The Origin of SaaS

# The Origin of SaaS

SaaS, which stands for Software as a Service, is a software delivery model that allows users to access and use software applications over the internet, without the need to install or maintain any local hardware or software. SaaS is one of the main categories of cloud computing services, along with IaaS (Infrastructure as a Service) and PaaS (Platform as a Service).

## The History of SaaS

The history of SaaS is closely related to the history of enterprise software and the history of computing. The emergence and development of SaaS can be traced back to the 1960s, when the first generation of SaaS-like services appeared. The following sections will briefly introduce the main stages and events of SaaS history.

### The 1960s to the 1970s: The Commercialization of Software

– **Bundled Services**: In the 1960s, the third generation of computers emerged, using integrated circuits instead of vacuum tubes or transistors, which reduced the size and cost of computers significantly. However, computers were still too expensive and complex for most organizations and businesses to afford and operate. Therefore, the concept of time-sharing was introduced, which allowed multiple users to share the resources of a single computer through dumb terminals, which were devices that could only input and output characters. This way, users could use computers without actually owning them, which was more economical and efficient. According to some statistics, between 1964 and 1969, there were about 150 companies that provided time-sharing services, which was a booming market. At that time, accounting, payroll, and CRM software were the key products delivered by time-sharing services, but the software was still bundled with the hardware as a service.
– **Independent Products**: During this period, IBM, which had a dominant market share by offering bundled services (selling hardware and giving software for free), was challenged by the US government and its competitors for antitrust violations. As a result, in 1969, IBM decided to unbundle its software and services from its hardware sales. Overnight, software became a separate commercial product with its own price. This was a historic step for the commercialization of software.

### The 1980s to the 1990s: The Incubation and Birth of SaaS

– **Personal Computers Changed Enterprises**: With the advancement of technology, computers became smaller and cheaper, and personal computers were born. In 1977, personal computers such as Commodore PET, Apple II, and TRS-80 were launched, and computers started to enter the homes and lives of individuals. Later, IBM and other mainframe suppliers entered the PC (personal computer) market. IBM launched its personal computer model 5150 in 1981, which quickly gained popularity in the enterprise market, leveraging its years of success in that field. Companies began to equip their employees with computers that had independent hard disk drives, which could install local applications, and the demand for time-sharing services gradually disappeared. Meanwhile, the client-server architecture and the local area network (LAN) developed, which enabled enterprises to centrally store and manage key applications and databases, and employees could access and use them through the LAN.
– **Internet Technology Provided Support**: In the late 1990s, the internet boom occurred, and network technology (TCP/IP) was widely adopted, which made it possible to access and use applications and data through the internet. Around 2000, virtualization technology matured, which laid the foundation for the emergence of cloud computing.
– **The Market Opportunity Given by Traditional Software**: At that time, software vendors sold software through software licenses. Customers had to pay not only for the software itself, but also for training, maintenance, support, and updates. In his book “Behind the Cloud”, Marc Benioff mentioned that in the 1990s, 200 people using a low-end product would cost $1.8 million in the first year. Such high prices provided a market opportunity for the SaaS model, which sold software as a service, based on the number of users and the usage time, and only required an internet connection to access and use the software.
– **SaaS Vendors Emerged**: In the late 1990s, SaaS emerged. NetSuite was founded in 1998, providing web-hosted accounting software. Salesforce was founded in 1999, providing customer relationship management (CRM) SaaS services. Intacct was founded in 1999, providing cloud-based accounting applications.

### ASP Failed, SaaS Thrived

At the same time as SaaS, ASP (Application Service Provider) was also born. ASP was often considered as the predecessor of SaaS, and they had the following similarities:

– The software was stored by the service provider.
– The service provider provided maintenance.
– The software was delivered through the network.

However, ASP and SaaS had some essential differences, mainly in the following three aspects:

– **Hosting Third-Party vs. Managing Own Software**: ASP focused on managing and hosting third-party software (traditional software with client-server architecture), and enterprises used the products through remote access tools or web browsers. SaaS, on the other hand, managed its own software, and provided maintenance and upgrades. Enterprises only needed to subscribe, and access and use the software through the internet.
– **Single-Tenant vs. Multi-Tenant**: ASP used a single-tenant model, which required maintaining a separate application for each enterprise customer. SaaS, on the other hand, used a multi-tenant model, which provided service to multiple enterprise customers with the same application.
– **Non-Scalable vs. Scalable**: ASP needed to manually set up servers and applications, and could not achieve scalability. SaaS, on the other hand, fully utilized the virtualization technology and the scalability of the cloud, and all settings could be done through self-service.

In the end, ASP failed, while SaaS continued to thrive. This also reflected the future of software services from another perspective, which was to develop towards scalable cloud computing.

### The 21st Century: The Era of SaaS

– **Salesforce**: Salesforce is a key player in the history of SaaS. It initially provided CRM software services, and now provides comprehensive services such as Sales Cloud, Service Cloud, Community Cloud, etc. Salesforce was founded in 1999 with the SaaS concept. The founder, Benioff, realized the problems of enterprise software and predicted that the development of the internet would bring changes to the business field. He believed that business software would evolve in a new direction, becoming as convenient and easy to use as Amazon, without the need for complex installation, maintenance, and updates. Software would become a service, paid by the number of users and the usage time, and accessible and usable through the internet. This is what we call the SaaS model today. Salesforce went public in 2004, and now has a market value of $180 billion, making it one of the most valuable cloud computing companies in the world.
– **Concur**: Concur is an online expense and travel management application, which is known as the first SaaS company. Unlike Salesforce, Concur did not adopt the SaaS model from the beginning when it was founded in 1993. Concur initially sold paid software floppy disks and CDs through computer software stores, and then changed its business model to sell software licenses directly to enterprises. Through this business model, the company went public in 1998. Soon after, it experienced the internet bubble of 2001, and its market value fell from $1 billion after the IPO to $8 million. After the company fell into trouble, Concur changed its business model again and adopted the SaaS model, selling software services through the internet. In 2014, the company’s annual revenue exceeded $600 million, and it was sold to SAP for $8.3 billion, creating the largest SaaS acquisition case of that year. The business miracles of Salesforce and Concur also proved the success of the SaaS business model.

## The Conclusion

SaaS is a software delivery model that allows users to access and use software applications over the internet, without the need to install or maintain any local hardware or software. The history of SaaS is closely related to the history of enterprise software and the history of computing. The emergence and development of SaaS can be traced back to the 1960s, when the first generation of SaaS-like services appeared. The following stages and events of SaaS history can be summarized as follows:

– The 1960s to the 1970s: The commercialization of software, from bundled services to independent products.
– The 1980s to the 1990s: The incubation and birth of SaaS, influenced by personal computers, internet technology, and the market opportunity given by traditional software.
– ASP failed, SaaS thrived, showing the difference and advantage of SaaS over ASP.
– The 21st century: The era of SaaS, with Salesforce and Concur as the representative examples of SaaS success.

SaaS is the result of the joint development of computing, internet technology, and market demand. SaaS has become more and more popular and prevalent in the software market, as it provides users with more value, quality, and convenience.

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