In the world of Information Technology one year is like a decade. Therefore, if we compare 1990s with 2007 or 2008 we are comparing totally new generation of technologies and applications. There are several reasons for this rapid improvement most prevalent being ever changing role of the IT departments. In 1990s, as the demand for software applications grew IT departments started to grow rapidly. This growth started another trend in the world of IT, that is the rise of application service providers (ASP).

An ASP is business model where a company provides computer based services to customers over a network. Software offered using ASP model is also called On-demand software. In its narrow definition an ASP is a service provider for a particular application program such as Accounting. Over the years ASP model matured and several variations of ASP providers emerged:

• Functional or specialist ASP - These type of ASPs deliver a single application such as a credit card processing service.
• Vertical market ASP - These ASPs deliver a solution package for a specific customer type such as retail or oil.
• Enterprise ASP - These type of ASPs provide services to host ERP packages such as SAP, Oracle, Peoplesoft.
• Local ASP - Local ASPs geared towards small businesses and offer their services within a limited area.
• Volume ASP - This is a subtype of specialist ASP. The companies such as PayPal classified as such because of their high volume they can offer lower prices.

• Level 1 - This type of SaaS applications are very similar to the traditional ASP model. At this level, each customer has its own customized version of the hosted application, and runs its own instance of the application on the hosted servers.
• Level 2 - In this level the SaaS vendor hosts a separate instance of the application for each customer or tenant and there is no customization for each tenant like in Level 1. The vendor meets customers' needs by providing detailed configuration options that allow the customer to change how the application looks and behaves to its users.
• Level 3 - The third level of SaaS vendor runs instance that serves every customer, with configurable metadata providing a unique user experience and feature set for each one. Authorization and security policies ensures that each customer's data is kept in separate from other customers. From end user perspective there is no indication that the application instance is being shared as a single tenant.
• Level 4 - At last and fourth level of maturity the vendor hosts multiple customers on a load balanced farm of identical instances , with each customer's data kept separate, and configurable metadata providing a unique user experience and feature set for each customer. A SaaS IV system is scalable to an arbitrarily large number of customers, because the number of servers and instances on the back-end can be increased or decreased as necessary to match demand, without requiring additional re-architecting of the application, and changes and fixes can be rolled out to thousands of tenants as easily as a single tenant.