Software-as-a-Service (SaaS) - Investopedia

Software-as-a-Service (SaaS) is a software licensing model, which allows access to software a subscription basis using external servers. · SaaS allows each user ... TableofContents Expand TableofContents WhatIsSoftware-as-a-Service(SaaS)? UnderstandingSoftware-as-a-Service(SaaS) HistoryofSaaS AdvantagesandDisadvantagesofSaaS ExamplesofSaaS SaaSvs.IaaSvs.PaaS SaaSFAQs Business BusinessEssentials WhatIsSoftware-as-a-Service(SaaS)? Software-as-a-Service(SaaS)isasoftwarelicensingmodelinwhichaccesstothesoftwareisprovidedonasubscriptionbasis,withthesoftwarebeinglocatedonexternalserversratherthanonserverslocatedin-house. Software-as-a-Serviceistypicallyaccessedthroughawebbrowser,withusersloggingintothesystemusingausernameandpassword.Insteadofeachuserhavingtoinstallthesoftwareontheircomputer,theuserisabletoaccesstheprogramviatheInternet. KeyTakeaways Software-as-a-Service(SaaS)isasoftwarelicensingmodel,whichallowsaccesstosoftwareasubscriptionbasisusingexternalservers.SaaSallowseachusertoaccessprogramsviatheInternet,insteadofhavingtoinstallthesoftwareontheuser'scomputer.SaaShasmanybusinessapplications,includingfilesharing,email,calendars,customerretentionmanagement,andhumanresources.SaaSiseasytoimplement,easytoupdateanddebug,andcanbelessexpensive(oratleasthavelowerup-frontcosts)sinceuserspayforSaaSastheygoinsteadofpurchasingmultiplesoftwarelicensesformultiplecomputers.DrawbackstotheadoptionofSaaScenterarounddatasecurity,speedofdelivery,andlackofcontrol. UnderstandingSoftware-as-a-Service(SaaS) TheriseofSoftware-as-a-Service(SaaS)coincideswiththeriseofcloud-basedcomputing.CloudcomputingistheprocessofofferingtechnologyservicesthroughtheInternet,whichoftenincludesdatastorage,networking,andservers.BeforeSaaSwasavailable,companieslookingtoupdatethesoftwareontheircomputershadtopurchasecompactdiskscontainingtheupdatesanddownloadthemontotheirsystems. Forlargeorganizations,updatingsoftwarewasatime-consumingendeavor.Overtime,softwareupdatesbecameavailablefordownloadthroughtheInternet,withcompaniespurchasingadditionallicensesratherthanadditionaldisks.However,acopyofthesoftwarestillneededtobeinstalledonalldevicesthatneededaccesstoit. WithSaaS,usersdon’tneedtoinstallorupdateanysoftware.Instead,userscanloginthroughtheInternetorwebbrowserandconnecttotheserviceprovider’snetworktoaccesstheparticularservice. SaaSisconsideredanexampleofendogenousgrowththeory,whichisaneconomictheorythatsubscribestothebeliefthateconomicgrowthcanbeachievedthroughdevelopingnewtechnologiesandimprovementsinproductionefficiency.Technologycompanies,financialservicescompanies,andutilitieshaveledthebusinessworldinadoptingSaaStechnology. HistoryofSaaS SaaScanlooselytraceitsoriginstoaconceptcalledtime-sharing,whichwasdevelopedinthelate1950sandearly1960stomakemorecost-effectiveuseofexpensiveprocessortime. Overthenextfewdecades,hardwareandcomputingbecamelesscostly.Organizationsmadetheshifttoindividualownershipofpersonalcomputersusingon-premisesoftware.Butunfortunately,thesystemstillprovedtobeinefficientonalargerscaleascompanieswereweigheddownbyongoingsoftwareandhardwaremaintenanceoftheindividualcomputers. Inthemid-90s,theInternetreachednewheightsintermsofe-commercetransactions,ThegrowthoftheInternetthenfueledthebirthofthe"onlinecloud,"whichallowedorganizationstoaccesssoftwarefromanywhere. In1999,Salesforcewentall-inonSaaSbylaunchingitsowncustomerrelationshipmanagement(CRM)platform.Thankstoitsheadstartand"nosoftware"mantra,SalesforcesoonbecamethefirstsuperstarintheSaaSspace.ItremainsoneofthelargestpureSaaScompaniesintheU.S. WithSalesforcehavingprovedtheviabilityoftheSaaSbusinessmodel,companiesofallshapesandsizes—fromyoungstartupstoestablishedindustrygiantsincludingMicrosoft,Oracle,andSAP—wereeagertomovetowardit. Today,SaaSisubiquitous.Withpure-playcompanieslikeAdobe,Salesforce,Shopify,andIntuitleadingtheway,theSaaSmarketisexpectedtoreach$145billionin2022. WithSaaS,userscanaccesssoftwarethroughawebbrowserfrommultiplelocations,includingoutsidetheoffice.Remotedesktopsoftwarecanhelpemployeessecurelyaccessworkcomputersfromhomeorallowtechnicianstoresolvecomputerissueswithouthavingtomakeanonsitevisit. AdvantagesandDisadvantagesofSaaS Advantages SaaSoffersavarietyofadvantagesovertraditionalsoftwarelicensingmodels.Becausethesoftwaredoesnotliveonthelicensingcompany’sservers,thereislessdemandforthecompanytoinvestinnewhardware. Itiseasytoimplement,easytoupdateanddebug,andcanbelessexpensive(oratleasthavelowerup-frontcosts)sinceuserspayforSaaSastheygoinsteadofpurchasingmultiplesoftwarelicensesformultiplecomputers. SaaShasnumerousapplications,including: Emailservices Auditingfunctions Automatingsign-upforproductsandservices Managingdocuments,includingfilesharinganddocumentcollaboration Sharedcompanycalendars,whichcanbeusedforschedulingevents Customerrelationshipmanagement(CRM)systems,whichareessentiallyadatabaseofclientandprospectinformation.SaaS-basedCRMscanbeusedtoholdcompanycontactinformation,businessactivity,productspurchasedaswellastrackleads. TypesofsoftwarethathavemigratedtoaSaaSmodelareoftenfocusedonenterprise-levelservices,suchashumanresources.Thesetypesoftasksareoftencollaborativeinnature,requiringemployeesfromvariousdepartmentstoshare,edit,andpublishmaterialwhilenotnecessarilyinthesameoffice. Disadvantages DrawbackstotheadoptionofSaaScenterarounddatasecurityandspeedofdelivery.Becausedataisstoredonexternalservers,companieshavetobesurethatitissafeandcannotbeaccessedbyunauthorizedparties. SlowInternetconnectionscanreduceperformance,especiallyifthecloudserversarebeingaccessedfromfar-offdistances.InternalnetworkstendtobefasterthanInternetconnections.Duetoitsremotenature,SaaSsolutionsalsosufferfromalossofcontrolandalackofcustomization. SaaSAdvantages Accessiblefromanywhere Costeffective Easytoimplement,update,anddebug Easytoscale SaaSDisadvantages Increasedsecurityrisks Slowerspeed Lossofcontrol Lackofcustomization ExamplesofSaaS GoogleDocs Oneofthesimplestreal-worldexamplesofSaaSisGoogleDocs,Google'sfreeonlinewordprocessor. InordertouseGoogleDocs,allyouneedtodoisloginonawebbrowserforinstantaccess.GoogleDocsallowsyoutowrite,edit,andevencollaboratewithotherswhereveryouhappentobe. GoogleDocswaslaunchedinOctober2012. Dropbox DropboxisanothersimpleexampleofSaaSinreallife.Dropboxisacloudstorageservicethatletsbusinessesstore,share,andcollaborateonfilesanddata.Forexample,usersareabletobackupandsyncphotos,videos,andotherfilestothecloudandaccessthemfromanydevice,nomatterwheretheyare. Dropboxwasfoundedin2007. SaaSvs.IaaSvs.PaaS