shegda, research director at Gartner, "but this is over a very small base." Only 2 percent to 3 percent of the money spent in the ECM market—or $25 million out of a $1.2 billion market—is spent on hosted solutions, according to Shegda.

In general, surveys indicate that about 30% of companies have one or more SaaS applications deployed, with a larger percentage considering SaaS for the near future. Somewhat surprisingly, interest has come from large firms as well as smaller ones. For example, McKinsey reports that 61% of companies with sales over $1 billion plan to adopt SaaS as their model in 2007.

WCM leads the way

One functional area that has found early acceptance using SaaS is Web content management (WCM). "SaaS offerings tend to use a browser interface, says Rob Rose, VP of marketing at CrownPeak, "which is very compatible with Web content management."

In addition, Rose explains, Web content is typically less sensitive than other enterprise data, so companies have not been as reluctant to have it stored outside the firewall. CrownPeak is a leader in on-demand WCM and was built from the beginning as a SaaS product.

The Hospital Corporation of America (HCA) uses CrownPeak CMS to publish documents over an extranet, which covers remote sites for hundreds of hospitals. "Users get notification when new guidelines come out," says Rose. "They can then retrieve the information from the extranet repository." The repository contains static content such as finalized documents; it is not used for moving a document through workflow and approval.

CrownPeak can host the Web site as well as the content management repository, but gives its customers the option to take on that task or to outsource it to a third party. Customers can also maintain unstructured content such as PDF or MS Word documents in-house and just let the CrownPeak software handle the links to the content.

"That way, a company just has one version of a document, such as a price list," says Rose, "and it will be the same on its intranet as it is on its Web site."

RM for compliance

AXS-One, which offers an archiving and electronic records management (RM) software platform, just announced a SaaS product for large enterprises. The company had been providing a hosted solution for small and medium-sized enterprises (SME) and dealer-brokers through partners, but now sees a strong demand from large businesses.

"A major factor is the amount of data that these companies have to deal with," says Marie-Charlotte Patterson, VP of market strategy. "According to some reports, the amount doubles every 10 months." The new service will provide AXS-One’s current e-mail and electronic records archiving and management through hosting services provided by EDS, a global technology services company.

Compliance considerations

Aside from the burden of managing burgeoning data stores, organizations also have increasing concerns about compliance and legal discovery. "The complexity of regulations about what needs to be retained and the implications of litigation readiness have caused a lot of worry," says Patterson. "IT personnel who were managing messaging environments now have to become experts in archiving, records management and legal discovery." Adding to the concern are the implicationsof the changes to the Federal Rules of Civil Procedure (FRCP) passed in December 2006, which affect the requirements for preservation and accessibility of all electronically stored information.

The AXS-One service is priced according to the number of users. It is available both directly from AXS-One and through strategic partners.

"The records management discussion has now reached the boardroom level," says Patterson, "and it’s also filtering down from the mid-market to a more pervasive presence throughout the enterprise." AXS-One maintains that the relative ease of launching a compliance initiative via its hosted service will lower the barrier to participation for firms that are not yet managing their records proactively.

Managing learning content

Royal Ahold is a $56 billion supermarket and food service company based in the Netherlands, with operations in the United States and Europe. As a large global company with more than 240,000 employees, its training needs are substantial, and in 2004, Royal Ahold selected Plateau as its learning management system (LMS) to deliver online training, as well as to manage student records for both online and classroom training. Recently Ahold signed up for the iContent
service, which was introduced by Plateau in October 2006. iContent provides services to integrate third-party and custom-developed content into the LMS, and then delivers it over a secure content distribution network.

Incorporating learning content into the LMS so that it performs to specifications is not necessarily a straightforward process. "The LMS needs to document appropriately whether the person has completed the course," says Renee Wallace, VP of training and organization development at Ahold. "The criteria vary, though—in some cases, completion means that the learners have looked at each page of the course, but in others, it means that they have obtained a specified score on a test."

Rapid results

The iContent service has been helpful to Ahold in meeting targets for training delivery. "In one operating company, we needed to deliver HIPAA training to 7,000 employees," notes Wallace, "and with Plateau we were able to complete the training within a month." Without the rapid integration and distribution allowed by the Plateau system, Ahold would have been challenged to meet that goal.

Plateau LMS pricing is based on the number of active learners, with one rate for corporate employees and a lower one for store employees. iContent pricing is based on integrating a set number of training programs in a given year, and storage on the content server is a flat fee based on anticipated storage requirements.

