TL;DR: Software as a service (SaaS /sæs/) is a software licensing and delivery model in which software is licensed on a subscription basis and is centrally hosted.

What is SaaS?

SaaS, which means Software as a Service, refers to a software distribution model where users can access applications online via cloud provider through subscription or licensing instead of installing them to their computer.

For example, when someone buys Microsoft Office in the local store, the product will be installed on their personal computer, and it can't be run on a different device. But with SaaS, the application data is saved remotely on servers and allows service access from any device connected to the internet.

A few great examples of SaaS are Netflix, Salesforce, Microsoft Office 365, and Google Drive.

History of SaaS

Time-sharing system has been utilized since 1961, but the first most successful SaaS platform launch happened in 1999. This is when Salesforce was built from scratch and achieved huge growth.

At first, the SaaS model was only adopted by startups and small companies due to issues like being unstable and inflexible. However, over time, the internet has improved a lot in favor of SaaS, and companies gained the confidence to embrace this model for better revenue and lower cost.

SaaS Stats 2021

It is stated that over 70% of business application today applies the SaaS model, and it will increase to 85% by 2025.

There's a 5x increase of businesses using IT-sanctioned SaaS applications in just three years.

More and more businesses will adopt SaaS to their workplaces for automation. From 45%, SaaS operations are predicted to increase by 80% in three years .

Advantages and disadvantages of using SaaS

Since SaaS applications offer subscriptions, payments are more flexible for users. They can pay to use the services monthly or yearly instead of buying a software version and installing it on their computer. SaaS also allows users to cancel anytime, so they are not tied to a lifetime commitment.

In addition, SaaS provides automatic updates to the software, which can be a considerable time and money-saver for users. When the application is connected online, it can update the program to its latest features without downloading any updates.

Another advantage is that applications are more accessible to users since it's cloud-based software, which offers excellent convenience.

On the other hand, since the application and its data are stored online, if there's a problem with your internet connection or you lose connection to the server, the software stops working. SaaS applications are also susceptible to issues that are beyond customer knowledge.

Moreover, SaaS might require additional expenses for security and maintenance, which are not needed when users use traditional desktop applications.

Types of SaaS

Salesforce Customer 360

Email Marketing Software - Allows marketers to automate emails, plus track and gather insights such as clicks, open rates, and bounce rates.

Accounting Software - Used by businesses to manage and organize billing, invoicing, budgeting, and time tracking functions.

Customer Relationship Management (CRM) Software - Allows businesses to organize and manage client data, communications, sales, and tasks.

Project Management Software - Perfect for team management as it allows businesses to manage workflow, chat with team members, organize files and track the progress of projects.

Enterprise Resource Planning (ERP) Software - Used by companies to manage multiple business activities such as inventory, production, procurement, and distribution.

Updated January 10, 2024

Axel Grubba is the founder of Findstack, a B2B software comparison platform, with his background spanning management consulting and venture capital where he invested in software. Recently, Axel has developed a passion for coding and enjoys traveling when he is not building and improving Findstack.