The essence of software as a service is that, rather than buying 1,000 licenses for a shrink-wrapped PC application such as the sales-management program ACT, a firm would buy 1,000 subscriptions to an online service such as Salesforce.com. There are no disks, no packaging, and no installation. All the clever stuff, as well as the data storage, happens on the Salesforce.com servers in San Francisco or at a local data center. To use the application, subscribers need only a Web browser such as Internet Explorer or Firefox, both of which are free, running on a basic PC.
In theory, the advantages are many. Not least is avoiding the "built-in obsolescence" that comes with shrink-wrapped software--as soon as you've bought one version, a new one is released and you either pay to upgrade or get left behind. Under the SaaS model, every user gets the benefit of improvements in the software as they are released.
Another key advantage is mobility. If all you need to use your software is a browser, you can access it anywhere, from a PC in the office to a laptop in your car or an Internet café in Bogotá. Every time you log on, all your work is just as you left it. Finally, the costs are predictable and there is less need for expensive in-house IT support staff.
But there are drawbacks to SaaS. One is that you never own the software--your annual charge per user continues for as long as you use the software, and by the time you've added all the optional extra features, it can be hefty. You'll still be paying for your SaaS HR suite long after the shrink-wrapped equivalent is fully depreciated.
Source: News Factor, http://www.newsfactor.com