Software as a Service (SaaS) is a business model in which the software vendor charges customers for usage of the software instead of selling it to customers. From a user’s perspective, it is analogous to renting a product instead of buying it.
SaaS is a cloud-based offering that has become the most popular method of software application deployment due to its many advantages. Some of the benefits of the SaaS model for users are web-based access from anywhere/any device/any OS, relief from provisioning and maintaining the needed hardware and support software, automatic software upgrades, and easy scalability.
What is SaaS?
SaaS is a cloud-based software delivery model. SaaS applications run on the cloud, and users subscribe to the software service rather than buying an instance of the application.
Users access the application over the web, so it can be accessed from any place and device with an Internet connection with sufficient bandwidth.
The SaaS provider provides and maintains the needed hardware and software resources. All upgrades and new software releases are immediately and automatically available to the users. Subscribers can scale usage on demand without hassle, as the SaaS provider manages the resources to ensure software availability.
The popularity of SaaS applications has surged after Salesforce launched its CRM software on the SaaS model in 1999. It is the most popular software delivery model today. With the proliferation of remote and hybrid work modes and extensive use of mobile devices, SaaS has become the model of choice for enterprise software deployment.
Key Characteristics of SaaS
The following features and benefits characterize SaaS.
- Cloud-Based Delivery: SaaS applications run on cloud infrastructure. The service provider is responsible for provisioning, managing, and maintaining the hardware and software, such as servers, storage, databases, networking firewalls, and security.
- Subscription-Based Pricing: SaaS is offered on subscription-based pricing models. Most SaaS vendors provide multi-tiered subscription plans and/or custom pricing so that users can pay only for what they use.
- Automatic Updates and Maintenance: In the SaaS model, the service provider owns the software and maintains and upgrades it to meet users’ needs. A single or a few instances of the software running on the cloud serve the needs of all the users. Whenever the service provider upgrades and deploys the software on the cloud, it is immediately and automatically available to all users.
- Accessibility from Anywhere: Users access the application over the web. As a result, the application can be accessed from any place and device as long as there is an Internet connection with sufficient bandwidth.
- Scalability: Since the software executes on cloud infrastructure, customers can scale usage (up or down) on demand. The SaaS provider manages the resources to ensure software availability.
- Multi-Tenancy: Many SaaS application subscribers share the same physical cloud computing resources and a single instance of the application software. This is termed “multi-tenancy.” Still, the users don’t realize (while using the application) that they are sharing resources with others. The users’ data are kept separate, and each user gets a personalized view of the application.
- Minimal Initial Setup: The SaaS provider sets up and manages all the hardware and software needed for the application and ensures its availability, reducing the initial setup burden on the users.
How Does SaaS Work?
SaaS applications execute on cloud infrastructure. Cloud applications are typically built using modular components with well-defined APIs, which helps in scalability and maintenance.
SaaS applications are actively maintained by the provider based on user feedback. Most providers frequently release software with feature additions, improvements, and bug fixes.
SaaS application teams usually follow agile development methods with much stress on frequent, automated, and exhaustive testing. Many adopt the continuous integration / continuous deployment (CI/CD) approach. The software upgrades are immediately available to users upon deployment.
Users share the hardware and software resources on the cloud. This aspect of cloud computing is termed “multi-tenancy.” Multi-tenancy is responsible for many of cloud computing’s advantages, such as lower costs and scalability.
Since the provider fully manages the hardware and software resources without users’ involvement, users don’t realize (while using the application) that they are sharing resources with others. In addition, they perceive unlimited resource availability.
Users access SaaS applications over the Internet through a web browser or desktop/mobile apps from the SaaS provider. Users need to create accounts and authenticate themselves for access. Many providers support mechanisms like 2FA for extra security.
The users’ data is also stored in the cloud. The service provider is responsible for data security and privacy protection. Many international bodies, like ISO, have standardized processes and technologies to ensure data security and privacy protection in cloud-based services.
There are certification organizations that audit and certify compliance with the standards. The most common certifications are SOC 2 and ISO 27001.
Examples of SaaS Applications
Here are some popular SaaS applications for different applications.
- Productivity and Collaboration: Google Workspace (Gmail, Google Docs, Sheets, Slides, and more), Microsoft 365 (Outlook, Word, Excel, PowerPoint, Teams, and more), Slack, Dropbox, Zoom
- Customer Relationship Management (CRM): Salesforce, Hubspot, Zendesk, Zoho CRM, Pipedrive, Freshsales
- Enterprise Resource Planning (ERP): SAP S/4HANA Cloud, Oracle NetSuite, Microsoft Dynamics 365 Business Central
- Project Management: Monday.com, Asana, Jira, Trello, Airtable
- Creative Tools: Canva, Adobe Creative Cloud
- SEO Software: Ahrefs, Semrush, Moz, Ubersuggest
- Social Media: WhatsApp, Twitter, LinkedIn, Facebook, Instagram, YouTube
What Are the Benefits of SaaS?
The key benefits of the SaaS model for software delivery are the following.
Cost-Effective
SaaS offers many cost benefits. Businesses don’t need to make hefty upfront investments in hardware and software and their maintenance. This also extends to lesser spending on IT support staff.
Many SaaS providers allow businesses to pay only for the features they use, proportional to their use. Subscriptions cover feature upgrades. So, users don’t need to buy a new software version for new features and requirements.
Scalability
Businesses can easily scale their usage up or down based on real-time or short-notice demand. Scaling can be in terms of features, number of users, amount of usage, and locations of users.
Accessibility
SaaS applications are accessed over the Internet through web browsers or desktop/mobile apps. This enables users to access the application from anywhere and on any device, which is very handy for remote workers and workers in the field.
