Known as Software as a Service (SaaS), the new model changes the way programs are delivered to end users. Traditionally, software was sold in much the way cars were: You bought a prod­uct, got a manual, and took responsibility yourself for making sure everything ran smoothly and was properly maintained. Often, you’d go out and hire someone (or even a team) to help. This could get time-consuming and costly. What SaaS does is give you the product but not the frustration. It does this by keeping the physical soft­ware-along with the burden for running, updating, and maintaining it-with the vendor. Users simply access the software through a web browser and Internet connec­tion. Typically they pay a monthly subscription fee.

When updates or software patches are released, it’s the vendor-and no longer the customer-that installs them. In short, you get the benefits of sophisticated software without the headaches of sophisticated software.

Software as a service lets large companies deploy applications more efficiently and smaller companies deploy them at all. Little wonder, then, that SaaS reve­nues are booming. Also helping drive the SaaS market is its embrace by a growing number of well-known traditional software companies, most notably Microsoft, which released a set of Internet-based business services called Microsoft Office 365. Such initiatives by the industry’s marquee names have spread the word about the bene­fits of SaaS. When Microsoft announced offerings, it really showed the viability of the delivery model.

For traditional software companies, SaaS is a way to give existing customers easier access to their products, as well as reach new customers. What we’re seeing is a trend that will not reverse. For years, companies have been trying to figure out how to provide enterprise-class software to small and midsize customers. On Demand is the magic bullet. Indeed, startup software companies are bypassing the old sell-a-disk-and-a­license model altogether. In the venture capital com­munity, if you’re not On Demand, you’re not getting funded.

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