At the Software 2004 conference earlier this month, several presentations proclaimed that the age of software as a service has arrived, and that it will completely transform the IT landscape.

We are accustomed to hearing such proclamations and then watching as marketers take new or warmed over technologies and turn them into nebulous concepts with a catchy or ponderous label, such as on demand computing or adaptive enterprise.

For example, IBM CEO Sam Palmisano defines on demand as a business model that allows companies to respond to changing market conditions, such as new business opportunities or competitive threats. That's an appealing concept, and I would assume that every company wants to buy on of those on demand "things." If you break down on demand and related labels into constituent practical applications, such as utility-based pricing and server and storage virtualization, the concepts become more palatable. However, most enterprises are more interested in how to leverage the technology they acquired during the boom times than in acquiring the latest so-called breakthrough technology.

According to Ray Lane, former Oracle executive and a general partner at Kleiner Perkins Caufield & Byers, "The software industry is now about renovation--not innovation. It is no longer about 'what,' it is about 'how.' Rather than focusing on invention, we need to help customers renew what they already have. The software business is becoming a service business."

Lane's notion of renovation is apt, but from there he introduces the notion of the software business becoming a service. Is software as a service just another warmed over technology in a long parade of over baked concepts, or is it the future of software development and delivery?

The answer depends on how you define software as a service.

Without doubt, the combination of outsourcing and hosted applications is creating a new, attractive business model for enterprises and vendors. Hosted applications, such as the poster-children CRM applications from Salesforce.com, NetSuite and Siebel, deliver applications on demand with a variable cost structure, such as monthly billing or pay-as-you go options, similar to a power utility. The cost for deploying, maintaining and upgrading the software is shared among all the clients. Customization is minimized to maintain the low-cost structure. High-bandwidth networks allow the Internet to function as the transport bus for software services.

The math is fairly straightforward--will it cost you more or less money to outsource applications to a hosted (internally or externally) service, provided that the entity can deliver quality applications and meet service level agreements?

Software as a service business will continue to gain traction in the coming years, but it's a business model improvement enabled by the Internet, not a systemic breakthrough that will transform the IT landscape. If software as a service were to become transformative, it would mean that a service-oriented architecture (SOA) has superceded client-server as the underlying framework for computing in a heterogeneous world.

SOA is a warmed over concept, coming out of the distributed objects and object-oriented programming camps, but the advent of Web services and XML has turned it into the buzzword of the moment. A service-oriented architecture is a software integration framework that allows loosely coupled applications or components to exchange data and processes within heterogeneous environments by publishing themselves as services based on Web services standards. Given the broad acceptance of Web services as core technology, SOA will turn out to be more than a passing technology fad. "The next generation stack will be anchored in a services-oriented architecture," according to Geoffrey Moore, business guru and venture capitalist.

The top-tier vendors as well as dozens of smaller companies have jumped on the SOA bandwagon with their SOA stacks. For example, next week SAP plans to introduce NetWeaver 2004--which includes a comprehensive set of components, including portal software, application server program, integration tools, data analysis systems, workflow programs, master data management and a development environment-with an underlying SOA framework. Software as a business service starlet Salesforce.com developed Sforce, an application server that leverages Web services to reduce the high costs of integration.

Grand Central, a small company that provides integration services, combines the software as a service business model with an SOA, Web services framework. The company's managed network service allows business processes to be created dynamically by combining services into composite applications. By wrapping components as Web services, the cost for development and integration across diverse sets of technology and businesses can be greatly reduced.

While you can live without software as business service, living without an SOA stack will become increasingly difficult if you want to leverage your current infrastructure and gain the cost advantages and flexibility brought by Web services. However, don't expect the entire IT industry to transform into a SOA framework overnight or even next year. Just as client/server computing took several years to mature, reaching the formal age of software as services, with the network as the bus, will take the remainder of this decade to realize.

You can write to me at dan.farber@cnet.com. If you're looking for my commentaries on other IT topics, check the archives.