A look at the history of SaaS

August 10, 2009
Salt Lake City, UT

In the late 90's when NetDocuments was founded, we were one of the worlds first SaaS companies and have since witnessed first hand the evolution of the SaaS market. Recently, Service-Now.com released a white paper titled, "A Brief History of SaaS," and I found it very accurate and informative.

The white paper begins by discussing where traditional boxed software comes up short and how this created the need for SaaS:

"Organizations soon find that while traditional software can be customized, it often leads to version-lock and the inability to preserve changes through an upgrade. Simple upgrades become costly, [and] shrink-wrapped software can't realistically support the specific needs of today's modern enterprise."

In this testimonial from new NetDocuments customer Ward and Smith P.A., their CIO Chris Romano expresses this same sentiment when his law firm was faced with the task of an expensive software upgrade.

The next step in understanding the history of SaaS is understanding the difference between ASPs (Application Service Providers) and true SaaS offerings. In the late nineties during the tech bubble, ASPs were becoming very popular but ultimately, the ASP model failed:

"ASPs [were] brokers of legacy software that businesses didn't want to own or manage themselves. Each ASP would be responsible for buying and maintaining the client/server software, and making it available to customers from data centers owned and operated by the ASPs...[but] because of the inherent limitations of traditional software, the ASPs eventually failed."

With the decline of ASPs, a new way to deliver software emerged and that was SaaS. Over the last 10 years, we have seen the market for SaaS products grow at an ever increasing rate, and we only expect the growth of SaaS to continue. With this growth, many legacy software companies are trying to mold their existing products into SaaS offerings. This issue is accurately addressed in "A Brief History of SaaS:"

"Traditional software vendors have numerous barriers to entry to the SaaS market. Old technology cannot morph into SaaS. A SaaS application needs to be built from scratch using modern Web technologies. Legacy vendors also have to deal with organizational challenges that include converting to a subscription license model, retraining sales and fulfilling a new compensation, disruptions to revenue streams and stock valuations, and converting customers who are using the old technology."

Although the history of SaaS is relatively short, it has made a significant impact on computing over the past decade and we believe that it has a very important role in continuing to define how computing is done now, and over the next decade as well.