SaaS, or Software as a Service, is a model of software delivery and licensing in which applications are accessed online through a subscription instead of being purchased and installed on personal devices.
This business model has numerous benefits for both creators and users, and 33 percent of companies are operating more additional SaaS applications than they accomplished in 2016. More, around 3-quarters of companies will include almost all of their SaaS apps by 2020.
Keep scrolling to understand nicely what is SaaS and know more about the benefits of creating the switch.
What is a SaaS Application?
SaaS applications are software programs delivered over the internet instead of being installed directly on a computer. For instance, Microsoft Outlook and Apple Mail are examples of traditional desktop email programs, whereas Gmail represents a SaaS-based email service.
SaaS vs Cloud Computing
When multiple individuals attempt to comprehend what is SaaS, they correlate it to cloud computing. This is somewhat accurate as SaaS is a subset of cloud computing.
You can describe cloud computing as an all-around group of computer services where a few elements are operated online instead of all on the user’s servers and computers.
In contrast, SaaS can be identified as a type of software that is accessed remotely via the cloud. In Software as a Service, all data connected to that software is usually stored on the software provider’s servers instead of on the customer’s own computers.
A good example is the Microsoft Office suite. If you make a one-time purchase and store some documents online for convenience, you’re using cloud computing, but not SaaS. However, if you’ve moved to the Office 365 subscription model—where you can use the software through the cloud and your desktop version updates automatically—you’re using SaaS.
SaaS vs PaaS
When comparing SaaS to PaaS, the key difference lies in the level of service offered. SaaS delivers a complete software solution, including the application and data storage. In contrast, PaaS provides the underlying infrastructure needed to develop and run your own applications, while the applications and their data remain entirely under your management.
Popular SaaS applications include Google Apps, Dropbox, and Salesforce. Examples of PaaS offerings are AWS Elastic Beanstalk and Google App Engine.
Why should you consider moving to a SaaS Model?
1. Time to Launch
Every SaaS application is already configured and installed in the cloud. This reduces typical uncertainties resulting from usually long traditional software deployment.
After development is complete, the software is immediately ready for use. There’s no need to wait for installation or deal with unforeseen hardware issues on the client’s side once it’s deployed.
2. Scalability
With a SaaS model, organizations don’t need to worry about capacity as their user base or usage grows. They can easily scale by adding new users without the hassle of purchasing extra hardware or infrastructure.
Additional storage or bandwidth can be added instantly, often with just a click. When new user licenses are needed—for example, for new employees—they can simply be created by setting up a new username and password, rather than buying extra physical software.
The product owner must be ready to support this increased demand but can do so cost-effectively by hosting multiple applications on a shared platform. This results in much lower expenses compared to what clients would face upgrading their own systems. Additionally, the provider can offset these incremental costs by charging clients based on actual usage.
3. Costs
The SaaS model offers cost savings in several key areas:
Total Cost of Ownership
While clients may focus on recurring subscription fees, the overall cost of ownership is typically lower. This is largely because of reduced hardware expenses and avoiding the decline in performance that occurs as traditional software becomes outdated.
Additionally, clients don’t need to allocate physical space for servers or related equipment.
Initial Setup Costs
Upfront expenses are significantly reduced, often involving little to no initial software cost. Clients also save by not needing to invest in new hardware or renovate space to accommodate it.
Support Costs
Support becomes more efficient, leading to further savings that the provider can either retain as profit or pass along through lower fees.
These efficiencies include fewer on-site service calls, continuous updates acting as preventive maintenance, and the ability to support multiple clients using the same core software instead of maintaining completely separate systems.
Maintenance
With no on-site hardware, maintenance requirements and downtime are greatly minimized. Clients avoid shutting down systems for hardware upgrades or repairs, while providers can share backup infrastructure across applications.
The client’s IT staff also saves time and resources by not having to perform routine hardware checks to ensure system stability.
Who is the SaaS Model Best Suited For?
As outlined by the benefits above, a SaaS model is ideal for businesses aiming to:
- Accelerate time-to-value
- Cut costs
- Simplify software usability
- Expand into new markets
- Establish a more predictable and stable revenue stream
However, SaaS may not be the right fit in the following cases:
1. Dependence on Upfront Payments
While SaaS helps improve long-term revenue forecasting and stability, it can create short-term cash flow challenges. If your business depends on upfront payments to recover development costs or fund day-to-day operations, switching to SaaS might be premature.
2. Need for Accelerated Revenue Recognition
Unlike on-premises software (OPS), which often allows vendors to recognize license revenue upon delivery and service revenue during implementation, SaaS typically delays revenue recognition. Upfront payments for licenses and services are deferred until the software goes live, then recognized over the customer’s lifecycle. Even if cash flow isn’t an issue, this delay could negatively impact reported earnings if faster revenue recognition is essential.
3. Requirement for Full Data Control
Self-hosted software gives organizations greater control over their systems and data. With SaaS, that control rests largely with the provider. Users are generally required to adopt the latest version of the software and may not be able to postpone updates. This can sometimes lead to the removal or alteration of features that are vital to a client’s operations.