What is SaaS (Software as a Service)? Everything You Need to Know (2024)


  • 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

What is public cloud? Everything you need to know

  • Which also includes:
  • 8 key characteristics of cloud computing
  • Top public cloud providers of 2023: A brief comparison
  • 8 ways to reduce cloud costs

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.

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:

  • 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.

For more on public cloud, read the following articles:

Public vs. private vs. hybrid cloud: Key differences defined

Choose the right on-premises-to-cloud migration method

Breaking Down the Cost of Cloud Computing

Top 10 cloud computing careers of 2023 and how to get started

Top 23 cloud computing skills to boost your career

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).

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 advertisem*nt 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)

  • 8 key characteristics of cloud computing
  • The pros and cons of cloud computing explained
  • Security for SaaS applications starts with collaboration
  • How to choose between IaaS and SaaS cloud models
  • 6 SaaS security best practices to protect applications

Related Terms

API gateway (application programming interface gateway)
An API gateway is a software pattern that sits in front of an application programming interface (API) or group of microservices ...Seecompletedefinition
cloud architect
A cloud architect is an IT professional who is responsible for overseeing a company's cloud computing strategy.Seecompletedefinition
event handler
In programming, an event handler is a callback routine that operates asynchronously once an event takes place.Seecompletedefinition

Dig Deeper on Cloud app development and management

What is SaaS (Software as a Service)? Everything You Need to Know (2024)


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

Software as a service (SaaS) is a software distribution

software distribution
Software distro, a set of software components (i.e. open source components) assembled into a working whole and distributed to a user community. A zine distribution service.
https://en.wikipedia.org › wiki › Distro
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.

What is SaaS everything you need to know about Software as a Service? ›

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).

What is SaaS easily explained? ›

Software as a Service (SaaS) is a software licensing model, which allows access to software on a subscription basis using external servers. SaaS allows each user to access programs via the Internet, instead of having to install the software on the user's computer.

What does SaaS Software as a Service refer to? ›

SaaS (Software as a Service) means accessing software through the internet without downloads. Users subscribe to applications hosted on remote servers, accessing them via web browsers. No maintenance or updates are required, making it a convenient and cost-effective way to use the software.

What is Software as a Service SaaS quizlet? ›

SaaS (Software as a Service) Applications that are deployed over a network, typically the web, accessible via browser or program interface; sometimes referred to as software demand. ( e.x. Facebook, Google Apps, Twitter)

What is SaaS and examples? ›

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.

Is Netflix A SaaS? ›

Netflix is indeed an SaaS company that sells software to watch licensed videos on demand. It follows a subscription-based model whereby the customer chooses a subscription plan and pays a fixed sum of money to Netflix monthly or annually.

How do you explain SaaS to a child? ›

Software as a Service (SaaS): SaaS is a cloud computing model that delivers software applications over the internet. Users can access the software from any device with an internet connection, eliminating the need to install and maintain software on their own computers.

What is so special about SaaS? ›

Cost Effective: No upfront hardware costs and flexible payment methods such as pay-as-you-go models. Scalability: Easily scale a solution to accommodate changing needs. Data Storage: Data is routinely saved in the cloud. Analytics: Access to data reporting and intelligence tools.

What is the benefit of SaaS? ›

When using a software as a service (SaaS) model, companies provide cloud applications to customers on a subscription payment basis. Organizations can follow a SaaS framework to reduce costs, increase accessibility, improve customer satisfaction and expand their financial success.

How is SaaS different from services? ›

Software-as-a-Service (SaaS) management is the online version of a managed services provider (MSP). Rather than hiring an agency to provide software tools for you, you pick your own cloud-hosted tools from the internet through self-service.

What is another name for SaaS? ›

SaaS is also known as on-demand software, web-based software, or web-hosted software. SaaS is a business model specific to cloud computing, along with infrastructure as a service (IaaS) and platform as a service (PaaS). SaaS apps are typically accessed by users of a web browser (a thin client).

Is Amazon a SaaS platform? ›

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

Which of the following is an example of a SaaS service? ›

Some popular SaaS examples include:Salesforce: A cloud-based CRM platform. Slack: A collaboration and communication tool. Dropbox: A cloud storage and file-sharing service.

What is the difference between the cloud and software as a service SaaS? ›

SaaS typically provides a specific application or software solution, such as email, accounting, or project management. Cloud computing, on the other hand, offers a wide range of services including infrastructure as a service (IaaS), platform as a service (PaaS), and software as a service (SaaS).

What is 6 software as a service SaaS? ›

Software as a service (SaaS) is a delivery and licensing model in which software is accessed on the web via a subscription rather than installed on local computers. With SaaS, companies need not manage applications or invest in hardware to run their applications.

What are the 2 basic components of SaaS? ›

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

What are the basics of SaaS and PaaS? ›

PaaS is most often built on top of an IaaS platform to reduce the need for system administration. It allows you to focus on app development instead of infrastructure management. SaaS offers ready-to-use, out-of-the-box solutions that meet a particular business need (such as a website or email).

Do you need to know coding for SaaS? ›

With the right guide, you'll build a solid SaaS product without writing a line of code. If you don't yet have a product idea but you're nursing the dream of creating your own SaaS product, you're also in the right place. With no code SaaS, you won't have to worry about: Learning coding.

Is Amazon a SaaS? ›

Amazon is not primarily a SaaS company. However, it does offer a number of SaaS products and services, including Amazon Web Services. AWS is a comprehensive, cloud-computing platform that provides a broad range of services, such as compute power, database storage, and content delivery services.

Top Articles
Latest Posts
Article information

Author: Jerrold Considine

Last Updated:

Views: 5864

Rating: 4.8 / 5 (78 voted)

Reviews: 85% of readers found this page helpful

Author information

Name: Jerrold Considine

Birthday: 1993-11-03

Address: Suite 447 3463 Marybelle Circles, New Marlin, AL 20765

Phone: +5816749283868

Job: Sales Executive

Hobby: Air sports, Sand art, Electronics, LARPing, Baseball, Book restoration, Puzzles

Introduction: My name is Jerrold Considine, I am a combative, cheerful, encouraging, happy, enthusiastic, funny, kind person who loves writing and wants to share my knowledge and understanding with you.