What is SaaS (Software as a Service)? Everything You Need to Know (2023)


  • Wesley Chai
  • Kathleen Casey,Site Editor

What is software as a service?

Software as a service (SaaS) is a software distribution model in which a cloud provider hosts applications and makes them available to end users over the internet. In this model, an independent software vendor (ISV) may contract a third-party cloud provider to host the application. Or, with larger companies, such as Microsoft, the cloud provider might also be the software vendor.

SaaS is one of three main categories of cloud computing, alongside infrastructure as a service (IaaS) and platform as a service (PaaS). A range of IT professionals, business users and personal users use SaaS applications. Products range from personal entertainment, such as Netflix, to advanced IT tools. Unlike IaaS and PaaS, SaaS products are frequently marketed to both B2B and B2C users.

According to a recent McKinsey & Company report, technology industry analysts predict further growth in the software as a service market, and expect to see the market for SaaS products near $200 billion by 2024.

How does software as a service work?

SaaS works through the cloud delivery model. A software provider will either host the application and related data using its own servers, databases, networking and computing resources, or it may be an ISV that contracts a cloud provider to host the application in the provider's data center. The application will be accessible to any device with a network connection. SaaS applications are typically accessed via web browsers.

This article is part of

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(Video) 5-Minute Breakdown: Software as a Service (SaaS)

As a result, companies using SaaS applications are not tasked with the setup and maintenance of the software. Users simply pay a subscription fee to gain access to the software, which is a ready-made solution.

SaaS is closely related to the application service provider (ASP) and on-demand computingsoftware delivery models where the provider hosts the customer's software and delivers it to approved end users over the internet.

(Video) Software as a Service (SaaS) Explained in 5 mins

In the software-on-demand SaaS model, the provider gives customers network-based access to a single copy of an application that the provider created specifically for SaaS distribution. The application's source code is the same for all customers, and when new features or functionalities are released, they are rolled out to all customers. Depending on the service-level agreement (SLA), the customer's data for each model may be stored locally, in the cloud or both locally and in the cloud.

Organizations can integrate SaaS applications with other software using application programming interfaces (APIs). For example, a business can write its own software tools and use the SaaS provider's APIs to integrate those tools with the SaaS offering.

SaaS architecture

SaaS applications and services typically use a multi-tenant approach, which means a single instance of the SaaS application will be running on the host servers, and that single instance will serve each subscribing customer or cloud tenant. The application will run on a single version and configuration across all customers, or tenants. Though different subscribing customers will run on the same cloud instance with a common infrastructure and platform, the data from different customers will still be segregated.

The typical multi-tenant architecture of SaaS applications means the cloud service provider can manage maintenance, updates and bug fixes faster, easier and more efficiently. Rather than having to implement changes in multiple instances, engineers can make necessary changes for all customers by maintaining the one, shared instance.

Furthermore, multi-tenancy allows a greater pool of resources to be available to a larger group of people, without compromising important cloud functions such as security, speed and privacy.

What are the advantages of SaaS?

SaaS removes the need for organizations to install and run applications on their own computers or in their own data centers. This eliminates the expense of hardware acquisition, provisioning and maintenance, as well as software licensing, installation and support. Other benefits of the SaaS model include:

(Video) What Is SaaS? Software As A Service Explained (In 9 Minutes)

  • Flexible payments. Rather than purchasing software to install, or additional hardware to support it, customers subscribe to a SaaS offering. Transitioning costs to a recurring operating expense allows many businesses to exercise better and more predictable budgeting. Users can also terminate SaaS offerings at any time to stop those recurring costs.
  • Scalable usage. Cloud services like SaaS offer high Vertical scalability, which gives customers the option to access more or fewer services or features on demand.
  • Automatic updates. Rather than purchasing new software, customers can rely on a SaaS provider to automatically perform updates and patch management. This further reduces the burden on in-house IT staff.
  • Accessibility and persistence. Since SaaS vendors deliver applications over the internet, users can access them from any internet-enabled device and location.
  • Customization. SaaS applications are often customizable and can be integrated with other business applications, especially across applications from a common software provider.

What are the challenges and risks of SaaS?