Automatic Updates
The SaaS provider is responsible for updating the software without user involvement. Updates are available to users immediately upon deployment, so users always have access to the latest release of the software.
This contrasts with traditional or premises software, which requires user involvement for upgrades.
Quick Deployment
The SaaS provider has the necessary hardware and software readily installed and set up, so users can set up their accounts and start using SaaS applications quickly.
Reduced IT Workload
The load on internal IT teams is minimal as the SaaS provider manages everything related to the application, including hardware and software resources, and ensures availability.
Enhanced Collaboration
Cloud hosting facilitates team collaboration. Documents and records are shared among authorized users in a common location, and users have immediate visibility into others’ updates. This enables workflow automation, real-time status tracking, and collaboration on tasks.
SaaS Challenges
The following are the challenges and disadvantages of the SaaS software delivery model.
Data Security and Privacy Concerns
SaaS users’ data is stored in cloud data centers, which are administered by cloud infrastructure providers and SaaS providers without any involvement or oversight from the users. As a result, many users have concerns about data security and privacy.
To address these concerns, international bodies, and the industry have developed many standardized processes and technologies for data security and privacy. Security-conscious users should consider SaaS providers’ compliance with international standards before deciding on SaaS adoption.
Dependency on Public Internet Connectivity
Users connect to SaaS applications over the Internet. This may pose challenges for users with poor Internet connectivity. In addition, the application will not be available if the network is down.
Integration and Customization Limitations
SaaS applications are standardized, out-of-the-box offerings that cater to a large and diverse customer base. Some companies or users may have unique business needs requiring customized functionalities. SaaS providers limit customization to ensure the software is easy to maintain and use.
Examples of customization options SaaS companies provide are custom fields in database records, custom workflows, and limited UI personalization.
Vendor Lock-In
Companies using SaaS applications may get locked-in with a vendor when a situation arises in which the cost of switching to another vendor becomes too high.
Migrating databases to a different cloud environment is often very complicated. Applications that become integral to the business processes of an organization may seem too risky and costly to replace.
Circumstances like poor vendor performance, software features not fulfilling changing business needs, and uncompetitive pricing may push companies to seek alternatives. Vendor lock-in can become a serious concern in such scenarios.
Performance Issues
Cloud-hosted SaaS applications tend to be slower than traditional on-premise software. The reasons for this include network latency and server overload due to multiple users.
Performance issues with popular SaaS applications even get reported on tech news websites and stir up social media storms. Some tweets about performance issues with Notion, a popular productivity and note-taking app.
Beyond SaaS: Other Cloud Service Models
Apart from SaaS, the other cloud service models are IaaS (Infrastructure as a Service) and PaaS (Platform as a Service).
IaaS
IaaS vendors offer remotely located hardware resources for computing, storage, and networking for use on subscription or pay-as-you-go terms. The hardware is owned and maintained by the IaaS provider in its data centers.
Customers are responsible for buying and managing the needed software, such as OSes, middleware, and applications. They access the hardware resources remotely over the Internet.
The major IaaS cloud service providers are Amazon Web Services, Microsoft Azure, Google Cloud, and IBM Cloud.
PaaS
PaaS offers a cloud-based platform for developing, testing, deploying, and managing cloud (SaaS) applications. The platform includes all the needed hardware and software, such as servers, storage, networking, OSes, middleware, and development environments and tools. PaaS also includes related services like data security, software upgrades, backups, built-in automation for CI/CD, and more.
Customers typically can choose from a wide range of the latest software tools and packages offered by the PaaS vendor. This is a great advantage for companies as it spares them the cost and hassle of buying, upgrading, and setting up the latest software versions on suitable hardware. It also allows them to experiment with different tools without much investment and risk.
Prominent PaaS offerings include AWS Elastic Beanstalk, Google App Engine, Microsoft Windows Azure, and Red Hat OpenShift on IBM Cloud.
The following table compares the hardware and software resources offered in IaaS, PaaS, and SaaS.
| Hardware / Software Resource | IaaS | PaaS | SaaS |
|---|---|---|---|
| Applications | ❌ | ❌ | ✅ |
| Databases | ❌ | ❌ | ✅ |
| Runtime | ❌ | ✅ | ✅ |
| Middleware | ❌ | ✅ | ✅ |
| OS | ❌ | ✅ | ✅ |
| Virtualization | ✅ | ✅ | ✅ |
| Servers | ✅ | ✅ | ✅ |
| Storage | ✅ | ✅ | ✅ |
| Networking | ✅ | ✅ | ✅ |
Future Trends in SaaS
The following are the key trends that are shaping the future of SaaS.
AI Integration
SaaS applications are increasingly offering AI-powered features. AI is providing predictive analytics and recommendations. Generative AI is seeing growing adoption for summarization and creating first drafts of text content.
Mobile-First Solutions
SaaS vendors continue investing in mobile responsiveness by providing mobile apps for iOS and Android. This has become a key requirement with the proliferation of remote work culture and using mobile devices for work. Some apps include mobile-specific features on top of the core app features.
Enhanced Security
Data security and privacy are always a top concern for cloud software users. Compliance with international standard practices and privacy laws is indispensable for growth and success in the SaaS space.
Vertical SaaS
Vertical SaaS applications are built to cater specifically to the needs of the targeted industries. Many companies find them appealing due to the limited customization possibilities in generic SaaS solutions. Vertical SaaS applications have a head start in highly regulated industries as they can incorporate features that enable hassle-free compliance with regulatory requirements.
Open APIs for Easy Integration
Businesses are realizing the importance and benefits of connecting their tech stack and avoiding silos. They also want flexibility in choosing the best apps for various functions instead of being tied to a single vendor. SaaS providers have understood this pain point and have started offering open APIs that make it easy to integrate apps.