What is Software-as-a-Service (SaaS)?

Software-as-a-Service (SaaS) is a cloud-based software delivery framework allowing end users to access software applications via web browsers, mobile apps, or APIs. The software is hosted remotely, and the service provider maintains and updates it before making it available to clients. SaaS is sometimes known as on-demand, web-based, or web-hosted software.

The SaaS provider is in charge of running, managing, and supporting the software and the infrastructure on which it runs. SaaS may be a perfect solution for major organizations, small businesses, or individuals who require access to cloud apps and their underlying IT infrastructure and platforms.

This method removes the need for complex software management, making delivery of these platforms more inexpensive and streamlined. To succeed in the modern business era, legacy companies must consider innovative technologies like SaaS.

On top of their benefits to your operations and bottom line, SaaS applications are also integral to how modern companies do business. Society is leveraging remote work and cloud technology now more than ever. Legacy software applications that don’t offer cloud data storage (as well as the other agile features SaaS provides) with multiple access points could fall by the wayside. 

As you continue to navigate the online business landscape, this article is your in-depth guide to the world of SaaS. It covers the basic SaaS concepts, like where it started, where it is, the core components of SaaS applications, advantages and disadvantages, and much more. You’ll finish this article with all your questions answered and a clear vision of leveraging SaaS to bring the best out of your business.

SaaS has become the primary method of software delivery for modern companies. Because of its ease of use for the customer and straightforward setup/maintenance for the provider, you can find the SaaS model in just about every digital business platform you see. 

Currently, there are approximately 26,000 worldwide SaaS providers. Compare this number with almost 15,000 in 2020, and it’s easy to see that Software-as-a-Service is the preferred model of the modern software era.

With explosive growth like this in recent years, it’s easy to think that SaaS has just emerged. However, that couldn’t be further from the truth. Let’s look at the journey of SaaS – from its humble beginnings through its evolution into the software juggernaut it is today.

The term Software-as-a-Service started to show up on the IT scene in the 1990s. However, SaaS had its true beginning 30 to 40 years earlier without the buzzworthy acronym it has today. Back then, it was referred to as a time-sharing system. 

Time-sharing was developed during the 1950s and 1960s when computers were unbelievably expensive. This method was necessary since companies needed to share processor time to afford it. Over the next 20 to 30 years, however, computer hardware and software would become much more inexpensive.

From the 1970s to the 1990s, computer processor time became more accessible, but time-sharing remained the primary model. Eventually, processor time, computer hardware, and computer software became so accessible that business owners had a new problem. They needed to figure out ways to distribute software applications across large, multi-computer networks. At this point, Software-as-a-Service emerged as it is known today.

Companies like Salesforce, Asana, and Monday.com are synonymous with SaaS services in today’s online business marketplace. While these companies are great examples of what levering SaaS software delivery can do for your business, they’re not solely responsible for shaping what SaaS software is. 

At the turn of the 21st century, a travel and expense software known as Concur established the foundation for the modern SaaS model. After the 2001 market crash, Concur shifted from running as a brick-and-mortar legacy business to a 100% SaaS architecture. A mixture of timing on the brink of the .com boom and a quest for higher profit margins caused the company to search for another delivery method for their travel and expense software.

Once they realized selling individual copies of Concur on floppy disks and CD-ROMs no longer worked, they began to sell directly to businesses. Eventually, they launched a version of their software that only required a web browser to run. That’s when their business started to take off.

The executives at Concur needed to be made aware of just what a great idea they had on their hands. After switching to Software-as-a-Service, the company grew so fast that German software giant, SAP, bought out Concur in 2014 for $8.3 billion. The price tag on this acquisition is still the highest SaaS-based business purchase to this day.

Today, you can’t conduct business in the marketplace without hearing about SaaS applications. Corporations of any size, from small to medium-sized businesses (SMBs) to enterprise organizations, can all benefit from switching their software delivery method. The industry is expected to see its most significant growth rate in history over the next year, reaching a staggering global revenue of $176.62 billion, according to Statista.

That growth rate doesn’t show any signs of slowing down. As such, intelligent business owners must consider switching to a SaaS delivery framework. 

