Software as a Service (SaaS)

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What is Software as a Service (SaaS)?

Software as a service (SaaS) is a software distribution model that delivers applications and updates over the Internet. SaaS cloud apps are accessed via web browsers, with the service provider responsible for hosting and maintaining the application throughout its lifecycle. This removes the need to purchase and maintain costly on-premises systems. Pricing is usually a subscription-based model.

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Business SaaS (B2B) is a good solution for businesses lacking the capital or expertise to develop their own applications. It’s best for non-strategic, non-mission-critical processes requiring minimal integration with other business systems. Common solutions include customer relationships management (CRM), enterprise resource planning (ERP), and marketing management tools.

In contrast, consumer SaaS (B2C) is a service aimed at individual consumers, often for personal or small office use, such as finance tools, productivity apps, and cloud-based AI website builders.

SaaS is typically web-based, but can include application programming interfaces (APIs) integrated with other services. SaaS is also known as hosted or on-demand software.

What is Software as a Service (SaaS)?

Key Takeaways

  • SaaS delivers applications, updates, and storage over the Internet.
  • SaaS cloud apps are accessed via a web browser.
  • It works best for non-strategic, non-mission-critical processes.
  • SaaS can be categorized as single-tenant, multi-tenant, or hybrid architectures.
  • Choose vendors carefully and implement configuration and security controls.

How SaaS Works

SaaS is the most common of three main categories of cloud computing, along with platform as a service (PaaS) and infrastructure as a service (IaaS). It can be thought of as subscription-based commercial off-the-shelf (COTS) software, hosted on a cloud service provider’s (CSP) servers. Users access cloud-based apps over the Internet via a web browser or mobile app.

SaaS generally targets specific business needs, such as collaboration, document management or human resources. Customers pay monthly for the service and the provider manages the underlying infrastructure, middleware, software, and data.

SaaS has become the preferred delivery model for many applications, mainly due to bandwidth; the Internet is faster than it was a decade ago and access is widely available. Another factor has been the growing acceptance of distributed computing for business use.

Types of SaaS

The most common breakdown of software as a service by types is vertical and horizontal SaaS.

  • Vertical SaaS: Architecture designed for specific industry verticals, such as healthcare, finance, and logistics, where industry-specific requirements are primary considerations.
  • Horizontal SaaS: Applications and services that focus on functionality irrespective of the industry, such as marketing, sales and communication applications.

Types of SaaS

Source: Single-tenant vs. Multi-tenant, Stratoflow

SaaS Architecture

From the early 2000s, single and multi-tenant models were commonly used to categorize SaaS architecture. Later, hybrid/mixed architecture emerged.

Single-tenant architecture
Serves a single customer – or tenant, with a dedicated software instance, infrastructure, server, and database.

Multi-tenant architecture
Each instance serves multiple tenants, utilizing resources from a shared infrastructure, with data secured and isolated.

Hybrid/Mixed architecture
Uses elements of both architectures, often combining SaaS solutions with on-premise software for added security and control.

SaaS vs. PaaS & IaaS

Software as a service (SaaS) Platform as a service (PaaS) Infrastructure as a service (IaaS )
Offers the least control Moderate control over applications Provides the most control over infrastructure
Provider manages everything Users manage applications, the provider manages infrastructure Users manage applications, data, middleware, and OS. Provider manages servers, storage, and networking
Subscription-based pricing Subscription or pay-per-use pricing Usually pay-per-use pricing
Typical customers are individuals and SMBs Typical customers are developers, SMBs, and some enterprise testing/development Typical customers are IT admins, large enterprises and organizations

SaaS Pricing

SaaS pricing scales based on the number of users (or devices) and desired software functions (i.e., premium subscriptions), making it flexible for organizations of all sizes. For example, providers may offer individual accounts and scaled pricing for multiple users or concurrently connected users. Some services offer “pay-as-you-go” plans, where fees are based on actual usage, such as the number of transactions or amount of data stored.

The 50 Biggest SaaS Companies

SaaS Examples

Today, there are literally thousands of SaaS vendors, but Salesforce.com is the most known SaaS example, as it was one of the independent software vendors (ISV) to significantly disrupt a traditional software vertical by changing the delivery model.

Other SaaS examples include Cloudflare, Google Workspace, Microsoft 365, and Zoom.

Some of the biggest SaaS companies by market capitalization on U.S. stock exchanges include:

  • Adobe
  • Salesforce
  • Intuit
  • ServiceNow
  • Shopify

SaaS Security

Cloud platforms consist of multiple software and hardware components, sourced from multiple providers, leaving subsystems outside of the direct control of the cloud provider. It is imperative for SaaS customers to confirm what security services and controls the provider will supply – or not supply to avoid creating gaps in security.

Some providers integrate with existing identity access providers; others will not have authentication integration options and offer their own identity realm. Unfortunately, this means that if an adversary determines a weakness in a provider’s subsystem component, they can leverage it to launch an advanced persistent threat (APT) attack, looking for vulnerabilities that will allow them to elevate privileges.

Although mitigating attacks is mainly the responsibility of the SaaS provider, it’s important to choose vendors carefully and implement configuration and security controls. Pen testing and continuous monitoring is also recommended.

SaaS Pros and Cons

Pros

  • Accessible from any Internet-enabled device
  • Centralized data storage management
  • Provider-managed security, updates and fixes
  • Reduced operational costs
  • Scales resources based on needs

Cons

  • Less control over infrastructure
  • Security risks, including data breaches
  • Service-level agreement (SLA) issues
  • Standard features with little customization
  • Users are dependent on vendor stability

SaaS Future

According to Gartner predictions, SaaS remains the largest segment of the cloud market, with spending projected to grow 20% to $247.2 billion in 2024. The future of SaaS will see more independent software vendors run in a SaaS-based consumption model. Gartner and other experts, like RIB predict future SaaS trends to include artificial intelligence (AI) – particularly GenAI-enabled applications, SaaS superapps, and vertical SaaS.

The Bottom Line

The SaaS definition refers to the delivery of applications over the Internet, accessed via web browsers. It offers numerous benefits such as accessibility, scalability, and reduced operational costs. However, this convenience means less control over infrastructure and limited customization.

Unlike traditional software, where users handle installation and maintenance, SaaS providers manage hosting, storage, and updates. This benefits organizations with limited IT expertise, but carries risks. For example, a recent CrowdStrike Falcon update caused a global Windows outage, highlighting the importance of choosing vendors carefully and implementing configuration and security controls.

FAQs

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Vangie Beal
Technology Expert
Vangie Beal
Technology Expert

Vangie Beal is a digital literacy instructor based in Nova Scotia, Canada, who has recently joined Techopedia. She’s an award-winning business and technology writer with 20 years of experience in the technology and web publishing industry.  Since the late ’90s, her byline has appeared in dozens of publications, including CIO, Webopedia, Computerworld, InternetNews, Small Business Computing, and many other tech and business publications.  She is an avid gamer with deep roots in the female gaming community and a former Internet TV gaming host and games journalist.