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Updated Nov 13, 2023

What Is SaaS (Software as a Service)?

Software as a service is a cloud-based solution for delivering applications.

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Ryan Goodrich, Staff Writer
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This guide was reviewed by a Business News Daily editor to ensure it provides comprehensive and accurate information to aid your buying decision.

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Cloud computing is behind the success and popularity of SaaS (software as a service), allowing users to access web-based applications hosted by a cloud provider. Consumers and businesses flock to the SaaS model because it makes accessing and using software effortlessly. Cloud providers enjoy the benefits of steady customers who pay monthly or yearly to access their applications. 

We’ll provide an overview of SaaS to help businesses decide if this application delivery model is right for them. 

What is SaaS (software as a service)?

Software as a service is a software-delivery method that lets end users access and use applications remotely via their internet browsers. SaaS vendors house and maintain the hardware that runs these applications.

SaaS solutions are cloud-based online applications. They’re also called web-based software, hosted software, or on-demand software. Instead of selling customers an application’s physical disc or a digital download to install and run from their computers, third-party SaaS vendors lease the application via a web browser. Users can log in remotely and use an application’s complete feature set without maintaining hardware, managing data, or downloading and installing updates. 

Did You Know?Did you know
Aside from SaaS, other cloud computing categories include infrastructure as a service (IaaS), platform as a service (PaaS), and backend as a service (BaaS).

The history of SaaS

Software as a service dates back to the 1960s, when the first cloud computing ideas began to formulate. Due to the lack of adequate technology, access to this kind of software was limited. In the 1990s, SaaS usage began to mature, and adequate support and security measures were implemented. Companies began offering critical software via SaaS; for example, Salesforce began offering its flagship service, customer relationship management (CRM) software, through the SaaS model.

Initially, enterprise software businesses and other companies were nervous about purchasing SaaS because of data security risks and uncertainty about whether the software-delivery model would last. However, as cloud security improved, companies warmed to the SaaS model. 

Today, software as a service holds significant market share in the enterprise software market. SaaS vendors prove yearly that they can grow revenue and customer base through a subscription licensing model instead of the more traditional single-use license.

Did you know? Custom software development is another way to access applications designed specifically for a business’s unique needs. However, this is often far more costly than finding an SaaS solution.

SaaS vs. on-premise

The software as a service model offers many benefits that companies increasingly realize each year. 

  • Companies don’t have to deal with enterprise hardware. Before SaaS, businesses needed to purchase and maintain expensive on-premise hardware to use enterprise-level applications. SaaS removes the need for on-premise hardware. Instead, vendors house the hardware to run the software in their facilities. You pay for what you need and don’t have to worry about upgrading equipment as it ages.
  • Companies minimize IT costs. With on-premise hardware and software, a business must employ IT professionals to troubleshoot issues and manually update the software when vendors issue new versions. SaaS removes the need for this costly expenditure by providing automatic, timely updates and patches.
  • SaaS is easy for end users. Many SaaS solutions are available via an internet browser. Some may require a simple application to be installed on the client’s computer to access the software and receive updates. In either case, using the software is straightforward and seamless for end users.
  • SaaS enables remote work. SaaS solutions help you manage a remote workforce. Employees can use SaaS software to access critical applications from home or on the road from their internet-enabled devices.
  • SaaS solutions are scalable. As you grow your business and hire more employees, you can scale your software accessibility to accommodate your new needs. 

SaaS subscriptions

The software as a service option typically adopts a subscription license. Businesses pay a monthly or yearly fee to use the vendor’s cloud services, which may include the following: 

The benefit of SaaS subscriptions is that businesses pay much less than they would if they had to purchase a regular enterprise-level application. Plus, they receive access to software updates as a regular part of the service’s monthly maintenance.

Data ownership and security

Some companies are wary of the SaaS model because it entails storing secure and sensitive data in another company’s facilities. Additionally, questions can also arise over who owns the data.

  • Data ownership. Keep data-ownership concerns in mind when negotiating a service level agreement (SLA) with your SaaS vendor. SLAs typically spell out data-ownership terms, security requirements and typical maintenance schedules. In many cases, data ownership is not given to the vendor, though buyers should always check for clauses to make sure.
  • Data security. Data security is also a paramount concern for companies investigating SaaS options. Because their data is stored and accessed from a remote facility, the buying company has no control over what cybersecurity measures are used to prevent data breaches. Responsible vendors typically have many security measures in place – from storage redundancies to multitiered firewalls – to protect against hardware failure and data theft. Ensure you choose a vendor with robust security measures.
While general SaaS products are affordable, reliable, and easy to integrate, some businesses may require industry-specific niche software with specialized features.

The best SaaS for your business

SaaS applications are ubiquitous in the business world, covering any software need an organization may have.

The best CRM applications utilizing the SaaS model include the following: 

  • Salesforce CRM. Salesforce offered one of the first cloud-based CRM platforms. Today, Salesforce has a broad range of CRM products for sales, service, marketing, commerce, sustainability, safety and experiences. Read our in-depth Salesforce review to learn more.
  • NetSuite CRM. NetSuite is a robust CRM option with ERP features and other available add-on modules. Learn more about its features and pricing in our NetSuite CRM review.
  • SugarCRM. SugarCRM is an excellent cloud-based CRM option for small businesses and tech startups. Our complete SugarCRM review gives an overview of its transparent pricing model. 

Some of the best accounting software is available using the SaaS model as well: 

  • FreshBooks. FreshBooks is an intuitive SaaS-delivered accounting application that employees can access across all devices. FreshBooks makes it easy to create invoices, view invoice payments, and handle standard accounting tasks. Read our review of FreshBooks to learn more.
  • Zoho Books. Zoho Books is a simple SaaS-delivered accounting solution that syncs with your accounts and helps you create and send invoices, track time and expenses, and generate accounting reports. Check out our Zoho Books review to learn more.
  • QuickBooks Online. QuickBooks Online is an excellent accounting choice for small businesses. It’s easy to use, with time-saving features to reduce manual data entry and automate accounting tasks. Read our in-depth QuickBooks Online review to learn more. 

SaaS streamlines operations and eases business costs 

Software as a service fulfills a long-sought goal for companies and individuals. Moving applications to a cloud-like environment allows businesses and individuals to access enterprise-level software at a more affordable monthly rate. As a model of software production and on-demand licensing, it provides many customers with benefits beyond a simple software solution, creating real long-term value and savings.

Alex Halperin contributed to the reporting and writing in this article. 

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Ryan Goodrich, Staff Writer
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