As-a-serviceproductscontinuetogrowrapidly.Butgenerallyspeaking,theyfallintooneofthreemaincategories:SaaS,IaaS,andPaaS. SaaStypicallyusestheInternettodeliversubscriptionsoftwareservices,whicharemanagedbyathird-partyvendor.Well-knownSaaSexamplesincludeDropbox,GoogleWorkspace,andSalesforce. Infrastructure-as-a-service(IaaS),meanwhile,offersaccesstoresourcessuchasservers,storage,memory,andotherservices.Itallowsorganizationstopurchaseresourcesasneeded.SomecommonIaaSexamplesincludeAmazonWebServices(AWS),MicrosoftAzure,andRackspace. Finally,platform-as-a-service(PaaS)providesasoftwaredevelopmentplatformovertheweb.Specifically,itallowsdeveloperstoconcentrateonsoftwarecreationwithoutworryingaboutthingslikestorageandinfrastructure. SaaSFAQs WhatIsSaaSMarketing? SaaSmarketingutilizesstandardmarketingpracticestopromoteandacquireleadsforcloud-basedsoftwareapplicationsandinformationservices. WhatIsB2BSaaS? B2BSaaSsimplyreferstocompaniesthatsellsoftwareservicestootherbusinesses.Theseproductshelporganizationsoptimizeawidevarietyoffunctionsincludingmarketing,sales,andcustomerservice. HowIsMRRCalculatedforaSaaSBusiness? Monthlyrecurringrevenue(MRR)isanimportantmetricforSaaSbusinessesthatutilizeamonthlysubscriptionpricingmodel. ThecalculationofMRRissimple:multiplytheaveragerevenuepercustomerbythetotalnumberofaccountsforthatgivenmonth. ArticleSources Investopediarequireswriterstouseprimarysourcestosupporttheirwork.Theseincludewhitepapers,governmentdata,originalreporting,andinterviewswithindustryexperts.Wealsoreferenceoriginalresearchfromotherreputablepublisherswhereappropriate.Youcanlearnmoreaboutthestandardswefollowinproducingaccurate,unbiasedcontentinour editorialpolicy. Gartner."GartnerForecastsWorldwidePublicCloudEnd-UserSpendingtoGrow23%in2021."AccessedJune1,2021. CompareAccounts AdvertiserDisclosure × TheoffersthatappearinthistablearefrompartnershipsfromwhichInvestopediareceivescompensation.Thiscompensationmayimpacthowandwherelistingsappear.Investopediadoesnotincludealloffersavailableinthemarketplace. Provider Name Description RelatedTerms HowCloudComputingWorks Cloudcomputingisamodelfordeliveringinformationtechnologyserviceswhereresourcesareretrievedfromtheinternetthroughweb-basedtools. more Web2.0andWeb3.0Definitions Web2.0referstothecurrentversionoftheInternet;Web3.0isitsnextiteration,whichwillbedecentralized,open,andofgreaterutility. more WhatIsaDenial-of-Service(DoS)Attack? Adenial-of-service(DoS)attackisintendedtoshutdownamachineornetwork,deprivinglegitimateusersofexpectedservicesorresources. more FileTransferProtocol(FTP)Definition Filetransferprotocol(FTP)isamechanismforthetransferoffilesbetweensystems.FTPsoftwarecanbedownloadedforfree. more WhatIsanEavesdroppingAttack? Aneavesdroppingattackisthetheftofinformationfromasmartphoneorotherdevicewhiletheuserissendingorreceivingdataoveranetwork. more InformationManagementTechnology(IMT):TheInsandOuts Informationmanagementtechnology(IMT)isthedistribution,organization,andcontrolofthetechnologyanddataofabusiness. more PartnerLinks RelatedArticles TechStocks Applevs.MicrosoftBusinessModel:What'stheDifference? CompanyProfiles WhatWerethe"BrowserWars"ThatLedtoNetscape'sDownfall? TopStocks HowGoogle(Alphabet)MakesMoney:advertisinggeneratesmostrevenue FundamentalAnalysis BiggestCompaniesintheWorldbyMarketCap BlockchainTechnology IsBlockchainReplacingtheSIMCard? Accounting IntroductiontoAccountingInformationSystems–AIS