A pretty good article in the San Francisco Chronicle on Christmas day about On-Demand software. More or less a primer on On-Demand, it profiles a number of SaaS (Software as a Service) companies including RightNow, Salesforce.com and NetSuite. Here’s a snippet from the article in which On-Demand is explained. My favorite part is at the end, when the approach is compared to buying electricity from a power plant instead of installing a generator at your business:

The movement sweeping the business software field is known by a pair of interchangeable names, "on demand" or "software as a service." These refer to a change in the way software is sold. Instead of software that is delivered by CD or bought in a bulky package, on-demand software is delivered over the Internet.

The software resides on servers operated by the company that sold it. That allows many users to have access to the software at the same time. It also allows the company to update the software whenever it wants or needs to, without hawking an expensive upgrade.

Sometimes companies pay up front for this service, but often it’s sold as a subscription: Companies pay a monthly fee for however many users they want to have access to the software, and the host keeps the system working.

Michael Topolovac, CEO of Arena Solutions, offers the analogy of the power industry. If you don’t have power, you could buy a generator. As your business grew, you’d establish a generator room, have fuel trucked in and keep mechanics on staff to run it. But wouldn’t it be nice if someone would establish a power plant and run lines to your business, so you don’t have to have all that distraction?

"On-demand software," he said, "is the power plant."