However, additional charges may be levied for more storage and bandwidth. SaaS revenue streams to vendors are usually less than traditional software licensing fees, but they do give providers a steady revenue stream.

Much has been made of SaaS' cost efficiency. According to Vinita Ananth, Hewlett-Packard's (HP) SaaS director for Asia-Pacific and Japan, SaaS appeals to organisations for its pay on-demand model, organisations do not have to worry about upfront information technology (IT) investment, maintenance and management, while enjoying faster and easier IT deployment.

'The variable cost model is more effective than a fixed cost and helps organisations in streamlining business processes, optimising efficiency and controlling costs,' she said. SaaS allows companies to lower their capital expenses and optimise their operational expenses.

David Hooper, Microsoft's local information business group head, also believes SaaS offers value for money. 'SaaS gives you near perfect availability 99 per cent of the time ... plus you get customer service because you know you can contact someone,' Hooper said.

As some businesses grow quickly, 'you can add users and scale your IT at the same time', he said. However, not all were not convinced that the total cost of ownership would be lower over a three- to five-year horizon, said Ananth.

'In our case, we are an established SaaS organisation with over nine years of experience, delivering IT management as a service. We are a profitable business and the SaaS model [shared environments, mutlitenancy, virtualisation, new generation data centres, automation] has certainly allowed us to lower our costs and hence provide our customers with solutions that show savings year over year,' Ananth said.

She estimated that HP customers usually saw 15 per cent to 40 per cent savings with the SaaS model.

Lauri Klaus, Epicor's executive vice-president for worldwide sales and marketing, thinks one reason why companies would consider SaaS over traditional onsite software is lower upfront costs. 'If you buy something for on-premises use, you have a higher start-up cost because you pay 100 per cent up front. With SaaS you just pay a monthly fee,' she said.

Hooper is bullish on SaaS because it's tailored to each user. At a standard level, small users can start at US$2 per month per user for enterprise class email. However, he does suggest that because of economies of scale, larger companies tend to save more using SaaS.

'It's more cost effective for a 15,000-20,000 person company because they can save up to 30 per cent on costs. The bigger the company, the bigger the savings,' Hooper said. He estimated such companies could save 25-50 per cent on their software costs by using SaaS.

According to Nigel Mendonca, MessageLabs regional director for Asia, apart from not having to worry about the total cost of ownership, bandwidth and storage, SaaS simplifies security solutions. 'Over 90 per cent of e-mail is spam,' he said. 'If it's filtered on premises, you use more power, disk space, and it means more costly IT management.'

Mendonca contended that for large enterprises, it was prudent to outsource security to commercial providers. 'It makes business sense for both ends of the market. SMEs get lower IT costs ... because they get to use the same platform and technology as the world's largest banks, corporations and governments - all of whom are very security conscious bodies, coupled with affordability,' he said.

With cyber criminals roaming the globe via the internet, high-value information and a company's brand are always at risk from hackers and viruses.

Mendonca believes the cost of such ownership can be overwhelming. 'MessageLabs scans six billion e-mails daily. So, if there's a new virus threat in South America, our system is updated in seconds,' he said.

Devices or software based on the premises require manual updating and patches, which can require a matter of minutes or days. 'Bad guys exploit that time to fullest to target users,' Mendonca said.

Moreover, costs are predictable throughout the life cycle of a service contract, which helps with ease of management.

To that end, Microsoft's strategy is to offer 'software plus service'. According to Hooper, SaaS is not just about installing software on the premises but about taking away a company's IT woes.

'SaaS grows with a company and they have the flexibility of accessing information anywhere on earth,' Hooper said. His point is salient as modern companies are mobile and can require data retrieval anywhere in the world.

While Microsoft does not guarantee a network will work, its promise to its SaaS users is that if their service fails, they will refund part of their money.

In much the same vein, MessageLabs' guarantee extends to both known and unknown viruses. 'No other provider gives protection for unknown threats' Mendonca said. MessageLabs also promises a 99 per cent spam capture rate. 'We guarantee that no more than three in a million will be false positives [legitimate e-mail that has been labelled as spam],' Mendonca said.

The company also offers 100 per cent systems availability and 100 per cent e-mail availability - with no lost e-mail. 'Customers can get assistance and a quick turnaround [on their problems],' he said.

The key advantage is users get capacity on demand. As companies grow, it is hard for them to know their e-mail capacity for next 12 months, let along the next two to three years.

Ananth believes that SaaS also helps customers 'focus on business outcomes' rather than running software. 'In our SaaS model, we use a pre-deployed environment which is managed using operational excellence. We guarantee service levels to customers, we manage the day-to-day operations 24-7 and perform all the maintenance that is required on the system like upgrades and patches,' she said.

Traditional in-house deployments require resources, planning, effort and skills which a company simply may not have. 'Our service includes high availability, disaster recovery, performance management, change management, security and capacity management,' Ananth said.

She believes it's a boon to customers because they are able to 'focus on deriving value from the software' that they have purchased rather than the management of it. 'Typically, our customers start to see value in our solutions within 21 days and we find that HP SaaS typically sees twice the level of adoption and value realisation of the software than in-house deployments,' Ananth said.

Most SaaS providers also offer alternative pricing models for different market segments. For example, MessageLabs operates on a sliding scale of fees based on the number of users and subscriptions are tailored accordingly, with the company's average service contract lasting two and a half years.

Furthermore, installation is a breeze and can be done in 24-48 hours. 'If it was on premises, you would have to order hardware and after installing it, it's already three to four weeks before you're operational,' Mendonca said.

Hooper stated that Microsoft's new Online Offering offers different pricing for different needs, its Exchange Online application is available for as little as US$5 per month per user. 'For the browser access for US$3 per month, they can get email and SharePoint. But for US$10 per month, they get the whole suite of Online services, including email and calendaring' he said.

Hooper stated that for US$10 per month per user, businesses could cost effectively get access to their entire collaborative suite including Exchange Online, Instant Messenger, SharePoint and Live Meeting. Though he agrees, SaaS is very network critical because without the Internet, it's tough to get work done.

When SaaS was initially introduced it was believed to primarily benefit small and medium businesses. 'What we are finding is that SaaS is equally appealing to larger enterprises,' Ananth said.

Pricing models for SaaS need to consider that customers expect the service to be elastic. Customers want to pay based on their demand for the service.

HP too offers staggered pricing. 'We primarily sell to enterprises, but we also have modified our offerings to address the need of the mid market segment,' Ananth said.

'There is definitely a more intense scrutiny around the tradeoffs with operational expenses versus capital expenses for investments in software. This actually plays to our strengths given the range of options we have with SaaS, IT financing and leasing, and flexibility on term or perpetual licensing,' she said.

As for the fear that as a consequence of SaaS, users have access to everything but ownership of nothing, Mendonca puts all doubts to rest. 'Think of SaaS as a utility; it's an operational expense - you don't need massive capital outlays, but have all the benefits of on premises software.'

He stressed that using SaaS enables companies to escape the technology and software refresh cycle and that 'all expenditure increases are incremental'.

Both approaches have merit: on premises software gives users more control, ownership and security.