The phenomenon of software as a service (SaaS) has changed the way organisations access their applications, as more and more users deploy hosted software delivered direct to a web browser.
The range of applications and services available over public and private networks has also mushroomed as networks have grown more robust and reliable.
As a result, SaaS is being used for many types of applications. E-mail is probably the biggest growth area analyst Gartner even believes that e-mail is leading the way for the mainstream adoption of SaaS, which it views as coming under the banner of cloud computing.
Gartner has predicted that the percentage of commercial mailboxes using a SaaS model will grow from 1% of enterprise seats in 2007 to 20% in 2012. The expansion will be driven by falling prices and new e-mail service providers, which will include established software suppliers.
Matthew Cain, research vice-president at Gartner, says, "Events during the past year have created the conditions for the rapid growth of the cloud delivery model for enterprise e-mail, with companies such as Google, Yahoo, Dell and Microsoft all making major investments in cloud computing."
Analyst Bob Tarzey, service director at Quocirca, says that the e-mail management sector contains a host of specialists providing hosted Microsoft Exchange services as well as webmail offerings such as Google Mail.
"Webmail is increasingly seen as a viable option for business, and Google's seriousness in this area can be gauged through its acquisition of Postini last year, one of the main SaaS-based e-mail security vendors," he says.
Tarzey adds that the other big SaaS-based e-mail security vendors are MessageLabs and FrontBridge (now owned by Microsoft).
But Cain predicts that traditional e-mail SaaS suppliers will come under tremendous price pressure from "mega-scale vendors", which will mean more end-users with under 1,000 seats gaining from the lower-cost cloud approach.
When it comes to enterprise security, organisations can now put together whole security stacks based on SaaS.
For example, they could use managed virtual private network (VPN) services from a provider such as Asavie or a telco like BT, Thus or Orange. Web and e-mail filtering and e-mail archiving can come from the likes of E-mail Systems or ScanSafe intrusion detection and vulnerability testing from Qualys or Plynt and laptop disk encryption from the likes of AlertSec. A managed, strong two-factor authentication service is available from suppliers such as Signify, whose service is based on RSA's SecurID.
Helpdesk and backup are also popular SaaS applications, and many organisations are even using hosted supply chain, accounting and business management software - areas once dominated by monolithic in-house applications.
Craig Roth, vice-president and service director at Burton Group, recently carried out a study of 318 North American SaaS users across a range of industries.
He says that improvements in rich internet applications, and faster and more ubiquitous internet connections, have allowed SaaS to be applied to "practically any application category".
Roth notes that Salesforce.com, one of the pioneering SaaS suppliers, has proved the success of the SaaS model with highly complex, customised systems that can deal with sensitive data.
Applications such as Google Apps have also demonstrated that highly interactive applications, such as word processors and spreadsheets, can be delivered through SaaS.
Roth says, "Web conferencing is the most common SaaS in enterprise use, which is not surprising since it was historically rooted in a SaaS model and involves less information security risk and integration.
"The human resources SaaS category [HR, benefits, payroll, and recruitment] is also popular for enterprise-wide usage. SaaS e-mail is more likely to enjoy enterprise use in small organisations.
"I believe that ERP, blogs, wikis, e-commerce, and enterprise content management are set to double SaaS usage in the next two years. In each of these categories about as many respondents indicated they were likely to adopt them as SaaS in the next 24 months as were already currently using SaaS."
Other areas where SaaS has taken hold include web conferencing, with services such as WebEx (now part of Cisco), Microsoft Live Meeting and Citrix Online GoToMeeting.
Citrix Online also has system management tools such as GoToMy PC and GoToAssist, which are all 100% SaaS, says Tarzey.
Manchester Council is a GoToAssist user, and Vince Slatford, the council's management information systems support manager, says it has cut the cost of providing IT support to 170 schools and learning centres by 60%. The council's 15-strong support team can maintain and manage IT systems via a secure internet connection, which saves more than 70 hours of staff travel time per month.
However, Tarzy says that in Europe Citrix is being challenged by Europe-based SaaS supplier NTR Global. The company's NTR Support and NTR Admin are also 100% SaaS system management tools.