"Plateau worked with us to ensure they understood our needs," says Wallace. "And although Plateau assigns resources based on our estimates, we would be able to scale up if necessary."

The iContent service can manage content for organizations that are using a homegrown LMS or that of another company. "We are seeing a very high level of interest from potential customers for this service," says Jennifer Milder, director of iContent at Plateau.

"Managing content is an ongoing issue," she adds, "and many companies do not want to focus their efforts on this function, but prefer to dedicate themselves to the actual learning process."

Horizontal trend

A number of factors have changed since the ASPs made their first offerings 10 or more years ago. Many of the concerns about having data outside the organization have been addressed by advances in security and the experience of the vendor.
"For these vendors, security is a core competency, and, therefore, they are likely to be in a position to offer more robust security than many of their customers could." says Mary Laplante, VP of consulting services at Gilbane Group. "Moreover, a SaaS vendor that cannot offer solid security is simply not going to stay in business." Customers are expressing a much higher level of comfort with security now than they did when ASPs first began offering hosted services.

Among the early adopters of SaaS, Laplante says, are media and publishing, financial services and telecommunications. "A stronger trend, though, is horizontal—rapid acceptance in the marketing departments across many industries," Laplante explains. "These departments are quick to see the value of an application for managing their collateral and branding. They like having a dedicated service to support them, instead of relying on a sometimes overburdened IT department for implementation and support."

The advent of service-oriented architecture (SOA) will facilitate the move to SaaS, according to Saugatuck Technology, a strategic consulting firm focusing on IT market research. Saugatuck predicts that the growth rate of SaaS will be 25 percent per year through 2010.

"By 2012, we expect that 35 percent of all new business software will be deployed and delivered as SaaS," says Bill McNee, founder and CEO of Saugatuck. SOA will allow linking the SaaS applications to on-premise data and processes, making for a unified system with applications that can readily communicate with each other.

Alternative ECM options

Enterprise content management (ECM) and document management solutions are also offered through hosted and SaaS models. Some were established initially as SaaS products, while others were originally on-premise products for which a hosted product was developed. Open Text, for example, began offering a hosted solution for Livelink ECM, its content management and collaboration product, seven years ago through its Affinity partners. Now, customers can obtain a hosted version of Livelink ECM either through a partner or directly from Open Text.

"We are finding that a wide range of organizations, including large global companies in the energy, financial and medical industries are opting for a hosted model," reports Ryan McDonald, director of hosting at Open Text, "in addition to smaller companies that do not have the resources to support an enterprise solution."

Open Text takes a flexible approach to its hosting. "Although we do have a multitenant type arrangement that is typical of SaaS, with a group of customers sharing an environment," says McDonald, "we do this in a method that allows our customers to individualize or upgrade when required independently from other customers."

Open Text and most of its hosting partners handle patching and upgrades, and provide the infrastructure if a customer needs to scale up. Pricing is based on the number of users and storage requirements. Content is stored off site, although customers can keep backups locally.

One of the benefits of the hosted model is that the vendor is handling much of the risk associated with content management, according to McDonald. "We provide the customers with confidence about the security and integrity of their data," he says, "which are key concerns today."

The hosted service also has guaranteed service levels as part of the agreement. Open Text and most of its partners can handle the integration required for Livelink ECM to work with other products in use within an enterprise, a support service that McDonald says is much in demand.

Maintaining operational controls associated with compliance is a big job, and for many customers, offloading that task allows them to focus more effectively on their primary goals. For example, the hosting company would need to be able to produce a SAS 70 auditing report for compliance with Sarbanes Oxley Section 404, which relates to the processes used in an organization’s financial reporting.

"Producing the documentation is a large part of compliance," says McDonald, "and we can help right away with our expertise in that area."

Extending document management

Xythos entered the SaaS market earlier this year with its Xythos on Demand document management product. It offers the same functionality as the Xythos Enterprise Document Manager. As of April, the company reported that hundreds of organizations had subscribed to its new service. The SaaS option is proving attractive to organizations such as investment firms and law offices because of the reduced in-house requirements for IT infrastructure and support. Xythos says its customers have reacted positively to the ability to share documents securely with colleagues and clients. For organizations that may wish to switch from the SaaS service to an on-premise model or vice versa, Xythos offers easy migration options.

Data for users of Xythos on Demand is stored offsite, but the Xythos Drive software also allows creation of a mirror image of the Xythos files on the customer’s computer.

