Software as a Service has come a long way since its inception in the 1960s. This article will explore software as a service history — its origins and its growth over time. We’ll also examine some of the factors behind SaaS’s adoption. We’ll also speculate about the future direction of SaaS.
Software as a service record
Software as a service is fascinating. It has been around for 40 years. SaaS refers to a business model where customers pay for software hosted on remote computers.
SaaS is often used interchangeably with “cloud computing” today.
SaaS was introduced to the world with the 1960s computers. SaaS is more popular than ever because of the internet and global communication technologies.
What is the history behind Software as a service? Learn more about SaaS today.
What is Software as a Service?
Before we get into the history and evolution SaaS, let us first define what SaaS is. SaaS can be described as a broad term that can mean many things. SaaS can be synonymous with cloud computing. It can be used interchangeably to refer to infrastructure, platform, and desktop services (IaaS), mobile backend, and managed software-as-services (MSaaS). These terms are part the general nomenclature of cloud computing.
Customer relationship management software (CRM), is the most popular SaaS type today. Other popular SaaS platforms are office and messaging, payroll processing and accounting software.
What is the difference between SaaS and traditional software? As a SaaS customer, your data is transferred to the SaaS provider over a network (like the internet). The application is hosted elsewhere and is not stored on your computer. Your data is sent directly to the provider. The provider will then send all app-related information to your computer via the internet.
Now that we have defined SaaS, we can talk about where SaaS actually started.
SaaS has been a well-established business model since the 1960s
Computers were large and expensive in the 1960s. Computers were prohibitively expensive and unaffordable for small and medium-sized companies. Software was created as a service industry.
The 1960s model that we now call “cloud computing” or “SaaS” was originally known as a “time sharing” system.
This system used multiple “dumb terminals”, which were keyboards or monitors without CPUs. They were connected to a mainframe/mini-computer using a hub-and spoke system. All data and applications were kept on the mainframe.
To use the system, you must input data via the terminal keyboard. Then, output was sent from the mainframe/mini-computer to the appropriate terminal monitor. It was an early way to connect computers together, which we now call the “internet”.
This system allows small and medium-sized businesses, educational institutions, government agencies, and other organizations to have access to modern computer systems at a very low cost. These organizations couldn’t afford to purchase computer hardware, customer support or training, so they turned to SaaS in order to keep their businesses competitive.
This type of SaaS was used in the 1970s and 1980s. Despite the decreasing cost and size of computers, many businesses still consider SaaS more cost-effective.
SaaS systems were used for key products like CRM, payroll, accounting, and other services. The system required a dedicated telephone line and modem to send data to clients. The interfaces were simple and text-based. It was rare to need larger files because all data was sent as text.
Computers in the 1980s & 1990s: The Shrinking Price of Computers
Due to the declining cost of computers, the SaaS market would change. This shift was evident in the late 1980s, early 1990s.
Computers are now more affordable than ever in history. Computers were affordable to employees. Companies no longer have time-sharing systems that allow multiple employees to share one computer.
SaaS has not died. It has just evolved. The hub-and spoke model that was used in early SaaS systems is now Local Area Networks (LANs). These in-house systems ran applications on local machines while business data was stored on a central computer. These applications and data were available to employees who connected via the LAN. This is an early form of cloud computing.
How do you manage the Local Area Network (LAN)? Who manages it? Who grants and restricts privileges to users? Companies began to employ network managers to ensure smooth operation of their Local Area Network.
These managers were responsible for backing up important business data, maintaining desktop hardware, updating and installing new hardware throughout the company, and adding new hardware as it became available.
Larger companies began to have dedicated IT departments. Small and medium-sized businesses needed network managers who could play multiple roles, including teaching new employees how to use it.
LANs were a major money drain at that time. Many businesses struggled to manage the responsibilities of running a LAN.
Individual LAN managers weren’t always prepared for their jobs and many hadn’t received formal training. Businesses didn’t know how to budget for a manager of a LAN. Many LAN managers were underpaid, overworked, and not well-equipped to do their jobs.
SaaS is Increasing in Popularity Due to Bloatware
Bloatware is responsible in large part for today’s computer problems. Bloatware is responsible the popularity of SaaS.
In the early 1990s, office workers had their own computers. Companies no longer had to rely on remote-hosted apps.
This was a technique that software developers were able to use in the mid 1990s. They included “bloatware” in their software. When you installed a new program or an operating system, you would receive additional programs.
Bloatware is now commonplace. Many computers now come with additional programs or antivirus trials. MS Paint was considered bloatware in the mid 1990s.
What does bloatware have to do with SaaS? All this bloatware meant that hard drive space was becoming more crowded. Hard drive space was limited during this time. A 15MB hard drive cost $2495 USD. Computer users had all these programs, but no storage space.
SaaS was essential for businesses. By storing all business data in one central hub, businesses can avoid the high costs of physical hard drives.
Larger companies have difficulty accepting SaaS.
At the height of the Dot Com boom, the internet was widely accessible. Companies no longer needed to rely on LANs or “hubs” within their companies. Instead, companies began to realize the benefits of storing data offsite and then allowing access over the internet.
Companies often refer to it as the Application Service Provider Industry, rather than SaaS.
