What is Software as a Service (SaaS)?

Software as a Service (SaaS) is a software delivery model that uses cloud-based services rather than local installations. SaaS is usually available on a subscription basis, rather than requiring a license purchase.  

How Does Software as a Service (SaaS) work?

In the traditional on-premise model, an enterprise would purchase a software license, which allowed them to install the software on their local network. The company was then responsible for maintaining and updating that software themselves.

In the SaaS model, businesses pay someone to take care of all of that for them. The service provider installs, hosts, and maintains the software behind SaaS on their servers. The client accesses these services via the internet whenever required, using a web interface or making API calls from a different application.

From the user's perspective, SaaS works like this:

  1. Subscribe to SaaS provider: SaaS generally works on a monthly or annual subscription basis. The business finds someone that provides the kind of service they require, and then they sign a service provision agreement.
  2. Integrate SaaS: Some integrations might require a degree of coding or system configuration. Most enterprise SaaS has a library of public APIs that allows the SaaS to communicate with other business systems. Alternatively, this step could involve a process integration, which might include creating system logins for individual users.
  3. Work with SaaS technical support on any issues: All SaaS providers will handle issues like downtime and software upgrades on their side. Some providers may provide additional technical support, including guidance on best practices.
  4. Conduct regular reviews of SaaS subscription: Many SaaS providers offer a flexible subscription model that allows businesses to swap between tiers depending on their needs. This model allows for easy scaling, although the business is ultimately responsible for ensuring that they are on the right tier.

SaaS is a black box, which means that users don't get to see the behind-the-scenes operations of any services. For most users, this is irrelevant. All that matters is that the service is available when required.

Perhaps the best-known enterprise SaaS is Salesforce, which was one of the great innovators in APIs. Salesforce charges a monthly fee on a per-user basis. In return, they provide business with powerful CRM that integrates with almost any application.

Other popular enterprise applications have moved towards the SaaS model. For example, Microsoft Office is now available as Office 365, a SaaS version of this popular suite. Rather than buy a license and install Office on a single machine, Office 365 users pay a monthly subscription and can access applications like Word and Excel via a web app.

But probably the best known commercial application of SaaS is webmail. Services such as Gmail and Hotmail handle all of the hard work of running an email server: hosting, configuration, inbox management, spam filtering, and so on. Users simply log in via a web interface when they want to read or send an email.

Advantages of Software as a Service (SaaS)

SaaS has become standard in both commercial and enterprise software in recent years. This is because it offers many advantages over on-premise alternatives, such as:

  • Affordability: On-premise software has substantial up-front costs, as you have to buy licenses and provide hardware. SaaS doesn't have these costs.
  • Flexibility: With SaaS, you only have to pay for the resources you use. If you're not using a service, you can downgrade or cancel your subscription as required.
  • Instant updates: Whenever you log onto a SaaS service, you view the latest version of that software. If there are any new upgrades or patches, the hosts will have applied them on their side. This is not true of on-premise systems, where vendors have to distribute patches to users, and users are then responsible for updating their systems.
  • Scalability: SaaS often runs on shared servers, with each user allocated the resources that they need. If one user is experiencing sudden growth, the service provider can simply allocate them more resources. This may affect the user's subscription package, but it is quicker and easier than upgrading on-premise systems.  
  • Live support: Every SaaS provider offers some level of technical support to current service users. This means that the user doesn't have to worry about things like downtime, while on-premise users need to plan for recovery from failure. Some providers offer more substantial support, which can include advice on best practices. 
  • Enhanced security: SaaS can offer better security than on-premise software, depending on the service provider. Companies with strong encryption and tight physical security keep data safe on the back-end. At the same time, front-end data access has detailed monitored and robust access restrictions.  
  • Off-site access: SaaS is always accessed remotely, which means that it's equally secure for office workers and people working off-site. Remote access to an on-premise system is a little more challenging, as these systems generally work better on a closed network. 

These are the main reasons that some businesses choose SaaS solutions over on-premise software.

Disadvantages of Software as a Service (SaaS)

However, there are some drawbacks to the SaaS approach. For example:

  • Lack of permanent ownership: On-premise licenses may grant you permanent access to your software. In the SaaS model, you never own the software you use. You lose access to the service when you end your subscription.
  • Data held off-site: SaaS providers store all data on their servers. You may be able to replicate this data locally, but you don't automatically have a local copy at your disposal. 
  • Potential compliance issues: SaaS providers might operate transnationally, which could raise some issues. For example, if they transport personal data into or out of the EU, then you need to be sure that they are GDPR compliant.
  • Ongoing cost: You'll have to keep paying a subscription fee for the entire time you use SaaS. Over the years, this may end up costing more than an on-premise license. Some services may also charge an additional fee if you exceed the limits of your subscription.