The birth and growth of SaaS

Over the last few months I’ve been using a variety SaaS based applications, some for data analysis (www.sisense.com), some for connecting (www.LinkedIn.com) but others to simplify my working life (www.pyrus.com). By far one of my favourite SaaS platforms is x.ai (www.x.ai). It’s a calendar scheduling tool that automatically finds times to connect you and other parties, and avoids the constant back and forth of calendar negotiations. I think in the first month alone it saved me hours and they’ve integrated it with workflows to make it intuitive to use. 2021 has continued their prior year’s growth with a near-doubling of Monthly Recurring Revenue – perhaps not surprising then that it was bought by Bizzabo (www.bizzabo.com) – the SaaS platform for virtual events – in June this year. Regrettably, I wasn’t a shareholder!

A short history lesson…

While the ubiquity of SaaS based platforms is relatively new (last five years in particular), its origins can be traced back to the 1960 when IBM and other mainframe providers used centralized hosting of business applications and provided them as a service bureau business, often referred to as time-sharing or utility computing.

The expansion of the Internet during the 1990s brought about a new class of centralized computing, called application service providers (ASP). ASPs provided businesses with the service of hosting and managing specialized business applications, to reduce costs through central administration and the solution provider’s specialization in a particular business application. Software as a Service essentially extends the idea of the ASP model. 

Adoption of SaaS

When people think about the first software-as-a-service (SaaS) startup, typically Salesforce comes to mind. But while Salesforce began as a SaaS, other early SaaS software started on the floppy disks and CD-ROMs of the pre-internet time, but then several important changes to the software market and technology landscape have facilitated the acceptance and growth of SaaS solutions:

  • Slimming down: The growing use of web-based user interfaces continuously decreased the need for traditional client-server applications. Consequently, investment in software based on ‘fat clients’ was a disadvantage (support costs for one).
  • Web Dev: The standardization of web page technologies (HTMLJavaScriptCSS), the increasing popularity of web development as a practice, and the ubiquity of web application frameworks like Ruby on Rails reduced the cost of developing new SaaS solutions.
  • Internet everywhere: The increasing penetration of broadband Internet access enabled remote centrally hosted applications to offer speed comparable to on-premises software – which has only gotten cheaper.
  • Security: The standardization of the HTTPS protocol as part of the web stack provided universally available lightweight security that is sufficient for most everyday applications. Netscape Navigator, in October 1994, introduced the Secure Sockets Layer (SSL) protocol, enabling encrypted transmission of data over the internet so – for example, people could shop online without fear of losing their data. That opened up the world of ecommerce. 
  • Integration protocols: The introduction and wide acceptance of lightweight integration protocols such as REST enabled affordable integration between SaaS applications (in the cloud).  (source Wiki)

Rise in popularity of SaaS

In the 2000’s SaaS models were thought to be only for small businesses as they were slow or unreliable. As the internet became ubiquitous, faster and cheaper, it started to become increasingly viable for enterprises. The chart below shows what while growth is slowing, it’s now an industry worth over £120 billion. 

Benefits of SaaS

In the SaaS model, the provider gives customers access to a single copy of an application and the source code is the same for all users, and any additional features or updates are immediately deployed to all customers. Despite this, a user can still customise the application for their own needs (within the constraints of the code). 

The benefits of SaaS are that it removes the need for businesses to develop, install or run applications in their own datacentres, and in so doing can remove the associated staffing, hardware, provisioning, maintenance and security costs. They are often subscription-based pricing models, meaning you can pay for what you use and move to another provider when needed. SaaS-based applications can be used on multiple devices i.e., mobile phones, with a single login, anywhere in the world. As a result, adoption of SaaS is growing both in sectors covered – from retail to healthcare, and subscribers from small to multi-national organisations.

How it works

SaaS works through cloud delivery. As a software provider – say Salesforce – will either host the application and data using its own infrastructure (servers, databases, networking etc.) or outsource that to a cloud hosting provider, sometimes a combination of both – a so-called hybrid cloud model. As a user or subscriber to the SaaS software, you would access it via a web browser. The advantage is you can use the service without having to enter into a software purchase and have to maintain the ‘kit’ on your own premises. 

SaaS – integration

Often SaaS applications interface with other software and workflow tools within a client – for example, the open-sourced e-commerce platform Magento (www.magento.com) has modules that could be quickly implemented, but could then be customised with other software using application programming interfaces (API’s). 

SaaS Architecture

SaaS architecture is gaining popularity because it doesn’t require developing an app from scratch and then maintaining it. You may choose to develop a SaaS platform yourself, but we will come on to this in another blog post. 

Most SaaS platforms are what is termed as ‘multi-tenant’. This means that a single instance of a software application serves multiple customers.  While all customers will run on a single version of the software infrastructure platform, a customer can subscribe to different pricing and usage plans and data from different customers will be segregated.  This is achieved either through separate databases or one database that displays adequate information to particular users. It also infers a level of security as the infrastructure is shared. There are a number of flavours of multi-tenacy architectures ranging from isolated tenancy – where none of the layers in the platform are shared among the tenants to shared tenancy – where the infrastructure, databased and applications are shared, but each tenant in the database are separate. 

Security of SaaS

Any organisation looking to move to a SaaS based platform needs to think through the cybersecurity risks which differ from traditionally deployed software. Security covers access management, physical data centre security, passwords, data encryption, guardrails (automated mechanisms to enforce policy requirements. This will be covered in a separate blog – but needless to say, it’s important and expensive – especially if you get breached. 

In this series I’ll be covering:

  • How to integrate SaaS into your business – with a few case studies
  • How to move your product to a SaaS Platform if you’re not already there yet
  • The technology underpinning SaaS – cloud and beyond
  • How to manage the data integration challenge
  • Building in security – where and how
  • Key insights for scaling SaaS platforms

I’m always looking for good insights and case studies, so please feel free to get in touch.

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