SaaS (Software as a Service) is an application hosted on a remote server and accessed through the Internet.

Simple examples of SaaS are the “free” email (also called web-based email) systems offered on the Internet such as Microsoft Hotmail, G-mail, and Yahoo Mail. Each program meets the basic criteria of an SaaS application: a vendor (Microsoft, Google, or Yahoo) hosts all of the programs, logic, and data in a central location and gives users access to this data and software via the worldwide web.

This “simple” application architecture can be applied to a wide range of software applications that either business enterprises or individuals can use.

Two Main SaaS Categories

SaaS is often divided into two major categories:

  • The so-called “line of business services,” which refers to business solutions offered to, sold, or made available to companies and enterprises on a subscription basis. Applications covered under this category include business processes such as supply chain management programs, customer relations applications, etc.
  • Customer oriented services are offered to the general public either on a subscription basis (more often than not) or for free, but advertising supports them. Web-based email services such as those cited above fall into this general category.

Software Ownership

Traditionally, the user pays a one-time fee to purchase a software package and license. The user who made the purchase thereby becomes the software’s owner. The vendor or developer provides software support and updates under the terms of the license agreement.

SaaS, on the other hand, does not have licenses. Rather than charging a single fee, software use is paid for through subscription. The user’s access and software use ends when he/she stops paying subscription fees. Moreover, the software is not downloaded to the user’s computer. In the examples listed above, G-Mail or Hotmail is not “resident” on the user’s computer. Rather, it is accessed and used via the Internet.

Key Advantages for the User

  • Lower Costs. The user need not pay a single (usually large) licensing fee. He/she only needs to pay recurring subscription fees.
  • Smaller Storage Requirements. The user need not store the software or data on his/her computer, so he/she does not need large data storage facilities. There is also the convenience of not needing to constantly backup data – storage is the SaaS provider’s responsibility.
  • Fewer Personnel. SaaS reduces the need for specially trained IT personnel to handle maintenance, monitoring, and software updates. The SaaS vendor provides a dedicated team to handle these tasks.

Key Advantages for the Vendor

The primary advantage for the vendor is the continuous stream of income that will amount to much more than expected in the traditional software licensing setup. Furthermore, vendors can mitigate piracy and unlicensed software use and reduce losses associated with such activities through Saas.