At 4pm on 19 September 2006, an acetylene gas cylinder crashed through the boardroom of the Erith Group in East London. It had been launched from across the road, where the neighbouring firm had been doing some welding without observing fire regulations, and caused a small explosion. In the inferno that followed, Erith experienced every company’s nightmare: fire destroyed not just the boardroom, but the entire premises, including the server room.

On 20 September the boardroom might have been history, but board members were back at work in a marquee in the back garden of Paul Driscoll, Erith’s IT manager. ‘We were working at 60% of capacity the next morning. I had 18 of them using my wi-fi,’ he says. ‘With a disaster like that, even with the backups we had, statistically we should have been out of business by now.’

It was Erith’s good fortune that Driscoll’s passion at that time was for Google Docs, a nascent set of office applications (at that time, email, word processor and spreadsheet) that Google had developed as speculative projects. The apps, and your data, sit in one of Google’s data centres. You call up your documents and work on them by logging in from any browser. By September 2006, Driscoll had bullied a quarter of his 205 staff into trialling the system instead of their traditional Microsoft desktop applications. When the servers that held the Microsoft applications were turned into heaps of twisted metal, they were glad he did.

Google Docs is just one example of the industry’s latest fad: SaaS, (say ‘sass’) or software-as-a-service. The industry’s heavyweights (see box) are investing billions in providing applications that we don’t need to store on servers in our offices. Instead we will rent our applications by the month and access them from a browser. The providers will store all our data and our settings in a secure, available environment somewhere in the world.

When SaaS works small businesses can make dramatic savings. Driscoll has now moved Erith Group, which handles remediation, asbestos removal and other tasks for the building industry, completely to Google Docs. He believes that he can save £25,000 to £30,000 a year. ‘I don’t have to worry about spam or the anti-virus running out or all those jobs that I have been scurrying about doing. I need one less member of staff. I have had 1.5 hours of downtime in the last two years, and as an IT manager, I wouldn’t be able to guarantee that level of availability to my board,’ he says.

For SaaS subscribers their future laptops and desktops will need smaller hard disks and maybe less processing power. Sometimes they don’t need any hardware at all: ‘One of our managers accesses his applications at lunchtime from McDonald’s on his iPod,’ Driscoll adds.

Lifting the clouds

This is what Google calls ‘cloud computing’. Dave Armstrong, the head of marketing for Google Apps EMEA, foresees a time when most documents will live somewhere on the web, rather than on servers. Google Apps, which business can rent for £25 per user per year, (the price includes support plus the APIs that mean you can do things like embed Google search and location-finding tools in your web pages) is the first step towards this.

‘Cloud computing means that your applications and your data can be looked after by companies that have the capability and the flexibility to do it,’ he says, ‘Already 500,000 businesses worldwide and 10 million users run Google Apps. If I wanted to write letters on paper, then I’d write one on my PC. But we’re moving to a world that uses living, breathing documents that live online and can have more than one author. There’s one version, you don’t have to send it to everyone.’

Critics of cloud computing point out that it was tried during the dot-com boom, when SaaS was called ASP (application server provider) technology. The vendors built it, but no one came.

Armstrong lived through that boom-and-bust. ‘It’s only over the last 18 months that applications have functioned in a reliable way over the internet,’ he admits.

With billions invested in data centres globally and broadband and wi-fi almost ubiquitous, SaaS providers have a better chance of success, but do the applications work? Google Docs still has rough edges. ‘The applications need honing. If I were to produce an intensive graphic document to print out for a customer, the applications aren’t there yet. If you want to make a document pretty, you need Word,’ Driscoll says, ‘and Outlook has a grip like no other program, and it was hard to prise some of our staff out of their comfort zone.’

Got it SaaSed?

The solution for some SMEs will be to look for SaaS providers who are delivering the applications they recognise through the browser. At AIM-listed Nasstar, chief executive Charles Black has created technology that delivers your Microsoft applications through a browser wherever you are. When you log on, you get your recognisable desktop, your settings and documents, and ­ for a fee ­ he will also host your other applications.