Companies were understandably concerned about allowing third-party storage of sensitive enterprise data and applications. Many companies were concerned about security and long-term security for startups. Why would you want all your enterprise data transferred to a company that was closing down in six month?
After the millennium, SaaS vendors gained popularity on the market. This was also the time CRM, payroll, accounting, and other software gained popularity. As subscription licensing models became more popular than single-use licenses, this trend continued.
SaaS vendors were showing consistent growth in revenue and customer base year after year by offering a subscription model. This trend continues today as SaaS software providers offer subscription-based models instead of single-use licenses.
Why ASPs failed while SaaS thrived
The ASP system has been widely criticized as a failure. Application Service Providers made many of the same promises as modern SaaS providers, but they failed to live up to their promises. These promises included:
Remote, fully-featured apps delivered via the Internet
SaaS apps were designed and delivered on their promises. This was the main difference between ASPs and SaaS apps. However, ASPs did not.
SmartBear.com provides a great explanation as to why this is so.
“Some of these reasons were technical. In the ASP model, vendors hosted many instances third-party client/server applications. SaaS allows providers the ability to create their own applications and manage multi-tenant infrastructure. This means that users have access to the same code but their own interfaces are kept separate. ”
SaaS makes full use technology features like virtualization and cloud-based scale. Modern virtual machines make it easy for customers to create new instances.
Virtualization is a new feature that we take for granted. However, it actually dates back as far as the 1960s mainframes. These mainframes were created to create a new server and application for each customer. This technology was so primitive, ASPs had to manually set up the server and application – the server couldn’t virtualize a new instance.
Another reason the ASP model failed is that it didn’t embrace scalability. ASP was destroyed due to economies of scale. Customers complained about slow speeds in early 2000s.
SmartBear.com cites Mi8, a long-deceased ASP that offered email and groupware services based on Lotus Notes. Mi8 was notoriously slow right before it closed: “As slow running a marathon with crutches.”
In any case, the demise ASP was a clear indicator of where the future of software services was heading: towards SaaS as well as the scalable worlds cloud computing and cloud service.
Salesforce: The Story
Salesforce is an integral part of the history of software as a services. Salesforce is the most widely used CRM tool in the world today. Salesforce is also one of the fastest-growing SaaS companies and one of the most successful.
Salesforce was the first SaaS platform to be built entirely from scratch, and it saw record growth. The company was founded by three entrepreneurs in March 1999. Unlike other SaaS companies, the company was founded March 1999. The company did not offer services, especially SaaS. After it tried CDROM distribution, it didn’t switch to SaaS services.
Salesforce was focused on multiple products: CRM, sales and service clouds and Force.com. Chatter, chatter and app exchange were also part of Salesforce’s focus. Configuration and web services were also included in Salesforce.
Salesforce would use emerging technologies from the early 2000s to increase SaaS revenue growth. In the 2000s, there was a boom in broadband, mobile internet security and browsers, as well as APIs. Salesforce became the industry leader it is today.
Salesforce is one of the largest cloud computing companies in the world today. Salesforce’s market capitalization exceeds $55 billion. The company has not earned a GAAP profit since its inception in 1999.
The Story of Concur, The First SaaS Company
Concur is often called the first SaaS company worldwide. Contrary to Salesforce, Concur was not established as a SaaS business. Concur was instead founded as a software company. Concur sold CD-ROMs, floppy disks with travel and expense software. You could find their products in computer hardware shops.
This sales model was used to make the company public in 1998. After the 2001 crash, the startup’s market capital was only $8 million.
The company became a pure SaaS business. Instead of selling only to computer hardware stores, the company offered its services online. This allowed them to expand their market to all users who have a browser.
In 2014, the company’s annual revenues exceeded $600million. This was 13 years ago, when the company was founded. They were later purchased by SAP for $8.3B. This was their largest SaaS acquisition.
Concur is also a milestone in the history of software as a service. It was one of the few SaaS companies that achieved both positive revenue and cash flow breakeven.
Tomasz Tunguz has written a wonderful article about Concur’s history and significance, as well as the reasons they played such an important role in SaaS history.
The Most Common Modern SaaS Applications
SaaS is now available in many industries. These companies can cater to many needs of organizations around the world. These are the most used SaaS applications.
- Customer Service/Support
- Human Resources/Talent Management
- Software Development/QA Testing
- Business Intelligence
- Governance, Risk & Compliance
- ERP/Manufacturing/Supply Chain
Where will Cloud Computing and SaaS go in the future?
SaaS has been around since the 1960s. It has survived many changes over the years. It is now bigger than ever.
Today, we are seeing growth in SaaS in all of the above categories. However, we’ve also seen growth in certain modern industries – like media and entertainment, social/collaboration, mobile/location, and big data/analytics service providers. These are the areas where SaaS will see the greatest growth over the next few decades.
Cloud computing, or SaaS? No matter what you call the industry, it isn’t slowing down – a lesson that has been repeated throughout software as a service history.
Software as a Service has come a long ways since its inception in the 1960s. This article explored Software as a Service history — its origins and its growth over time.
We also looked at some of the factors behind SaaS’s adoption and also speculated on its future direction.