So, what components of the software framework define what SaaS is? How can you tell if a particular application is a Software-as-a-Service offering? Here are the core components in detail so you and your team can better determine what’s necessary to transition your current offering to a SaaS infrastructure smoothly.

One of the hallmark characteristics of a successful SaaS framework is a multi-tenant architecture. Businesses began to leverage SaaS applications for this exact reason. Companies needed to find a way to distribute their software to multiple end-user terminals quickly and efficiently. 

Multi-tenancy allows companies to distribute one instance of a particular software application or business tool. Subsequently, their customers can then disperse that software across multiple computers or tenants. 

The advantage of multi-tenancy is that it allows for optimal scalability. When businesses opt for a cloud-based framework over a physical data center, leveraging SaaS applications enables them to implement tools like AI, data analytics, and machine learning – essentially launching their business into hypergrowth at the click of a button.

Business owners love Software-as-a-Service for its cost-efficiency. Delivering SaaS across its natural multi-tenant environment makes application installation, upkeep, and maintenance very budget-friendly for software providers. 

On the other end of the spectrum, users love SaaS for its customization. Most SaaS software providers offer their applications in a tiered multi-package format.

For example, customers can choose four pricing options when they visit Salesforce.com. Salesforce offers packages ranging from the essentials up to the unlimited. Customers can use more Salesforce features and functionality as they upgrade and roll into higher packages.

Companies like Salesforce that offer this tiered pricing have an expert sales staff who can consult customers on the perfect package for their business needs. It also eliminates buyer’s remorse, as customers can upgrade or downgrade with a few clicks.

Access points are another advantage of offering your software on a SaaS basis. Software-as-a-Service providers usually build a certain number of access points into their packages. The lowest package may accommodate 5-10 users, while the most premium may allow 100 access points or more.

This license and access point flexibility makes a SaaS model perfect for your software business. Users can be confident they’re getting what they need when needed. You’ll extend the lifetime value for customers. They can start small and grow with you by upgrading packages as their business scales.

Because SaaS applications are much cheaper to operate for businesses and their customers, business owners can invest more time and money into the user experience (UX). UX/UI (user experience/user interface) design quickly becomes one of the most critical features of all websites and software applications – including SaaS platforms. 

With more of their budget available to invest in UX/UI design, companies can work with their visual design team to craft apps that make users feel at home via a familiar or streamlined interface. Many companies model their user interface after other popular apps in the industry or across the broader digital landscape.

The result? Your users will be able to jump right in and start using your app right away. They’ll be able to take advantage of all the functions or features with virtually zero learning curve, resulting in happy customers repeatedly.

The core components of SaaS offerings mentioned above are just the tip of the iceberg. Switching your legacy software offerings over to a SaaS framework has more benefits than we can discuss in the scope of this article. 

Nevertheless, here are a few unique benefits transitioning to SaaS can have for you and your team.

Because of its natural multi-tenant environment, SaaS can reduce costs for both the software provider and the customer. Since operating and maintaining SaaS applications costs less, you can pass those savings to your customers.

Additionally, transitioning to a Software-as-a-Service structure makes it much easier to scale your customer base. The tiered, pay-for-what-you-need pricing structure typical of SaaS offerings may make your platform accessible to SMBs who otherwise couldn’t afford your services.

SaaS applications are designed with an accessible UI. Customers can immediately purchase their subscription and use the software’s features since the platform already feels familiar. Most SaaS applications take this ease of use a step further.

Customers usually go through a tutorial, walkthrough video, or software tour during the onboarding. This tour is the provider’s way of showing customers how to best use specific functions and features, making the software accessible to new customers. SaaS providers will also provide ready-made templates that allow users to get up and running with just a few clicks of a button.

With the traditional, single-tenant software model, a customer has to buy a new license for your software every time they want to install it. They also need to ensure proper configuration for each computer for installation and updates. 

Since SaaS platforms run on the cloud, all the software providers would need to do is provision their cloud server to run another instance of the software. Your customers’ new software can be up and running in as little as a few hours, ready for use.

