Senior Writer: Rohit Rajpal
Software as a Service is a form of cloud computing that allows people to use cloud-based apps on the internet. The most common examples of SaaS are Google Drive, Netflix, and Zoom.
Businesses that invest in SaaS solutions using SaaS management platform get the advantage of real-time data and don’t have to invest heavily in licensing costs or hire resources to maintain the software.
So what does SaaS mean? What are the types of SaaS? And how do they work? Let’s understand everything in detail.
What is SaaS?
The term “software as a service” describes software hosted centrally and typically accessed by users using standard web browsers over an internet connection rather than requiring you to install anything locally.
SaaS applications are perfect for businesses that:
- Do not want to invest in IT infrastructure or resources to maintain on-premise traditional software.
- Want to invest in systems gradually (SaaS subscription fee is usually cheaper than software licensing).
- Want to take advantage of real-time data.
Besides, you don’t have to worry about maintenance or upgrades as SaaS providers do that automatically.
B2B vs. B2C SaaS
While there are different types of SaaS applications, they are broadly categorized into B2B and B2C.
B2B SaaS providers sell software (on a subscription basis) to businesses, while B2C SaaS vendors focus on retail clients. While both B2B and B2C SaaS have a lot in common, they also have differences. For instance, they follow a subscription-based pricing model and deal with metrics like churn rate, lifetime value, and customer acquisition cost. But, on the other hand, they differ in terms of customer base, budgets, and sales cycles.
Let’s understand the key differences between B2B and B2C SaaS in detail. Beginning with definition, B2B SaaS refers to a company that provides software (applications, add-ons, etc.) to other companies. Their products are designed to help businesses leverage technology and operate more efficiently.
For example, ControlHippo is a SaaS management software that enables you to track all the tools you use in your organization. As a result, you can automate SaaS procurement onboarding, and offboarding to save time. This level of automation and visibility of all your business applications and usage help ensure compliance and reduce operational costs.
On the other hand, B2C SaaS vendors sell their products directly to end-users (retail customers). Their primary target audience is individuals who want to use their software for personal use.
Spotify is one of the best examples of a B2C SaaS platform that targets individuals. Like other SaaS products, it follows the monthly/annual subscription pricing model to generate revenue.
Also, the marketing strategies of a B2C and a B2B SaaS provider vary as they have different target audiences. For example, B2B SaaS vendors can easily identify and narrow down their potential customers, while B2C companies look at a larger user base, making it difficult to define the range. Also, the B2B SaaS offerings must be personalized to increase conversion chances.
Another key difference between B2C and B2C SaaS models is the sales cycle. The average sales cycle of the B2C SaaS model can be as short as five minutes and doesn’t require a salesperson to finalize the sale. However, the average B2B SaaS sales cycle length is 84 days (regardless of the contract value) and requires a salesperson to convert the customer.
How Does SaaS Work?
SaaS asset management software follows the cloud delivery model to reach customers and allow them to use their services over the internet. In addition, since it leverages cloud services, it reduces upfront costs for users by eliminating the need to invest in on-premise IT infrastructure or permanently purchase traditional software.
SaaS software vendors follow one or both of these rapid deployment methods.
- In their data centers
- Public cloud service providers like Microsoft Azure and Amazon AWS manage the cloud environment on which the software is hosted.
However, SaaS users must invest in a good network as the software performance depends largely on the internet speed. Examples of enterprise software that follow the SaaS model include Google Docs and Microsoft Office 365.
Most popular SaaS business applications include:
- Enterprise resource planning (ERP): Helps you manage day-to-day activities like accounting procurement, orders, etc.
- Customer relationship management (CRM): Helps manage customers and build a long-lasting relationship with them.
- Accounting and Financing: Streamlines the billing and invoicing process.
- HR Management: Allows HRs to track employee attendance, manage payroll, leaves, and more.
- eCommerce: Let retailers build an online presence and sell online.
SaaS has several advantages for businesses of all sizes, irrespective of your industry, starting from lower costs, easy and fast deployment, better collaboration, and automatic updates.
Easy and Fast Deployment
From implementation to setup, there are fewer implementation tasks compared to traditional IT models because SaaS applications require no software installation or infrastructure configuration — you simply register and get started within minutes.
