What Is Software as a Service (SaaS)? Definition and Examples

What Is Software as a Service (SaaS)?

SaaS is a licensing model in which access to software is provided on a subscription basis. The software is located on external servers rather than on servers located in-house.

Software as a service is commonly accessed through a web browser with users logging into the system with a username and password. The user can access the program via the Internet rather than each user having to install the software on their computer.

Understanding Software as a Service (SaaS)

The rise of SaaS coincided with the rise of cloud-based computing. Cloud computing offers technology services through the Internet. This often includes access to data storage, networking, and servers.

Companies looking to update the software on their computers had to purchase compact discs before SaaS. The discs contained the updates and they then had to download them onto their systems. Updating software was a time-consuming endeavor for large organizations.

Users can log in through the Internet or a web browser and connect to the service provider’s network to access the particular service with SaaS. Technology companies, financial services companies, entertainment, and utilities have led the business world in adopting SaaS technology.

SaaS History and Characteristics

SaaS can trace its origins to a concept called time-sharing, developed in the late 1950s and early 1960s to make more use of expensive processor time more cost-effective.

Organizations made the shift to individual ownership of personal computers using on-premise software as hardware and computing became less costly. They were impeded by ongoing software and hardware maintenance of the individual computers, however.

The growth of the Internet saw the inception of the “online cloud” in the mid-1990s. The online cloud allows organizations to access software from anywhere. Salesforce became the forerunner in the SaaS space by 1999 and both startups and industry giants were eager to move toward it, including Microsoft, Oracle, and SAP.

The SaaS provider hosts the customer’s software and delivers it to approved end-users over the Internet. It gives customers network-based access to a single copy of an application that the provider created specifically for SaaS distribution. New features or updates are rolled out to all customers when they're released.

Advantages and Disadvantages of SaaS

SaaS offers a variety of advantages over traditional software licensing models but it has some drawbacks as well.

Advantages

There's less demand for the company to invest in new hardware because the software doesn't live on the licensing company’s servers. It's easy to implement, easy to update and debug, and it can be less expensive than purchasing multiple software licenses for multiple computers.

SaaS has numerous applications, including email services, auditing functions, automating sign-up for products and services, managing documents, and customer relationship management (CRM) systems, a database of client and prospect information. SaaS-based CRMs can be used to hold company contact information, business activity, product purchase history, and sales leads.

The SaaS model works well for enterprise-level services such as human resources. These types of tasks are often collaborative, requiring employees from various departments to share, edit, and publish material when they're not in the same office.

Disadvantages

Drawbacks to the adoption of SaaS center around data security and speed of delivery. Data is stored on external servers so companies must ensure that it's safe and can't be accessed by unauthorized parties. Security is especially important to SaaS business users in the aerospace and defense sector.

Slow Internet connections can reduce performance, especially if the cloud servers are accessed from far distances. Internal networks tend to be faster than Internet connections. SaaS solutions also suffer from a loss of control and a lack of customization due to their remote nature.

Examples of SaaS

Google Docs is Google’s free online word processor launched in 2006. Individuals can simply log in through a web browser for instant access. Google Docs allows you to write, edit, and even collaborate with others from any location.

Dropbox was founded in 2007. It's a cloud storage service that lets businesses store, share, and collaborate on files and data. Users can back up and sync photos, videos, and other files to the cloud and access them from any device no matter their location.

SaaS has expanded since its inception and supports home offices and entertainment daily as users log on to Netflix, Zoom, DocuSign, Adobe, Shopify, and Slack.

SaaS Security

Concerns arise regarding security and privacy as companies adopt cloud-based models for software products. Management was once responsible for the updates on in-house software but corporations must now rely on third-party management of their encryption, identity and access management (IAM), data privacy, and downtime or incident response. They must also depend on an adequate level of communication with technical assistance.

SaaS Pricing

SaaS products are commonly more cost-effective for a company than traditional software licenses because setup and installation aren't necessary. SaaS providers rely on subscription-based pricing models for customers, such as tier-level pricing per person or group or a flat-rate annual fee. Users can also choose an ad-based model where the SaaS earns revenue through advertising within the cloud space.

SaaS vs. IaaS vs. PaaS

“As a service” products fit into one of three main categories: SaaS, IaaS, and PaaS.

SaaS uses the Internet to deliver subscription software services that are managed by third-party vendors. Well-known SaaS examples include Dropbox, Google Workspace, and Salesforce.

Infrastructure as a service (IaaS) offers access to resources such as servers, storage, and memory. It allows organizations to purchase resources as necessary. Some common IaaS examples include Amazon Web Services (AWS), Microsoft Azure, and Rackspace.

Platform as a service (PaaS) provides a software development platform over the web. It allows developers to concentrate on software creation without concerning themselves with storage and infrastructure.

The Bottom Line

SaaS or software as a service uses cloud computing to provide users with access to programs via the Internet. SaaS allows each user to access programs, typically through a subscription service, without having to install software in-house.

SaaS has many business applications including file sharing, customer retention management, supply chain management, and human resources. It's used by applications such as Netflix, Slack, Dropbox, and Google Workspace.