What is SaaS (Software as a Service)?

What is SaaS (Software as a Service)?

If you’re looking for enterprise software, you’ll probably read the term software as a service, or SaaS for short, more often. SaaS allows users to access a wide variety of applications and software through the cloud. But what exactly does this mean and what advantages does it offer?

What does SaaS mean?

The abbreviation SaaS stands for Software as a Service. This is a licensing or distribution model in which the software is made available over the Internet.

This is part of cloud computing. Unlike so-called on-premises solutions, the software and IT infrastructure used is hosted and managed by a third-party provider on a subscription basis. Other services, maintenance work and updates are also supported by the SaaS provider.

Service Recipient pays usage fees for use of Software as a Service applications. SaaS leads to cost savings and greater efficiency because organizations can allocate resources based on actual needs. An example of SaaS applications is CRM software. These are rarely offered as an on-premises solution because SaaS brings many benefits.

What is onsite?

On-premises (or on-premise) is the licensing and usage model for the software. The customer purchases or rents software applications and operates them under his own responsibility in his own IT infrastructure. Until about 2010, the on-premises model was the most common software usage model. In the meantime, the model has been replaced in many areas by cloud solutions that run on non-company servers.

Emergence of SaaS

Initially, software solutions were developed and sold to companies through user licenses. These companies then set up their own data centers and their own IT services for administration, maintenance and updating.

With the help of the Internet in the 1990s, it became possible to provide software as a service. The first approaches were ASPs (Application Service Providers). The ASP model is very similar to the SaaS model, but it still required software to be installed on users’ computers. Additionally, ASPs failed because many vendors tried to deliver resource-intensive applications on lines that weren’t designed for it.

It is only through the optimization of Internet technology and browsers and better access to high-speed Internet connections as well as a standardization of digital technologies that new opportunities for software outsourcing have arisen.

This is how the first web solutions for standard business software appeared at the end of the 1990s, starting with web messaging services, planning tools and publishing systems.

How does SaaS work?

The SaaS model makes it possible to no longer have to buy software licenses, but to rent them annually or monthly. Users access the software application via a network. This eliminates the cost of purchasing, installing, maintaining, and updating hardware and software.

Software vendors choose one of the following delivery models or a combination of both:

  • Hosting on its own servers, databases, networks and IT resources
  • With public cloud service providers, who manages the cloud environment on which the SaaS solution is hosted

SaaS applications are typically accessed through web browsers. Therefore, companies do not have to deal with the configuration or maintenance of the software themselves. You only pay for a subscription and that gives you access to the application.

If updates or new functions are developed for the application, these are generally made available to all customers. The majority of SaaS applications are off-the-shelf, plug-and-play products, where the vendor manages everything behind the application, including:

  • Hardware components such as networks, storage and servers in the data center
  • Platforms such as virtualization, operating system, and middleware (application independent programs that mediate between applications)
  • Software requirements such as runtimes (how long a program runs), data, and the application itself

Other applications can also be integrated with SaaS software through application programming interfaces (APIs). For example, you can link your CRM software and your ERP software to use the synergies between the applications.

Characteristics of SaaS services

  • Shared cloud architecture (or multi-tenant cloud architecture): all users use a centrally managed infrastructure.

What does multitenancy mean?

Software and hardware systems that can be used by several users at the same time without being able to view the data of other users are called multi-clients.

  • Access from any device connected to the Internet: Data and information can be accessed from anywhere in real time, making synchronization easy.
  • Great usability via familiar web interfaces: Application user interfaces are often structured similarly to websites. Since the user already knows the structure, this accelerates the acceptance of the software in the company.
  • Collaborative features: By centrally storing the data and features that enable collaboration, collaboration can be designed efficiently across teams or sites.

Why SaaS?

SaaS offers your business a number of key benefits.

Low investment risk

Since there are no costs for hardware and infrastructure when introducing SaaS applications, the investment is lower than for an on-premises solution. Studies show that the investment costs are even 30% lower in comparison – regardless of the number of users.

High availability

SaaS providers attach great importance to the fact that their software is always available and therefore rely on redundant systems. This means that comparable systems are available in parallel at least twice.

This ensures that data, systems, networks, etc. remain available even in the event of an error and that errors can be corrected without failure.

Point: When choosing a vendor for your SaaS application, make sure that high availability is guaranteed to you in the vendor’s service level agreement (SLA).

Scale as needed

Instead of buying software, you simply subscribe to a SaaS offer. If you need more licenses for a limited period, you can flexibly add them online and vice versa cancel licenses that are no longer needed. So you only pay for the number of licenses you actually use.

Set up new workstations quickly and easily

SaaS frees you from having to install programs on local computers. A user only needs an in-app license, access data and an internet-enabled device.

collaboration features

SaaS makes it easier than ever for your team to work together. The data is stored centrally and is nevertheless available to every user in real time, anywhere and anytime. This is a decisive advantage, especially in times of telecommuting and remote work.

Always up to date

Software updates usually take a long time. With the SaaS model, the vendor ensures that updates, new features, and bug fixes are released for all users. A decisive advantage over on-site solutions. Here, updates need to be installed by users or IT. It may therefore happen that the software of different employees is at a different level.

Is SaaS the same as Cloud?

Software as a service is not the same as the cloud. The SaaS model is more of a subunit of cloud computing. In addition to SaaS, there are other ways to offer IT products “as a service” in the cloud:

  • Infrastructure as a service (Iaas): The provider hosts hardware, software, storage space, components for the IT infrastructure.
  • Platform as a Service (PaaS): Users can develop, operate and manage applications themselves. Because the infrastructure is in the cloud, you don’t need to configure or manage the servers yourself.
  • Managed Software as a Service (MSaaS): MSaas goes even further than SaaS. Here, SaaS applications are monitored by IT experts, for example with regard to IT security, backup management, etc.
  • Database as a service (DBaaS): here users can access databases without downloading or hosting them themselves
  • Security as a Service: Security services are offered as a service via the cloud

pricing models

Software-as-a-service providers rely on different pricing models, some of which can also be combined with each other.

free try

Free trial phases, in which users can test functions for free, are not uncommon with the SaaS model. The duration of the test phase varies from 2 days to a few weeks.

per user

With the pricing per user model, a monthly or annual fee is paid for each active user. The user can use the software with its full range of functions and independently of transactions and time. It rents the software and the associated services (bug fixes, patches, maintenance). Different gradations are possible here.

Price levels depending on the functional scope

With this price model, the prices depend on the range of functions.


Customers gain access to the application for a fixed subscription fee (usually monthly or yearly). There may also be gradations here: For a different price point, you get a different range of functions.

Pricing tiers based on amount of data used or storage space

With this pricing model, prices depend on the amount of data used or storage space. If the user reaches the limit of the price level they have chosen, it is usually possible to book an upgrade.


With freemium, the service provider provides a basic version for free. This is complemented by additional chargeable and bookable functions and services.

Conclusion: SaaS continues to grow in importance for businesses

The growing daily need for large amounts of data, always up-to-date software, backups and high data security requirements will continue to drive companies to increasingly outsource IT issues to specialist service providers. SaaS lets your business focus on what you do best. You don’t have to worry about infrastructure and hardware, you don’t have to set up a large IT department – and you can cut costs in the process.

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