Home / Definitions / SaaS


Vangie Beal
Last Updated April 25, 2022 3:14 pm

Software as a service (SaaS) is a software delivery method that provides access to applications, storage, computing power, and subsequent updates remotely from a third party, usually via the cloud. It became popular in the early 2000s as a way for businesses to use reliable, enterprise-grade technology without setting up their own servers, data centers, or cloud environments. 

What does SaaS mean?

Delivered by a service provider, SaaS is a cloud computing service model that’s usually a more affordable means of accessing software. Its pricing is based on a monthly subscription rather than a lump-sum fee paid for on-premises application licensing. And because SaaS customers don’t need to purchase or manage the supporting hardware, they save money. These cost-effective solutions are specifically targeted toward small and medium enterprises with lean IT budgets. 

SaaS applications are also sometimes called hosted applications. The service provider hosts and maintains all hardware and middleware required to run the application, including servers, operating systems, and databases. 

A brief history of SaaS 

The practice of time-sharing was the beginning of computing services. In the 1960s and 70s, computer scientists designed and used a method by which multiple terminals could access the same mainframe computer. This reduced some of the clunkiness and expenses associated with single-use computers. Time-sharing first hinted at splitting technology between multiple users at the same time.

In the 1990s, IT teams had heavy technical burdens. On-premises computers and software required intense dedication and time to maintain, and purchasing new hardware and resources for repair was expensive.

Application service providers (ASPs), organizations that install software for business customers, reduced some of the cost and maintenance burdens on IT teams. ASPs do not have a multi-tenant business model; they install each instance of an application for each customer individually. 

The internet played an important role in the development of service-based computing. Once the World Wide Web had been popularized, and business users could access sites from multiple locations, the stage was set for web applications to be delivered as a service. 

Software as a service became an official business concept when customer relationship management (CRM) provider Salesforce launched the first official SaaS solution. Salesforce CRM was different from an ASP; businesses paid a fee to use the platform, but Salesforce didn’t come and install a separate instance for each customer. Although some didn’t think that businesses would benefit from a subscription-based system, the growth of the internet made SaaS more viable.  

Benefits of SaaS

SaaS applications are provided over the internet, which means they are universally compatible with any operating system and not dependent on any specific type of hardware. Because software as a service is available through the internet, customers can access the application whenever they have an internet connection.

Moreover, SaaS alleviates the need to staff a team of dedicated IT personnel responsible for installing, configuring, maintaining, and troubleshooting the software. Although enterprises may still need an experienced IT team, SaaS allows technical experts to work on other projects, saving their time and effort. 

Smaller enterprises and SMBs particularly benefit from SaaS. Many smaller businesses cannot manage hardware and middleware on their own. With managed applications, they’re able to serve customers, store sensitive data, and perform advanced analytics

Do the benefits of cloud applications outweigh the cons? Read The Pros and Cons of Putting Apps in the Cloud

Disadvantages of SaaS

Require internet access

SaaS applications are typically unusable without internet access, unless there is an offline option. If a business or remote branch suddenly loses electrical power and doesn’t have Wi-Fi, that limits options to access critical applications.

Limited customization options

SaaS applications also typically offer less customization than on-premises software offers. SaaS providers have varying levels of data protection, and if a SaaS provider is noncompliant with a particular regulation, its client companies may also be noncompliant by default (for example, if the SaaS provider stores customer data). 

Reliability on the service provider’s technology

An application’s reliability is subject to the service provider’s technology, such as its backup and failover methods. And while many smaller businesses require the service provider’s infrastructure, making business operations dependent on the ASP’s stability is a risk.

Limited control over security policies

SaaS companies, such as public cloud providers, typically have security protocols and procedures, but the industry perception is that SaaS is a security vulnerability. The disadvantage for businesses is that they have little to no control over the security policies implemented for the software they use. 

Examples of SaaS

SaaS applications have become more prevalent as more businesses adopt them; in most enterprise sectors, there are multiple SaaS options. The following enterprise technology categories have many major SaaS providers to consider. 

Cloud computing 

Marketing and sales 

  • Salesforce is a CRM platform that provides sales, marketing, and analytics for enterprises. 
  • Zendesk offers CRM as well as customer support services, helping businesses more easily create their own service desk. 
  • Mailchimp offers marketing automation, segmentation, and email to businesses. 
  • Hubspot is a multifaceted CRM solution for enterprises that offers content management system software and an operations hub for data quality automation. 

Collaboration and office software 

  • Slack is a managed collaboration platform that syncs with multiple other business applications, so enterprises can link their communication to office tools like Google Calendar. 
  • Google Workspace (formerly G Suite) includes multiple business applications, like Slides, Meet, Calendar, and Forms, that all work together. 
  • DocuSign manages the behind-the-scenes work of electronically signing important documents, including job offers and onboarding forms. 

Differences between IaaS, PaaS, and SaaS

Compared to SaaS, infrastructure as a service (IaaS) is a more comprehensive solution that provides storage, compute, and networking resources to customers, such as data center technology and servers. Users pay for each infrastructure resource individually as needed. Often, while IaaS providers manage the infrastructure, customers must configure and manage the applications and operating systems. 

Platform as a service offerings include middleware like operating systems and systems like database management and business intelligence, according to Microsoft Azure. While the provider still doesn’t offer hosted application management for business software, everything else is covered. PaaS is a solution for organizations that are developing their own applications but want the underlying infrastructure to be managed by another business. 

Software as a service manages everything, including the enterprise applications that businesses pay a subscription fee to use. The applications are fully developed and maintained by the service provider. 

Considering a partnership with a service provider? Read Top Software as a Service (SaaS) Companies, which has a large selection of vendors. 

This article was updated April 2022 by Jenna Phipps.