"One of the key benefits of content management delivered as a service is managed storage," says Jim Till, CMO at Xythos. "Xythos on Demand customers gain peace of mind knowing that all of their documents are stored offsite, backed up and protected by dedicated experts."

Nevertheless, users sometimes need to be able to copy files to their laptop, for example, and work offline. Xythos Drive synchronizes all the files that were changed in Xythos on a user’s laptop, so that revised files are automatically uploaded into the content management system when the user is back online.

SaaS from the start

SpringCM was created as a SaaS product, in which all users are accessing the same application that has been configured for their specific use. SaaS products are designed for organizations that want the benefits of a document management suite without having to purchase, install and maintain an enterprise product.

"SpringCM is a single platform that seamlessly integrates ECM functionality, with scanner and copier integration, OCR and zonal forms recognition, along with full search functionality and a formal taxonomy," says Dan Carmel, CEO of SpringCM. Content expiration dates associated with documents can be set up, with an e-mail alert sent to the content owner when the date approaches.

In addition to low cost and rapid deployment, one of the most significant advantages of SaaS products is the rate of software innovation that is feasible.

"We have a very rapid rate of product enhancement, in contrast to on-premise enterprise products that are updated only once every 12 to 18 months," says Carmel. "Because Spring CM is architected as a true multitenant SaaS application, only one platform needs to be updated. We can add product features every 10 to 12 weeks with no disruption to the user. In a traditional hosted model, upgrading is labor-intensive and expensive because many instances of the application must be upgraded, and often customizations have to be reapplied to each."

SpringCM is moving forward with a number of modifications that will be incorporated into its product as they become available. The current version of SpringCM has basic workflow for approval processes, but the next version will have a full business process management (BPM) engine. Viewing and markup capability for CAD files are also planned. A more extensive records management (RM) solution is on the SpringCM roadmap for next year.

"Knowledge management does not exist in a vacuum," emphasizes Carmel. "Organizations turn to it because they have a problem to solve. By combining document management, search, capture and business process management in a single platform, SpringCM tightly links knowledge management to business processes. SaaS is a very effective model for doing this."

Because the software is not installed at the user site, it is easy for a prospective customer to "turn on" SpringCM and try it out. The organization can then see if the SpringCM suite improves productivity, enhances customer satisfaction or addresses whatever need the organization has identified. That method of test-driving is more difficult to accomplish with non-SaaS products.

Oracle On Demand

In April, Oracle added Oracle Business Intelligence Applications On Demand to its group of products available as SaaS offerings. The application runs on the Oracle BI platform and is managed by Oracle staff. The BI solution augments Oracle’s Siebel CRM On Demand and PeopleSoft Enterprise on Demand and J.D. Edwards' products as SaaS products.

Late last year, Oracle reported that its On Demand products were being used by 1.7 million workers at 2,200 companies. Oracle also announced that its On Demand revenue grew by nearly 50 percent in the first quarter of 2007. The company has indicated that it plans to expand its portfolio of On Demand offerings to enable integration across its various solutions. Oracle does not distinguish, in its published figures, between customers who use a one-to-one hosted service and those on a multitenant SaaS model, however.

Interesting to watch will be the developments from NetSuite, which is majority owned by Oracle CEO Larry Ellison and which filed a registration statement on July 2 for its initial public offering (IPO). As a self-described SaaS pioneer, NetSuite offers ERP, CRM and BI, as well as an e-commerce component. Aggressively priced at $499 per month plus $99 per user per month, NetSuite gives small companies a chance to have considerable functionality without large investment and maintenance costs.

The future

All indications are that the SaaS market will be very robust over the next five years. Nearly every major business function is now being offered in this model. Gartner estimates that the worldwide market for SaaS was $6.3 billion in 2006, and that it will grow to $19.3 billion by the end of 2011.

Although the initial impetus for SaaS was partly driven by the needs of small business, organizations of all sizes see advantages in the model. "We have said for a long time that the truth about SaaS is that many big companies like this approach," says Ben Pring, research VP at Gartner. "In fact, although 80 percent of the users are small businesses, 80 percent of the value received by providers is derived from big companies."

The most intense activity to date, according to Pring, has been in CRM, HR and procurement. Compliance is also a significant and growing market. Traditional KM applications such as ECM, BPM and BI remain a small percent of the total SaaS market, but are expected to share in the rapid growth of this sector as time goes on.