One of the hot growth and spending areas surrounding BI and other information technologies is software as a service, or SaaS. There are goods reasons for companies to pursue this option for application and infrastructure services. Certain beneficial projects requiring customized applications are not well served by packaged software. Other projects are beyond the scope of internal resources to create. Perhaps most important, certain applications and services, while they may be important to customer service or revenue enhancement, do not fall into the realm of a core business competency. In other words, if you have a worthy idea, but the creation of the program doesn't directly differentiate your company competitively, there's a reason to consider procuring a service instead. But SaaS is still a confusing concept to many people, partially because it's being marketed from so many different angles. The research folks at IDC are generally good at sorting this kind of thing out, so I spent some time with research analyst Erin Traudt to get a handle on software as a service. IDC defines SaaS as "ongoing support of applications whose core value to the customer pertains to alleviating the maintenance and daily technical operation and support of business and consumer software." Key characteristics of software delivered as a service include network access and management activities managed from a central location rather than at a customer site - and a one to many - rather than one-to-one - delivery model (including pricing and management). In other words, it's not so much the variety of applications as they way they are managed and distributed.

"We consider software as a service first and foremost as a delivery model," says Traudt. "We don't consider it a discrete market as you would with CRM or ERP or any functional software market. Rather, we view it horizontally and concentrate on the business strategies that SaaS providers are employing with their service delivery methods." For convenience sake, IDC divides SaaS into two camps: software on demand (e.g., Salesforce.com), a one to many, subscription based collection of configurable applications without customized code; and hosted application management, a newer term for what we used to call ASPs or application service providers. The latter group is typified by on-premise licensing, highly customized applications and more of a one-to-one relationship with the customer.

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