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Cloud Computing and SaaS: Why People Get Them Confused

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Seemingly joined at the hip, the technology terms "the cloud" and "SaaS" are really more like parent and child than Siamese twins.

While it’s not quite a chicken-or-the-egg conundrum, Software as a Service (SaaS) couldn’t exist without the cloud. Even so, if there are two terms people tend to confuse, it’s SaaS and cloud computing. They do have a lot in common, but they aren’t the same. Here we’ll take a look at their differences.

The Cloud Vs. SaaS

Loosely defined, the cloud could be used as a synonym for the Internet, if the Internet is defined as the worldwide internetwork of computers. Connections to the Internet (cable television, fiber-optic cables, DSL or wireless) that connect businesses and consumers to resources (email, websites, Twitter feeds) stored on servers are what make up the cloud.

SaaS, on the other hand, relies on the plumbing (wireless, fiber-optic cables) and hardware (routers, servers) of the cloud to provide services to customers via rentable or free software. So, while SaaS is distinct from the cloud, it wouldn’t exist without the services that the cloud provides. SaaS, therefore, could be described as a subset of the cloud.

Where does the term cloud computing come from?

The Internet existed long before marketers started using the term "cloud." According to a CSI-style investigation by MIT Technology Review, the term cloud computing was coined by either Compaq’s George Favaloro or entrepreneur Sean O’Sullivan (neither man remembers who first uttered the phrase) at an office park outside Houston in 1996 to describe Compaq’s initiative to provide servers to companies such as AOL. Ironically, Compaq changed the phrase "cloud computing" to "Internet computing" in the final version of the press release announcing the service.

The term didn’t enter techno-speak until 2006 when Google’s then-CEO Eric Schmidt used this phrase to describe a new business model.

"It starts with the premise that the data services and architecture should be on servers. We call it cloud computing – they should be in a ‘cloud’ somewhere," Schmidt said at a search engine strategies conference. Since that time, the term’s popularity has exploded. Today, a search for "the cloud" returns 961 million results, none of which involve meteorology.


The cloud or cloud computing has turned out to be an apt metaphor to describe the Internet, as consumers don’t really need to know exactly where the picture they just posted on Facebook is stored. All they need to know is that it will be available to their network from any device with an Internet connection. (Discover the basics of cloud computing in Cloud Computing: What It Means for You.)

What about the term Software as a Service? What are its origins?

The origins of the term SaaS are a little hazier but appear to date from a white paper presented by the Software & Information Industry Association in 2001 titled, "Software as a Service: A Strategic Backgrounder."

As SaaS became more prominent, the popular use of the increased. is perhaps the best known SaaS provider. It provides sales and customer relationship management (CRM) services to companies via the cloud and a browser. Google Drive, a free service that includes Gmail and Google Docs, is another example of SaaS software. The user doesn’t need anything other than a browser and an Internet connection to use SaaS services.

The Advantages and Disadvantages of SaaS

Now that you understand what SaaS is and how it differs from the cloud, let’s take a look at some of its advantages and disadantages over other computing models.


  • Reduced hardware requirements: With SaaS, companies don’t need to purchase servers to house their CRM or human resources software.
  • Decreased staffing costs: SaaS providers upgrade and patch the software, reducing the need for programmers and IT staff.


  • Complete dependence on the software vendor: If the software vendor is having problems, the application will not be available to end users.
  • Users need to be online to use the software: If the SaaS subscriber’s or provider’s Internet connection is down, the software will be unavailable.

The Cloud and SaaS: Independent but Interconnected

The cloud and SaaS may seem like similar systems, but they are really quite different. It might be helpful to think of the cloud as an interstate and SaaS as a delivery truck, which is completely dependent on the interstate to provide services to its customers. The interstate (cloud) exists independently of the delivery service (SaaS), while the delivery service could not exist without the interstate.


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Robert Springer

Robert Springer is a freelance writer based in the small mountain town of Sisters, Oregon. He has written articles for national magazines, online publications, websites and newspapers. Before freelancing, he worked in the banking, television and information technology industries. In addition to writing, he enjoys being delightfully distracted by his school-age twins.