SaaS Versus Hosted Apps

When evaluating software offerings from so-called cloud vendors, it?s critical to understand the architectural differences between hosted software and true software as a service (SaaS) applications. System architecture, and the process supporting it, can enhance or detract from the quality of service you?re likely to receive and significantly affect its cost. Some experts claim it may even determine the long-term business viability of your prospective provider.

Hosted software is just that: It?s substantially the same as an application you might run on your own infrastructure, but it?s instanced on a server in a third-party data center. Most first-generation offerings from application service providers followed this model, and many solutions still do. The instance-hosted architecture is a stage many vendors arrive at as they try to adapt complex standalone applications to the Internet?and to new payment models.

Instance-hosted applications can, if managed properly, exploit certain economies of scale to function better in an on-demand framework (server virtualization, for example). However, the math tends to break down as scales increase, products evolve, and individual customer configurations become more complex and unique.


Changes and upgrades must be patched on numerous servers running in parallel. Fault-resilient infrastructure options, like clustering, are harder and less advantageous to apply. Often, the tools used to maintain, configure and manage such applications are only slightly more powerful than those used to drive a single user version, thus offering little self-configuration ability to the customer.

True SaaS applications, in contrast, are multitenant at core, serving many customers on a single software instance and database infrastructure. Applications designed this way are far easier to scale on more robust platforms, far easier to manage by the host, and easier to make self-configurable by customers. All other things being equal, this combination should make SaaS applications more affordable and, ultimately, higher margin.

In a May article published by the Human Resources Outsourcing Association, HR information systems consultant Naomi Bloom noted that instanced hosted software models were at the root of the financial failures of several first-generation hosted HR information systems vendors. According to Bloom, customers who invest in products based on this model may be risking ?signing up with a vendor that isn?t going to be successful.?

While CIOs typically understand the issues, Bloom warns that some vendors are obscuring the facts in the hope of closing a deal.

?When soliciting competing quotes for our prospective SaaS-based Association Management System implementation, several vendors that described themselves as SaaS providers turned out to be selling an old-school hosted app,? says Risk and Insurance Management Society CIO Andy Steggles. ?A few were happy to finesse the truth until I asked them pointed questions.?

The lesson here? Buyer beware.