His users include Easy Group and Pinnacle Staffing, which he has calculated that even paying £75 per user per month (for Outlook plus Microsoft Office Professional) for the service it is 40% cheaper than the capital cost of buying and maintaining their own infrastructure.

‘It replaces traditional capex with a per-month cost, and there are other benefits: your laptop has no data on it, so if it is stolen, you’re secure.’ Black says.

Other application providers are rushing to offer the option of SaaS. David Turner, group marketing director at CODA, offers his financial applications as a service called CODA2go, and has teamed up with Salesforce.com ­ one of the SaaS pioneers ­ to offer an integrated accountancy-plus-customer-service suite.

He thinks Saas will capture only 15% to 20% of the market in the next five years ­ so CODA will continue to offer boxed software. ‘If I was starting a business today I wouldn’t be going out to buy servers. I’d be renting my apps. Broadband is not the issue, but there is a problem with mindset. There will be a significant proportion of users who will move to this model, but not the majority,’ he says.

One sticking point, he adds, is worries about data security. Yet this is far greater at a data centre than even the most diligent small business. ‘Go to our data centre and the security is unbelievable. The number of people with access to anywhere even close to your data is tightly controlled, and the data is replicated globally.’

Alan Moody, the UK managing director of business software supplier Mamut, is not surprised that take up of SaaS set ups has been low. ‘It’s an over-simplification to say that SaaS is always better. More complex applications might not be best delivered this way. And if you go into a lift and lose your connection, you lose your applications.’

His view is that SMEs should commit to companies that offer the same, or compatible, applications both as a service and as boxed software, which is Mamut’s strategy. One problem with the rush of new SaaS providers, he says, is that many might not survive, or might not be able to provide the availability and security they promise. By moving all your data to their servers, you might be taking a significant unknown risk. ‘It’s a lot more complicated. I’m trusting you with my business. Are you secure? Are you compliant? If you change your mind tomorrow, and want to replace your SaaS with traditional software, that’s fine with us.’

Back at the Erith Group, Driscoll isn’t about to go back to his Microsoft applications.

Using web-based applications is the future, he says, because it’s doesn’t involve emailing attachments, printing, and server proliferation. Two people can simultaneously work on a spreadsheet while chatting over instant messaging, for example. And it means Erith could survive another explosion.

‘If that happened again I know 100% of our staff would get their email in the morning,’ he says. ‘As an IT manager, that’s reassuring.’

Delivery issues

To get online applications, we need broadband. But in order to deliver online applications, vendors need thousands of servers at a location near you.

The company providing your applications (and guarding your data) could theoretically store everything in one location that it leases from a big telecommunications company. But that makes it vulnerable to natural disasters and power cuts. If the supplier goes bust, then what happens to your data?

Also, if your data or application comes from one location and travels over the public internet, then when you’re half way round the world it might be unusably slow. Ultimately, this might be the deciding factor in which supplier wins the battle to deliver our desktop applications; today’s data centres cost around $500m (£250m) each, and there aren’t many software providers out there that can make that sort of capital investment.

Big players

Not surprisingly, two that do have the resources are Google and Microsoft. Google is extremely secretive about how, why and where it makes its investments. Its spending plan has included secretly buying its own telecommunications networks and joining a consortium to lay a cable under the Pacific.

Microsoft is spending billions of dollars developing what it calls ‘Live Mesh’, which mixes SaaS with desktop applications. It is building a 51,000 square meter data centre just outside Dublin to deliver this in EMEA costing the same as the entire development budget of Windows 95, and many other similar facilities worldwide.

‘The size and scale of the development is beyond anything in the industry,’ says Arne Josefsberg, the general manager for infrastructure services for global foundation services at Microsoft, ‘with the possible exception of Google.’

Tim Phillips is a freelance business and technology journalist.

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