Software as a Service (SaaS) has become quite the buzzword in these days, and the category covers a wide variety of applications that you can access and use over the Internet – without having to invest in any servers or install any software on your premises.

A few examples include office applications from Google Apps and Adobe Buzzword and e-mail and instant messaging services by LiveOffice and Hotmail. And you'll find plenty of online backup and data protection services from companies such as Iron Mountain and AmeriVault.

As well as providing the software, companies that offer SaaS either host your data on their servers or, at the very least, gain access to your computer systems. So just how safe is it to use such services?

“Small and medium-size businesses should be very careful in picking a vendor to store all that valuable data,” said Laura DuBois, an analyst at International Data Corp. (IDC).

Obviously, it is advisable to learn all you can about the company that provides SaaS. How safe will your information be? If you need to recover data, how long will it take to receive it? Is this company stable enough to survive the current market downturn? These are some of the crucial questions that you should ask – and have answered – before making any decisions about SaaS providers.

SaaS Basics

SaaS provides access to software and its functions remotely as a Web-based service. It allows businesses to access these applications at a cost that is typically less than paying for licensed applications, since pricing is based on a monthly fee.

As the software is hosted remotely, you don’t need to invest in additional hardware. Further, it eliminates the need for small businesses to have to deal with installation, set-up, daily upkeep and maintenance. For companies without any IT resources, this is certainly an attractive proposition.

But that doesn’t mean SaaS is for everyone. The last thing you want is to discover that your data is in disreputable hands. And these days, that’s a real threat. When picking a SaaS vendor, therefore, you should dig deep to find out just how much substance the provider provides.

Obvious giveaways include unwillingness to provide customer references or a reputation for having a low client-retention rate.

“In the SaaS world, customer retention is a very telling number,” said Matt Smith, president of LiveOffice, a provider of e-mail, instant messaging (IM) and other SaaS products. “A dependable company should have a customer-retention rate of at least 98 percent.”

If it’s a start-up company that nobody has heard of, you'll need to perform even more thorough due diligence to verify some kind of track record of successful delivery.

Another angle is customer support. The pipsqueak outfits might look flashy (or not), but they are typically weak in after-sale support. In some cases, though, veteran help desk staff and top-notch support may not be worth the premium.