SaaS also poses some potential risks and challenges, as businesses must rely on outside vendors to provide the software, keep that software up and running, track and report accurate billing and facilitate a secure environment for the business's data.

  • Issues beyond customer control. Issues can arise when providers experience service disruptions, impose unwanted changes to service offerings or experience a security breach -- all of which can have a profound effect on the customers' ability to use the SaaS offering. To proactively mitigate these issues, customers should understand their SaaS provider's SLA and make sure it is enforced.
  • Customers lose control over versioning. If the provider adopts a new version of an application, it will roll out to all of its customers, regardless of whether or not the customer wants the newer version. This may require the organization to provide extra time and resources for training.
  • Difficulty switching vendors. As with using any cloud service provider, switching vendors can be difficult. To switch vendors, customers must migrate very large amounts of data. Furthermore, some vendors use proprietary technologies and data types, which can further complicate customer data transfer between different cloud providers. Vendor lock-in is when a customer cannot easily transition between service providers due to these conditions.
  • Security. Cloud security is often cited as a significant challenge for SaaS applications.

SaaS security and privacy

The cybersecurity risks associated with software as a service are different from those associated with traditional software. With traditional software, the software vendor is responsible for eliminating code-based vulnerabilities, while the user is responsible for running the software on a secure infrastructure and network. As a result, security is more the responsibility of the independent software vendor and third-party cloud provider.

Despite the rapid adoption of cloud-based models for fully serviced software products, organizations still have certain reservations about SaaS products when it comes to security and privacy. These concerns include:

  • encryption and key management;
  • identity and access management (IAM);
  • security monitoring;
  • incident response;
  • poor integration into broader, company-specific security environments;
  • fulfillment of data residency requirements;
  • data privacy;
  • cost of investing in third-party tools to offset the SaaS security risk; and
  • lack of communication with technical and security experts during the sales process.

SaaS vs. IaaS vs. PaaS

SaaS is one of the three major cloud service models, along with IaaS and PaaS. All three models involve cloud providers that deliver their own hosted data center resources to customers over the internet.

Where the models differ is in the completeness of the product. SaaS products are complete and fully managed applications. IaaS is largely outsourcing data center resources, and PaaS delivers a development platform and other tools hosted by the provider's data center.

SaaS application users do not have to download software, manage any existing IT infrastructures or deal with any aspect of the software management. Vendors handle maintenance, upgrades, support, security and all other aspects of managing the software.

IaaS is used by companies that want to outsource their data center and computer resources to a cloud provider. IaaS providers host infrastructure components such as servers, storage, networking hardware and virtualization resources. Customer organizations using IaaS services must still manage their data use, applications and operating systems (OSes).

(Video) What is SaaS (Software as a Service)?

PaaS provides a framework of resources for an organization's in-house developers. This hosted platform enables developers to create customized applications. The vendor manages the data center resources that support the tools. Customer organizations using PaaS services do not have to manage their OSes, but must manage applications and data use.

What is SaaS (Software as a Service)? Everything You Need to Know (1)

SaaS vendors and examples

The SaaS market includes a variety of software vendors and products. Industry players include small, single-product vendors all the way up to cloud giants such as AWS and Google.

SaaS products are also diverse, ranging from video streaming services to IT business analytics tools. There are SaaS applications for fundamental business applications such as email, sales management, customer relationship management (CRM), financial management, human resource management (HRM), billing and collaboration. Enterprise SaaS products for specific industries, such as insurance or medical, are known as vertical SaaS products.

SaaS products may be primarily marketed to B2B, B2C markets or both. Examples of popular SaaS products include:

  • Salesforce
  • Google Workspace apps
  • Microsoft 365
  • HubSpot
  • Trello
  • Netflix
  • Zoom
  • Zendesk
  • DocuSign
  • Slack
  • Adobe Creative Cloud
  • Shopify
  • Mailchimp

SaaS pricing

Generally, using a SaaS product is more cost-effective than a traditional software license for enterprise software, as setup and installation onto hardware are not necessary. SaaS providers typically use one of many subscription-based pricing models for customers.