"The big advantage here is the ease of remote management but also the creation of communities that pool information for solving problems," he says.
Supply chain management is a sweet spot for SaaS, with services from online service pure-plays such as WeSupply and Ariba. GXS and Kewill are also moving into the supply chain Saas market.
Software supplier Oilspace provides applications to oil giant TNK-BP. It says there is a busy and growing market for SaaS applications in the oil and energy industries, specifically in the supply chain, business management and trade and risk management parts of the business.
According to Oilspace, systems such as trade and risk management underpin the oil industry but have traditionally been complex and costly, and have not worked well in a distributed environment.
However, a new generation of SaaS-based dealing applications is emerging, which offers the lower costs and flexibility of online hosted software.
One such application is Oilspace's web-based TradeFlo system, which carries out back-end intelligence, data processing and storage at a protected central site, and gives authorised traders and managers secure access through a desktop or mobile browser.
Among companies to have adopted TradeFlo are London-based trading house Bronwen Energy and international trader Ovlas Trading.
Another growing SaaS sweet spot is application testing, says Bola Rotibi, principal analyst at Macehiter Ward-Dutton.
She says the attraction of SaaS is twofold: applications come from lower-cost cloud computing (which offers internet-based SaaS) and can be harnessed to powerful and time-saving grid computing (which uses multiple connected servers). Organisations can therefore effectively ramp up their processing capabilities by harnessing additional IT resources over the web on demand.
"Online development services offer organisations the ability to create virtual servers that can be used for additional processing power to develop and deploy a software stack," says Rotibi. "They can then run and test their applications on this for whatever purpose, and after prototyping them, bring them back on the premises."
Rotibi adds that users are getting more comfortable and confident with the technology, and have fewer fears about security and losing their data to a third party. "You just have to look at Salesforce signing the megadeal with Merrill Lynch last year to see that."
One application developed using the cloud computing model - and which is also available itself as SaaS - could point towards the future of SaaS.
The software, from Coda, is one of the first SaaS accounting systems built on Salesforce.com's Platform as a Service (Force.com) application framework. The online accounting service integrates with Salesforce.com and Google Apps, and can be deployed to desktop and mobile clients.
Even more interestingly, the online accounting suite was developed by a team of nine engineers in just six months, which is two years earlier than planned.
Coda attributes the speed of development to its use of the cloud computing model rather than the traditional onsite model.
The Google factor
It is hard to talk about Saas and cloud computing without looking at Google. Google has attracted many enterprises and individuals to its e-mail and search services, but its ambitions go much further.
Google Apps Premier Edition is a set of SaaS services for enterprises that offers communication, collaboration and office productivity tools over the web.
The Telegraph Media Group recently signed a deal to implement Google Apps as a key part of its plan to move towards cloud computing. The move will let Telegraph journalists and commercial staff access e-mail, documents, diaries and other information from anywhere in the world and on any device with an internet connection.
Another user, construction and engineering company Taylor Woodrow, recently transferred all 1,800 employees to Google Apps.
The company set up a Google Site to host online training documentation and videos for employees to familiarise themselves with Google Apps.
The applications Taylor Woodrow have deployed include Google Mail, Google Docs (documents, spreadsheets and presentations), Google Calendar, Google Sites and Google Talk. The company also uses Google Message Discovery for e-mail security, content policy management, discovery, and archiving services. It has been using the Google Search Appliance for over two years, to manage search and retrieve documents on its intranet.
Taylor Woodrow says it moved to Google Apps because it offered flexible and mobile communications. The hosted nature of the technology, and the inclusion of phone, e-mail and web support in the package has also saved the company around £1m.
As well as cutting the cost of running front-office applications, SaaS can also cut the cost of deploying back-office and supply chain applications.
It is not clear where Google will go next. What does seem very likely, however, is that IT directors will be making more use of Saas, particularly for hosting e-mail and e-mail/web security. Beyond these killer application areas, the take-up will depend on suppliers offering innovative services that businesses are unwilling to build themselves.
This was first published in September 2008