With SaaS solutions, you can:
- Deploy the software quickly and effortlessly
- Easily access the software from any location
- Get help from experts if you need more advanced services like customization
Lower Cost of Ownership
With SaaS, there’s no need for servers or hardware because everything runs on the cloud server rented by your provider on behalf of your organization. In addition, you pay only for what you use (i.e., per user/month), so there is no additional cost incurred when scaling up or down demand during different seasons or times of the year.
Also, since you don’t have to spend on maintenance or upgrades, the cost of the system comes down in the long run. In addition, updates are automatic and available 24/7, so you don’t need to wait for a technician to visit your office or install updates manually.
You also don’t need to worry about updates being incompatible with other software or hardware on your system. With SaaS, the entire process is completely automated—you can enjoy the benefits of having the latest versions of all the tools you use at pocket-friendly prices.
Better Collaboration and Communication
SaaS-based technology enables you to collaborate with other people in your company, regardless of their location. This can greatly benefit organizations with multiple offices or where employees work remotely.
SaaS also allows people outside your company—or even from another country—to work together on projects. This is especially helpful in industries that rely heavily on freelancers or work with third-party service providers.
SaaS apps offer a lot of flexibility, allowing you to scale up or down when required. And since you won’t need to invest in IT resources or infrastructure, you can quickly add new users to your system.
However, it is worth mentioning that most SaaS applications work on a per-user basis, so your subscription fee will increase when you add a new user.
As your business requirement grows, you can also upgrade your plan to take advantage of more advanced features.
Most SaaS applications offer many integration options, enabling you to create a synchronized working environment. This, in turn, improves productivity, reduces inefficiencies, and eliminates data duplication.
No matter the tools you use in your organization, you can easily integrate them with your SaaS application. Even if the SaaS provider doesn’t have built-in integration with your tools, your cloud provider can help you connect it with API (if available).
Furthermore, as new tools arise or existing ones become popular, SaaS companies add that to their integration list, making it easier for you to create a synchronized working environment.
Guaranteed Levels of Service
Unlike on-premises software, the SaaS platforms give a guarantee on how well their products will work. You can find it in the service level agreement; if not, you can ask the software vendor to add it.
Another advantage is that SaaS customers get free data backups (daily, weekly, or monthly) that can be tedious and labor-intensive. These automated backups ensure you don’t lose critical business documents in any case.
Updates are usually time-consuming and expensive in traditional software methods. Also, it can result in compatibility issues because of version discrepancies between employees (if they haven’t updated the tool yet).
However, the SaaS model assures users that they will always have access to the most up-to-date version of the software. This eliminates the compatibility issues, providing your employees with streamlined focus and higher productivity.
SaaS Challenges and Risks
Just like any other technology, SaaS also possesses potential risks and challenges. It includes:
- Issues beyond your control: Even if your SaaS vendor uses multiple servers and data centers, problems can arise due to unwanted changes in offerings or security breaches. To mitigate these risks, you must understand the service level agreement and ensure that it is enforced.
- No control over versioning: When an application service provider upgrades its software version, it will roll out to all the customers, regardless of whether they want it. And while these changes are usually nominal, it might take time and resources to train users on the newer version.
- Difficulty switching vendors: To switch SaaS vendors, you will have to migrate huge chunks of data. Besides, some companies use proprietary technologies and data types, further complicating the migration process.
SaaS Security and Privacy
Cloud security is one of the biggest concerns of businesses using SaaS applications. However, SaaS vendors use numerous security technologies to safeguard your data and ensure privacy.
- Encryption and key management
- Identity and access management (IAM)
- Continuous security monitoring
- Real-time threat intelligence
- User entity behavior analytics (UEBA)
- Incident response
- Transport layer security (TLS)
- Data loss prevention (DLP)
Even though SaaS applications leverage many security measures, it is always a good practice to keep a keen eye on who’s using your product and what SaaS security technologies your vendor uses.
SaaS vs. PaaS vs. IaaS
Cloud computing can be divided into software, platform, and infrastructure. i.e SaaS vs. PaaS vs. IaaS
- Software as a Service (SaaS) delivers applications over the internet that are centrally hosted on servers and accessed through a web browser or similar device. This model is typically used for business applications such as Salesforce and QuickBooks Online.
- Platform as a Service (PaaS) delivers programming languages and other tools to build specific applications over cloud servers that host these platforms. This model is typically used for custom business applications such as Sharepoint and Microsoft Dynamics 365.