  • Free, or ad-based. A service may be free for users, with the SaaS provider generating revenue through selling advertisement space. In this model, there is typically an option to upgrade to a paid tier that doesn't include intrusive ads.
  • Flat rate. Customers are granted access to the software's full suite of features for a fixed monthly or annual subscription fee.
  • Per user. Pricing is determined by how many people will be using the service for each subscription. There is a fixed price for every user.
  • Per user tiers. Pricing tiers are based on a range of how many active users can exist on a single subscription.
  • Storage tiers. Customers may have free access to a service but will be required to pay for storage if they wish to continue using the product after they pass the free limit.
  • Pay-as-you-go, or usage-based. The more customers use the service, the more they are billed and vice versa.
  • Per active user. This incorporates aspects of the "per-user" and "pay-as-you- go" strategies. Subscribers are billed per user, but only if the user has been actively using the service beyond a defined threshold.
  • Feature-based tiers. Price tiers are determined by the amount of features the subscriber seeks. In this model, reduced versions of the software with limited features are available for a lower price than the maximum functionality tier. Additional feature tiers in between the minimum and maximum functionality tiers may also exist.
  • Freemium. The service will be generally free to use with an entry-level tier. However, there will typically be functional restrictions in place that are designed to upsell customers to a paid tier.

This was last updated in October 2022

Continue Reading About Software as a Service (SaaS)

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What are the top 3 most important aspects of SaaS? ›

Some of the must have or nice to have features and key characteristics of SaaS applications are the following:
  • - Single Sign On.
  • - Subscription based billing.
  • - High availability.
  • - Elastic Infrastructure.
  • - Data Security.
  • - Application Security.
  • - Rate limiting/QoS.
  • - Audit.
Jan 29, 2020

What is SaaS explain with example? ›

Software as a service (SaaS) allows users to connect to and use cloud-based apps over the Internet. Common examples are email, calendaring, and office tools (such as Microsoft Office 365). SaaS provides a complete software solution that you purchase on a pay-as-you-go basis from a cloud service provider.

What are the 2 basic components of SaaS? ›

The essential SaaS components are: CRM system. Marketing automation.

What is SaaS and why is it important? ›

SaaS or Software as a Service, also known as the ASP (application service provider) services, software on demand, or – simply – service in the Cloud, offers a connection and subscription to IT services built on a shared infrastructure via the cloud and deployed over the Internet, rather than purchased and downloaded or ...

What skills do I need for SaaS? ›

To employ talent in SaaS companies, there are a few crucial aspects you should keep in mind in terms of both hard and soft skills.
  • Technical Expertise. ...
  • Security and Data Management. ...
  • Problem Solving and Customization. ...
  • Compliance Skills. ...
  • Communication and Team Work Capabilities.

What is a real world example of SaaS? ›

SaaS platforms involve software that is available via third-party over the Internet. Examples of popular SaaS providers include: BigCommerce. Google Workspace, Salesforce.

Is Netflix a SaaS company? ›

Yes, Netflix is a SaaS organization that provides on-demand videos using the software.

Is Gmail an example of SaaS? ›

A simple example of SaaS is an online email service, like Gmail. If you use Gmail, you are not hosting your own email server. Google is hosting it, and you are simply accessing it through your browser-as-client.

Is it easy to learn SaaS? ›

SaaS isn't hard to learn at all. SaaS is a different framework from traditional software, but the key software-building skills like coding don't change much when moving to a SaaS framework. SaaS applications are designed for daily use with the end user in mind, so they are usually easy to learn.

Is SaaS frontend or backend? ›

Backend or server-side is the core of your application. It coordinates business logic, APIs, stores and manages data. In SaaS applications backend orchestrates frontend and mobile apps, connects to 3rd-party resources and databases.

How many types of SaaS are there? ›

Types of SaaS – What is Horizontal and Vertical SaaS? There are two different types of Software as a Service model, horizontal SaaS and vertical SaaS. A horizontal SaaS is a structure well used by established cloud services such as Salesforce, Microsoft, Slack, Hubspot etc.

Why would a company want to use SaaS? ›

Lower Cost: SaaS applications usually reside in a shared environment, so the hardware and software licensing costs are lower than traditional models. Another significant benefit is that you can scale the customer base, whether it's for small or mid-level businesses.

