As Amy Konary from IDC pointed out last week in the "SaaS Reference Model for Software Vendors" webinar, SaaS is relevant within the vast majority of enterprise software categories including ERP, CRM, SCM and Business Intelligence. IDC also stated last month that SaaS Revenue in 2004 was over $4 Billion.

The most popular answer to Sandhill's pulse poll asking, "How fast will software-as-a-service take over as the most popular method of pricing software" was 1-2 years.

The reality is that we have come a long way since the initial incarnation of SaaS but there is still plenty of room for improvement and ISVs and consumers need to be better educated on this new software delivery method. Jamcracker created the SaaS Reference Model because no framework existed describing all of the required functional areas and business processes for ISVs transitioning from a traditional software model to SaaS. I would like to reiterate a couple of key issues that will help the SaaS model develop even further.

ISVs need to take into account that it is not an all or nothing proposition when delivering SaaS. Most ISV's believe that you have either a multi-tenant application in which all of your customers leverage the same single instance of software, or a single-tenant application in which a dedicated instance of software is needed for each new customer. What most don't realize is there is an incremental step whereby a multi-tenant administrative environment can manage the time consuming and expensive business processes around managing users and services. This step allows software companies to receive the benefits of economies of scale in advance of re-architecting their applications.

ISVs need to figure out the role of the channel within the SaaS model. The traditional model of ISV selling software and systems integrators implementing software is changing. Channel partners, including systems integrators and value added resellers, are already beginning to build service provider practices. The SaaS success stories receiving most of the press today are horizontal plays such as Salesforce and Netsuite, but the real winners will be the vertical service providers that can aggregate solutions from multiple ISV's and add vertical expertise and managed services.

The benefits of the SaaS model to the end consumer most often discussed include more palatable pricing models and less reliance on internal IT. The major knocks on the model are security issues and an inability to customize. Technology improvements on the security front and more customization options if the customer is willing to pay for it have lessened the significance of these issues.

I believe the most important benefit that SaaS provides consumers is flexible consumption. The pricing can be pay as you go, subscription or based on some other value-based metric. Going forward ISVs need to be able to transition customers between pricing models as there needs change for instance move from perpetual to subscription. Likewise, on the delivery side customers should be able to flexibly change there delivery model from managed to in-house and vice versa easily.

K.B. Chandrasekhar is chairman & CEO of Jamcracker. Visit www.jamcracker.com for more information.