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Saas Vs ASP

There is a significant confusion on the acronyms SaaS (Software-as-a-Service) and ASP (Applications Service Provider). David Terrar, Managing Director of D2C and Twinfield UK attempts to resolve this issue once and for all.

When it comes to definitions, the first place I usually look at is Wikipedia. Here is its definition:

Software as a Service (SaaS) is a model of software delivery where the software company provides maintenance, daily technical operation, and support for the software provided to their client. SaaS is a model of software delivery rather than a market segment; software can be delivered using this method to any market segment including home consumers, small business, medium and large business. The key characteristics of SaaS software, include:

  • network-based access to, and management of, commercially available (i.e., not custom) software
  • activities that are managed from central locations rather than at each customer’s site, enabling customers to access applications remotely via the Web
  • application delivery that typically is closer to a one-to-many model (single instance, multi-tenant architecture) than to a one-to-one model, including

There are two types of SaaS providers. The first has often been referred to as an Application service provider (ASP) where a customer purchases and brings to a hosting company a copy of software, or the hosting company offers widely available software for use by customers, such as hosting Microsoft Office and making that available across the web to customer who pay a fee per month for access to the software. The second type of SaaS provider offers what is often called software on-demand, where a company offers to customers software specifically built for one-to-many hosting. This means that one copy of the software is installed for use by many companies who access the software across the web.

In the first type of provider, a licensing fee and a monthly fee are separate and are paid to the maker of the software and to the host of the software. With the second type of hosting there is no division between licensing and hosting fees, and there is little or no customization of software for customers.

The reason for moving away from the term ASP or Application service provider is that the ASP generation was merely traditional client-server applications with HTML front-ends added as an afterthought. These applications were hosted by third-parties who ordinarily did not have application expertise, but were managed servers. Because the applications were not written as net-native applications, performance was poor and application updates were no better than self managed applications. By comparison, current net-native SaaS applications or independent portions are updated regularly, many daily.

This gradual shift in the terminologies also is a direct reflection of the change in the business requirements demanded by clients. The focus in SaaS is more on what the customer wants rather than what the vendor could give as was the case in an ASP.

I fully agree with above. And it is very clear and concludes that ASP and software on-demand both falls into the category of SaaS. Today, SaaS providers include: ebdex, NetSuite, RightNow Technologies,, Twinfield Winweb and the list is growing

Let’s look at what David has to say:

Software as a Service (SaaS), Application Service Provider (ASP), On-Demand applications, are all variants of hosted or managed services. What they all have in common is that the end user has access to applications through a web browser and an Internet connection, and somebody else is taking on the headache of IT management.  However, ASP generally refers to the company managing the software – they could be providing managed applications, or they could take over the management of existing traditional software. They often use an extra layer of software (such as CITRIX) to “web enable” traditional Windows or Client/Server software.

There are two key differences between ASP and SaaS. First, the better providers have architected their solutions from scratch for Internet access, and so they are easier to use, more scalable, and provide better performance. The second is that their whole business model is based round a utility style, “pay as you go”, subscription approach, whereas the ASP provider still has to licence traditional software and middleware, which means they will usually be more expensive and though they charge monthly, they make the customer commit to a 3 to 5 year contract.  The difference in business approach is fundamental, and covers all aspects from the way you commission and pay your sales force, through the way the way you provide support, and develop the product.  SaaS providers are used to a much shorter release cycle – monthly or even weekly compared to the traditional software provided by an ASP, which will typically be 12 to 18 months between new versions. 

Importantly, because the SaaS provider is “pay as you go” they have to focus on customer service because the customer isn’t tied in and could easily take their data and switch to another provider – the vendor takes the risk.  This is very different to ASP or traditional software, where the risk is balanced towards the customer because they pay up front, or sign a long contract.  This is the difference between the likes of Twinfield, or NetSuite compared to companies like Online50 or other ASPs.

The difference is that David does not combine ASP and on-demand applications into SaaS as done so by Wikipedia. So who is correct? I think we need to look at "on-demand applications" before a conclusion can be drawn. Unfortunately Wikipedia does not have sufficient information to drag a definition into here. As one can expect, these three topics will be debated for years to come. At least above should give some clear understandings to ASP and SaaS if anyone is vaguely interested in the subject.

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