What is the goal of SaaS? ›

The purpose of SaaS is to deliver on-demand computing services through applications over the internet. It improves accessibility, scalability, and reliability while minimizing overhead and maintenance costs.

Why SaaS is so popular? ›

SaaS is a software distribution model that offers a lot of agility and cost-effectiveness for companies, making it an incredibly reliable option for numerous business models and industries. It's also popular among businesses due to its simplicity, user accessibility, security, and widespread connectivity.

What are the issues of SaaS? ›

Consequently, SaaS customers face several notable challenges.
  • Data Loss. Organizations have less control over and visibility into their data when using SaaS. ...
  • Unauthorized Access. ...
  • Insecure Application Programming Interfaces. ...
  • Shadow IT. ...
  • Vulnerability Management. ...
  • Third-Party Risk Management. ...
  • Risk Mitigation. ...
  • Event Visibility.
Jul 26, 2022

What are the current pros and cons of using SaaS? ›

The pros of SaaS include cost, maintenance and mobility. The cons include security, contractual obligations and a loss of control. Proper software asset management is critical with SaaS applications.

Can SaaS be hacked? ›

Even a fully secured SaaS platform can be compromised when a privileged user accesses a SaaS app from a compromised device. Leverage a security solution that combines device security posture with SaaS security posture for full, end-to-end protection.

What is SaaS for beginners? ›

What is SaaS? Software as a service (or SaaS) is a way of delivering applications over the Internet—as a service. Instead of installing and maintaining software, you simply access it via the Internet, freeing yourself from complex software and hardware management.

What coding language is used for SaaS? ›

Python is one of the leading programming languages for SaaS application development.

Can you get into SaaS without a degree? ›

A degree in a technical field can be helpful when trying to land a SaaS job. That said, you don't need a degree to land a job in the field. Many entry-level SaaS sales roles require candidates to have only a high school diploma.

Is Amazon a SaaS? ›

AWS (Amazon Web Services) is a comprehensive, evolving cloud computing platform provided by Amazon that includes a mixture of infrastructure-as-a-service (IaaS), platform-as-a-service (PaaS) and packaged-software-as-a-service (SaaS) offerings.

Is Facebook an example of SaaS? ›

Also, it is a digital platform for communication not a publisher or media platform. Hence, Facebook is not an example of SaaS.

Is Zoom an example of SaaS? ›

As a SaaS company, Zoom allows individuals and companies the chance to communicate virtually through a unified communications platform. The platform offers three primary communication tools, namely, chat, audio calls, and video calls.

Is Apple an SaaS company? ›

SaaS Comapanies Google, Microsoft, Amazon Web Services and Apple. Most of the world's largest and most valuable companies are or operate in part of their operation in the SaaS model.

Is Google an SaaS? ›

Google. Overview: While Google isn't a SaaS-only provider (it has infrastructure offerings like the Google Cloud or Kubernetes engine, as well as free web apps like Google search), its SaaS products have gained incredible traction in the last few years.

Is AT&T a SaaS company? ›

Together, the power of the AT&T network, our Software-as-a-Service (SaaS)-based solutions with advanced technologies (including virtualization and actionable threat intelligence from AT&T Alien Labs and the Open Threat Exchange™), and our relationship with more than 40 best-of-breed vendors help accelerate your ...

Is iPhone a SaaS? ›

With iPhone sales beginning to plateau, Apple is now focusing its attention elsewhere: on their software-as-a-service (SaaS) platforms — more commonly known among consumers as macOS, iOS, WatchOS, iPadOS, and tvOS.

Is Uber an example of SaaS? ›

SaaS: Software as a Service

As these applications are accessed through the internet, they often need no implementation by the end user. Well-known examples of SaaS applications are Uber, Netflix, Salesforce, Dropbox and Microsoft Office 365.

Is Facebook a SaaS or PaaS? ›

Facebook is an example of PaaS. Developers can create specific applications for the Facebook platform using proprietary APIs and make that application available to any Facebook user.

Does SaaS require coding? ›

Proficient Programming Skills are another essential skill set. Most employers would demand knowledge of Java, PHP, Python, and a couple of others for effective working in the SaaS industry.

Does SaaS need coding? ›

Not really. With all the options available today, you don't need to know how to code to start a SaaS business. Not every successful startup founder has programming skills.