These are just a few advantages of hosting your software on a managed private cloud. Your customers won’t have to waste time with installation and configuration, both sides will see lower costs, and you can immediately and positively impact your customers’ businesses.

While the SaaS framework has solved many of the challenges of legacy software applications, it’s not without its shortcomings. Since cloud technology is an integral part of SaaS, leveraging the Software-as-a-Service framework is not without its challenges. 

Security is the foremost concern with adopting the Software-as-a-Service structure. SaaS applications couldn’t provide the benefits they provide without leveraging cloud technology. While this has been a significant leap forward, it also results in more exposure and vulnerabilities to hackers.

Your customers will be integrating with your software via the cloud, which means data needs to be transmitted back and forth from your servers to theirs. Strict security measures and access management protocols must be taken on both sides before you, as a third-party vendor, can safely enter their system. It’s wise for both you and your customer to have a conversation about both sides being as cautious as possible. Providing some security education during the onboarding process is always a good idea.

Introducing cloud technology can sometimes make data ownership a gray area. As a responsible SaaS provider, you must be accountable for your company’s data. This means keeping it protected from potential digital threats and ensuring your data storage and management SOPs (standard operating procedures) meet regulatory compliance standards whenever necessary. 

Installing a single-tenant software application on your computer is straightforward. The software app runs on the operating system and resources available on your machine. There’s no intermediary when executing software functions, so you’ll experience maximum speed.

Since SaaS applications exist on the provider’s cloud server, end users may experience lag or latency when executing program tasks. Most of the time, this delay is negligible and shouldn’t be an issue for your clients. However, you may want to explore solutions to this challenge if you serve clients in an industry with sensitive data and urgent tasks.

In the modern marketplace, SaaS platforms come in all shapes and sizes. Industries from all sectors of the economy leverage cloud applications to collaborate, communicate, and scale their customer bases like never before. Here are just a few of the notable Software-as-a-Service success stories.

Salesforce has become the quintessential example of success in the SaaS sector. Salesforce initially provided customer relationship management (CRM) software to businesses of all sizes. Since establishing themselves as a leader in the space, they’ve branched out to offer other features like marketing, platform development, machine learning, analytics, and social networking. 

Many companies choose to leverage Salesforce for their CRM needs. Instead of bogging down internal systems with thousands of customer files, they are in the cloud on Salesforce virtual servers.

Additionally, SMBs can scale the size of their team through the automation provided by third-party integrations. Companies like Zapier will connect your Salesforce to other everyday applications like Gmail, Facebook, Slack, and more to make mundane tasks run automatically.

Adobe has been a notable name in the creative space for years. Traditionally, applications like Adobe Photoshop and other video and audio editing tools were available as individual products. They recently rolled all those tools into one monthly subscription SaaS platform called Adobe Creative Cloud. 

This change is big news for creatives. Instead of having to download and re-upload a particular project into several different platforms, they can now navigate seamlessly from one tool to the next as they bring their project from start to finish.

Jira falls under the parent company, Atlassian, and is the company’s flagship product. Atlassian’s role in the SaaS space is to provide various tools to software development teams. Jira allows software engineers to break more significant projects down into manageable stages.

The platform also provides templates centered around traditional development modalities like Scrum, immediately giving users a familiar format for their projects. Jira can also handle reporting, tracking iterations, and the release of the final version.

The software development process is complex. As bugs are fixed throughout the process, versioning can become even more difficult. Leveraging a SaaS platform like Jira is like having a project manager on your team to keep everyone on track and eliminate redundancies.

Cloud computing is an integral part of what SaaS is. Without leveraging the type of virtualization the cloud provides, SaaS providers couldn’t disperse their applications as effectively. Being forced to operate and distribute their applications from a dedicated server would greatly hinder their growth and the scalability of their customer base. 

Legacy software providers need to strongly consider a move to Software-as-a-Service if they’re going to compete in the modern marketplace. Initially, It may seem daunting, but companies like Liquid Web are here to help. 

The Most Helpful Humans in Hosting® will take the time to bring you up to speed with the key concepts and software necessary to make the SaaS transition.

So what are you waiting for? Let us show you how seamless the switch to SaaS can be.