Software as a service

SaaS is usually accessed via a web application. Unlike most self-hosted software products, only one version of the software exists and only one operating system and configuration is supported. SaaS products typically run on top of rented infrastructure as a service (IaaS) or platform as a service (PaaS) systems including hardware and sometimes operating systems and middleware to accommodate rapid increases in usage while providing the instant and continuous availability that customers expect. SaaS customers are provided with the abstraction of limitless computing resources, while economy of scale drives down the cost.


There are no specific software development practices that distinguish SaaS from other application development, although often there is a focus on frequent testing and releases. SaaS architectures are typically multi-tenant; although usually they achieve superior efficiency by sharing at least some resources between clients, it is not uncommon to offer a completely siloed environment for an additional fee. Common SaaS revenue models include freemium, subscription, and usage-based fees. Unlike traditional software, rarely is it possible to buy a perpetual license for a certain version of the software.

History[edit]

In the 1960s, multitasking was invented, enabling mainframe computers to serve multiple users simultaneously. Over the next decade, timesharing became the main business model for computing, and cluster computing enabled multiple computers to work together.^[9] Cloud computing emerged in the late 1990s with companies like Amazon (1994), Salesforce (1999), and Concur (1993) offering Internet-based applications on a pay-per-use basis. All of these focused on a single product to seize a high market share.^[12] Beginning with Gmail in 2004, email services were some of the first SaaS products to be mass-marketed to consumers.^[13] The market for SaaS grew rapidly throughout the early twenty-first century.^[14][11] Initially viewed as a technological innovation, SaaS has come to be perceived more as a business model.^[15] By 2023, SaaS had become the primary method that companies deliver applications.^[16]


Popular consumer SaaS products include all social media websites, email services like Gmail and its associated Google Docs Editors,^[17] Skype, Dropbox,^[18] and entertainment products like Netflix and Spotify.^[19] Enterprise SaaS products include Salesforce's customer relationship management (CRM) software, SAP Cloud Platform, and Oracle Cloud Enterprise Resource Planning.^[18]

Revenue models[edit]

Some SaaS providers offer free services to consumers that are funded by means such as advertising, affiliate marketing, or selling consumer data.^[20] One of the most popular models for Internet start-ups and mobile apps is freemium, where the company charges for continued use or a higher level of service. Even if the user never upgrades to the paid version, it helps the company capture a higher market share and displace customers from a rival.^[21] However, the company's hosting cost increases with the number of users, regardless of whether it is successful at enticing them to use the paid version.^[22] Another common model is where the free version only provides demonstration (crippleware). Online marketplaces may charge a fee on transactions to cover the SaaS provider costs.^[20] It used to be more common for SaaS products to be offered for a one-time cost, but this model is declining in popularity.^[20] A few^[20] SaaS products have open source code, called open SaaS. This model can provide advantages such as reduced deployment cost, less vendor commitment, and more portable applications.^[23]


The most common SaaS revenue models involve subscription and pay for usage.^[24] For customers, the advantages include reduced upfront cost, increased flexibility, and lower overall cost compared to traditional software with perpetual software licenses.^[25] In some cases, the steep one-time cost demanded by sellers of traditional software were out of the reach of smaller businesses, but pay-per-use SaaS models makes the software affordable.^[3] Usage may be charged based on the number of users, transactions, amount of storage spaced used, or other metrics.^[26] Many buyers prefer pay-per-usage because they believe that they are relatively light users of the software, and the seller benefits by reaching occasional users who would otherwise not buy the software.^[26] However, it can cause revenue uncertainty for the seller and increases the overhead for billing.^[27]


The subscription model of SaaS offers a continuing and renewable revenue stream to the provider, although vulnerable to cancellation.^[3] If a significant number are cancelled, the viability of the business can be placed in jeopardy.^[3] The ease of canceling a subscription and switching to a competitor leave customers with the leverage to get concessions from the seller.^[28] While recurring revenues can help the business and attract investors, the need for customer service skills in convincing the customer to renew their subscription is a challenge for providers switching to subscription from other revenue models.^[29]

Adoption[edit]

SaaS products are typically accessed via a web browser as a publicly available web application.^[30][16] This means that customers can access the application anywhere from any device without needing to install or update it.^[16][31] SaaS providers often try to minimize the difficulty of signing up for the product.^[32] Many capitalize on the service-oriented structure to respond to customer feedback and evolve their product quickly to meet demands. This can enable customers to believe in the continued improvement of the product and help the SaaS provider get customers from an established traditional software company that likely can offer a deeper feature set.^[33][34]


Although on-premises software is often less secure than SaaS alternatives,^[35] security and privacy are among the main reasons cited by companies that do not adopt SaaS products.^[36] SaaS companies have to protect their publicly available offerings from abuse, including denial-of-service attacks and hacking.^[37] They often use technologies such as access control, authentication, and encryption to protect data confidentiality.^[36] Nevertheless, not all companies trust SaaS providers to keep sensitive data secured.^[36] The vendor is responsible for software updates, including security patches, and for protecting the customers' data.^[31] SaaS systems inherently have a greater latency than software run on-premises due to the time for network packets to be delivered to the cloud facility. This can be prohibitive for some uses, such as time-sensitive industrial processes or warehousing.^[38]


The rise of SaaS products is one factor leading many companies switched from budgeting for IT as a capital expenditure to an operating expenditure.^[39] The process of migration to SaaS and supporting it can also be a significant cost that must be accounted for.^[40][29]