What is the average base salary for SaaS sales? ›

How much does a SAAS Sales make? As of Jan 3, 2023, the average annual pay for a SAAS Sales in the United States is $81,754 a year. Just in case you need a simple salary calculator, that works out to be approximately $39.30 an hour. This is the equivalent of $1,572/week or $6,812/month.

Is Tesla a SaaS? ›

Tesla Third Row - Ross: Tesla becoming a Software as a Service (SAAS) Company. Tesla's tech opportunities seem endless. CEO Ross Gerber joins the podcast Third Row Tesla to discuss the reality of the car manufacturer becoming a Software as a Service (SAAS) Company.

What is the opposite of SaaS? ›

The opposite of SaaS is self-hosted. And the opposite of public cloud is on-premises. We used on-premises to say self-hosted and it was confusing because you can self-host in the public cloud (run GitLab on AWS for example).

Is SaaS an expense or asset? ›

Under US GAAP, the subscription fees paid to the SaaS provider are generally recognized to expense over the SaaS period.

What is another name for SaaS? ›

Software as a service (SaaS /sæs/) is a software licensing and delivery model in which software is licensed on a subscription basis and is centrally hosted. SaaS is also known as "on-demand software" and Web-based/Web-hosted software.

Is Office 365 an SaaS? ›

Software as a service (SaaS) allows users to connect to and use cloud-based apps over the Internet. Common examples are email, calendaring, and office tools (such as Microsoft Office 365).

Is Spotify an example of SaaS? ›

What it really means is business software that businesses pay for. SaaS companies can learn a lot from Spotify, from e-commerce subscription services, etc. There are similarities. But they aren't “SaaS”.

What are three 3 key aspects of cloud computing? ›

Well, there are 3 types of cloud computing: Infrastructure as a Service (IaaS), Platform as a Service (PaaS), and Software as a Service (SaaS). With IaaS, companies control their own computing, networking, and storing components without having to manage them on-premises physically.

What are the top 3 KEY SaaS marketing metrics to track? ›

The three most common SaaS marketing metrics are Annual Recurring Revenue / Monthly Recurring Revenue, Customer Acquisition Cost (CAC), and Customer Lifetime Value. These marketing metrics assist you in defining your marketing campaign and aim to inspire growth.

What are the 5 key security elements of SaaS model? ›

Seven security risks to discuss with your SaaS supplier
  • Access management. Access management is critical for every SaaS application due to the presence of sensitive data. ...
  • Misconfigurations. ...
  • Regulatory compliance. ...
  • Storage. ...
  • Retention. ...
  • Disaster recovery. ...
  • Privacy and data breaches. ...
  • Risk assessment.
Dec 4, 2022

What are the three major components of any cloud platform? ›

The main physical components of cloud infrastructure are networking equipment, servers and data storage. Cloud infrastructure also includes a hardware abstraction layer that enables the virtualization of resources and helps to drive down costs through economies of scale.

What are the five pillars of cloud computing? ›

CROPS — cost optimization, reliability, operational excellence, performance efficiency and security — allows organizations to get the most from their cloud infrastructure.

What does PaaS stand for? ›

Platform as a service (PaaS) is a cloud computing model where a third-party provider delivers hardware and software tools to users over the internet. Usually, these tools are needed for application development.

What is the difference between IaaS and SaaS? ›

IaaS builds the infrastructure of cloud-based technology. PaaS helps developers build custom apps via an API that can be delivered over the cloud. And, SaaS is cloud-based software companies can sell and use.

What is rule of 40 in SaaS? ›

The Rule of 40 is a principle that states a software company's combined revenue growth rate and profit margin should equal or exceed 40%. SaaS companies above 40% are generating profit at a rate that's sustainable, whereas companies below 40% may face cash flow or liquidity issues.

Who is market leader in SaaS? ›

b. North America dominated the SaaS market with a share of 49.9% in 2021.

What is the magic number in SaaS? ›

The SaaS magic number is one of the best ways to calculate your sales efficiency. The formula to calculate the SaaS magic number is “(Current Quarter ARR – Prior Quarter ARR) / Prior Quarter Acquisition Spend.”


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