Software as a Service – what it means

24 April 2008
Software as a Service – what it means

Rather than buying expensive software packages and employing IT specialists to run them, smaller hospitality companies are opting for Software as a Service accessed over the Internet. Ross Bentley reports on this popular development

There's a revolution going on in the way that business software is being delivered, one which is having a profound effect on how hospitality companies access the latest technologies and how they pay for them.

And whereas traditionally customers would pay a licence fee for owning each piece of software, with SaaS they are simply charged for what they use.

"Think of it as the difference between buying a car outright and leasing it - you are still using the car but paying for it in a different way," explains Andrew Markwell, sales director at software company Fretwell Downing Hospitality, which started offering a number of its products via SaaS about two years ago.

More recently, respected IT research firm Gartner included the growing trend towards SaaS in its key predictions for IT users in 2008 and beyond.

The report said: "By 2012, at least one-third of business application software spending will be as service subscription instead of as product licence. The SaaS model of deployment and distribution of software services will enjoy steady growth in mainstream use during the next five years."

But what is driving the uptake of SaaS in the hospitality sector?

According to Steve Madden, deputy managing director at hospitality software specialist Micros-Fidelio, there are a number of factors contributing to this trend. The main reasons he cites are the decrease in communication costs and the rapid growth in the take-up of broadband in recent years, which have made the remote delivery of data from hosted data centres both affordable and reliable.

Madden says that all Micros-Fidelio applications, such as its PMS, point-of-sale and central reservation systems, can now be delivered using SaaS. He adds that - with 26% of all its customers in Europe, Africa and Middle East already using the company's data centre to host applications - "we had the economies of scale to move into the SaaS market and be profitable straight away".

He goes on: "The hospitality sector has also gained confidence in the SaaS model from seeing it successfully adopted in other industries, such as banking."

Pricing model

At Fourth Hospitality - which supplies back-office applications on a purely SaaS basis to 300 businesses in the hospitality sector - including Hilton, PizzaExpress and Sodexo - managing director Ben Hood says that the SaaS pricing model is also extremely attractive to hospitality companies.

Rather than having to buy the software up front, companies can instead spread most of the cost over a three- or four-year period, paying a fee per month. Hood says that his customers pay between £50 and £500 per month, per site, depending on the number of sites they have and the number of applications they access.

He says: "There may be some initial start-up costs, as the applications are customised to meet specific user requirements, but there is no outlay on hardware required, nor the need to buy-in high-level IT skills, as that is all managed by the SaaS supplier."

But the biggest saving, according to Hood, comes from companies no longer having to maintain their applications on a continuing basis.

He explains: "This is a major factor, as four-fifths of the cost of software is typically incurred from ongoing maintenance."

The SaaS model is also changing the relationship between software companies and their customers. Rather than simply selling the software and offering support, Hood says that the SaaS model sees the software supplier become "an extension of the business".

He explains: "We are like account managers who not only provide the application but are always available to give advice and support, should the customer want to run a new report, for example.

"It's more of a partnership, and that is why the SaaS model is best suited to software suppliers operating in vertical markets, as they understand the industry they are working in."

All these factors are particularly attractive to small and medium-sized hospitality companies, as well as start-ups, many of which would have previously struggled to afford the upfront software licence fees, says Markwell at Fretwell Downing.

Software updates

Smaller companies also benefit from having access to the latest software updates, Markwell says, as it is the SaaS provider's responsibility to bring in new releases and technology updates as they become available. Regular backing-up of the system should also be taken care of by the supplier.

With all these benefits, it would seem the move to SaaS is a "no-brainer" for many hospitality customers, but there are some potential obstacles.

Foremost, according to Markwell, is the reluctance of some in-house IT teams to let go of the ownership of software. "They feel this will shrink their domain," he says, "but what it really means is a change in emphasis from running their own IT operation to managing relationships with third-party providers."

Madden at Micros-Fidelio also points out that this new way of considering IT investments will require "a big change in the mindset of some hospitality companies". Ensuring that your software supplier is financially stable and reliable, and that they have adequate security systems in place, are other considerations he suggests.


But with the SaaS bandwagon gathering momentum, what does the future hold?

Markwell says that because SaaS applications are accessed via the Internet, much depends on Microsoft's plans for its web browser, Internet Explorer - by far the most commonly used channel for accessing the Web.

He says: "As new functionality is added to Internet Explorer, we will look to incorporate that into the services we offer. There is also a growing demand for real-time reporting and the ability to access all third-party applications through one portal using RSS technology."


Pay as you grow

Before catering products procurement specialist Allmanhall started trading nine months ago, it was facing a significant outlay on new technology to install a system that would provide efficient invoicing and the quality of management information data that it required.

Having reviewed various systems, the company decided to work with Fretwell Downing Hospitality, opting for its Saffron Zest internet-based system delivered via the SaaS model.

"This meant we didn't have to pay for the software up front," says Allmanhall managing director Edward Hall. "As a start-up, capital has to be carefully managed."

The system allows Allmanhall's clients, predominantly from the education sector, to access a password-protected website to enter their requirements online, which then generates weekly and monthly trading reports.

With six sizeable accounts under its belt within a year of being established, and more in the offing, the company merely has to purchase a licence for each new client site, avoiding the complications and expense of having to install software.

"It means we pay as our business grows," Hall adds.

Maintenance of the system and operation of the website is carried out by Fretwell Downing Hospitality. For Allmanhall, this has had the distinct advantage of cutting out the need to employ IT expertise specifically to maintain the system.

Hall says: "They support us with operational know-how when the inevitable software glitch comes up, from time to time."

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