What Is SaaS? (Definition, Examples, Benefits, Risks)

SaaS stands for Software-as-a-Service. Customers license SaaS products on a subscription basis and receive them over the internet. The code, servers and database that make up an application are hosted and maintained by software providers like Amazon Web Services or Google Cloud. The customers then access the software through a web browser or a mobile app.

Examples of SaaS Products:

A SaaS product is one that’s built by a software vendor and licensed to a company. The company pays for the license on a monthly or yearly basis. Here are a few SaaS companies you may know.

  • Netflix:
  • Trello:
  • Salesforce:
  • Hubspot:
  • Asana:
  • Zendesk:
  • Quickbooks:
  • Slack:

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How Does SaaS Work?

SaaS works in two parts — a vendor creates the software then a customer licenses the software.

The vendor builds software to solve a problem for a sector of business. They typically gather requirements across the customer base and will likely trade off solving one customer’s problem by solving many customers’ problems at once. Vendors building this way allow for many advantages, such as scalability and lower maintenance to benefit customers. Customers then pay for the software over time (usually as a subscription) with the understanding that their feedback will create improvements down the line. The customer does not own the software, and in exchange, they do not have to worry about maintaining it.

SaaS Architecture:

SaaS applications and services use a multi-tenant approach. In practice, this means there is a single instance of the application so all customers use the same version and configuration of the product. A multi-tenant approach allows SaaS engineers and cloud providers to manage upgrades and bug fixes much faster than a more bespoke approach, thereby creating a smoother user experience for all customers.

The application is tied to data provided by the customer. That data flows, usually through an API, into the application’s database(s). So even though there are multiple customers’ data held in a database, that information is secured so it doesn’t mix with other customer data. When a customer accesses the application, it uses identifiers (such as a username and password) to understand what data to access. The application then combines the data and app into an “instance” which is what the user sees when they interact with the software.

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Advantages of SAAS:

SaaS offers an exciting alternative to the typical business model of installing software, which often requires building a server, installing the program and configuring it on-premise. Instead, SaaS products are located on a cloud network that customers can access online or through an API. SaaS differs from the traditional model because the software (application) comes preconfigured.

Several benefits come with using the SaaS model to procure software, such as:

  • Lower costs to install: SaaS products are installed in a series of clicks. Even for complex software, the time to end-user benefit is reduced since there is no need to set up servers. All the software needs is the right data, which is generally provided by the user, customer or an API.
  • Maintaining and updating software is cheaper for customers: The vendor handles all installation and software updates, then applies those changes globally. This means the software periodically gains new features without any work from the customer.
  • Scalability and integration: The software is built on third-party vendors, like AWS, which can scale on demand. This means that even through unexpected increases in utilization, the software is unlikely to break.

5-Minute Breakdown: Software-as-a-Service (SaaS). |: Video: CBT Nuggets

Disadvantages of SaaS:

Consider factors like support services, data security and hype before signing a contract with a software-as-a-service provider. SaaS has the potential to increase earnings and significantly boost productivity, but when things go wrong, it becomes annoying, costly and even unsafe. Knowing the risks and drawbacks of SaaS can help you decide whether a SaaS product is the right option for your company.

  • Loss of control and: service-level agreements (SLA): You don’t have software control. Any fix your software needs boils down to the terms of your SLA. Unless you opt to break your SLA, you don’t have much recourse to solve your software’s problems with your in-house engineers.
  • Software integration problems:: Handing over certain operations to a vendor may make things easier up front but down the road you may find yourself at the mercy of the vendor’s support team. This can, in some instances, harm your reputation with customers. If your software is integrated with a SaaS service and the product downtime negatively impacts your customers, your customers will only see you, not your vendor.
  • Potential lack of security: SaaS works by giving your data over to a vendor. Although there are terms to which you agree, you ultimately have no control over how well the vendor secures that data.

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SaaS vs. IaaS vs. PaaS: What’s the Difference?

SaaS (Software-as-a-Service)

Think about Netflix as noted above. Customers aren’t responsible for managing IT infrastructure or dealing with any aspect of software management when it comes to SaaS products.

PaaS (Platform-as-a-Service)

These products provide a framework for in-house developers to create customized applications. While developers maintain management of the applications they build, all of the servers and storage can be managed by the enterprise host or a third-party provider. AWS Elastic Beanstalk and Heroku are popular PaaS products.

IaaS (Infrastructure-as-a-Service)

These are products used by companies who seek to outsource their data center or computer resources. IaaS providers host servers, storage and networking hardware. IaaS customers must still manage their data use and operating systems. This is where tools like Microsoft Azure or AWS come into play, thereby allowing companies to access cloud services. While you as an individual customer may have a Netflix subscription, Netflix may have their own contract with an IaaS company.

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