- Infrastructure as a Service (IaaS) offers virtualized server instances on-demand or through agreements with providers such as Amazon Web Services, Google Cloud Platform, Microsoft Azure, etc. These instances allow your application to run on top of them in an isolated environment where you control its resources completely.
SaaS Pricing Models
Software as a solution businesses rely mainly on subscription models. As a result, you’ll have to pay a fee every month/quarter/year to keep your license active and access the software. Here are the most common pricing models that SaaS companies follow.
- Flat-rate pricing model: It offers the product at a predetermined price. There is a single pricing option, and you get access to all the features. Example: Basecamp.
- Tiered pricing model: In this model, different versions of the product are offered. They can be based on features, the number of users, or usage. You can choose the one that fits your business needs and budget. This gives you more flexibility and scalability than other options. Example: HubSpot.
- Usage-based pricing model: Also known as the “pay as you go” model, this model charges customers based on their usage. Here various factors come into play, such as the number of emails sent, per call, per API, etc. Example: Sendinblue.
- Per-user-based pricing model: As the name suggests, you’ll be charged based on the number of users using the product. It is worth mentioning that you get access to all the features in the plan. Example: Canva.
- Freemium: Last but not least, the freemium model gives users access to the software for free forever. However, you only get limited features in the freemium version and will have to upgrade to a paid plan if you want advanced functionalities. Example: Semrush.
SaaS vs. On-Premise: How Do I Choose?
While the suitable hosting method depends on your business needs, it is crucial to understand the key differences between the two before making a decision.
1- Data Ownership
Software as a solution vendors use the cloud to store and process all customer data. But, you still maintain the data ownership (as most SLAs confirm your company will be the owner) and have the right to receive it at any time.
However, when you choose to host the software on-premise using your hardware and resources (which many large organizations do). In that case, you retain full ownership (and control) over every aspect of data operation and maintenance, including but not limited to:
- The physical location where their servers are stored;
- How those servers are physically secured against outside threats;
- Whether or not backups are kept offsite
SaaS is more secure because it’s hosted on the cloud. In addition, SaaS vendors take responsibility for ensuring that their data centers are well-maintained and have a vested interest in protecting the security of your data.
On-premise software is more vulnerable to hacking because it resides on your servers. As a result, you need to ensure that your systems are well maintained and patched regularly, which can be difficult if you don’t have a dedicated IT team or budget for hiring one. It’s also difficult to scale up security measures when resources are limited or when new threats emerge suddenly (like ransomware).
SaaS is cheaper in the long run. This is because, as a SaaS user, you only pay for what you use, and your costs will be fixed. On the other hand, on-premise software is more expensive over time because of its initial cost and maintenance fees that are paid annually or quarterly.
Large businesses also benefit from using SaaS solutions because they don’t need an entire IT department on staff. Instead, they can rely on cloud services that provide all the functionality large organizations need at a lower price than setting up your server farm would cost.
Top SaaS Providers
Now that you know what SaaS is, how it works, and its benefits, let’s look at some of the leading SaaS companies in the world.
- Slack is an internal communication tool that allows businesses to chat with their employees, make audio and video calls, and share files. The tool is web-based and even has apps (desktop and mobile), making it easier for everyone to stay atop business communications.
- Zoom is the most popular video conferencing tool that makes remote meetings a breeze. The company saw unprecedented growth as the entire global workforce started working remotely due to the pandemic.
- Shopify: is an eCommerce platform that allows retailers to create and host their stores online. In addition, users can use its in-built features to promote their business and enhance the shopping experience.
- Canva: is a graphic design tool that allows you to create images, presentations, brochures, and even videos for various purposes (social media, printing, etc.).
Frequently Asked Questions
Software as a Service (SaaS) refers to software you can access over the internet using a web browser. You don't need high-end hardware or software to run those tools, making it more affordable for businesses.
Most SaaS service level agreements confirm that the company is and will always be the owner of its data. Besides, they have built-in prepaid contingencies that will provide access to your data if the vendor goes out of the business. Also, you can export your data any time you want.
With the market getting competitive daily, SaaS vendors going out of business is not new. However, you don't have to worry about it. Most SaaS companies prepay their data hosting company to ensure your data remains safe (and available to download) when they go bankrupt.
On-premise software will be the right choice if you want complete ownership of the tool. However, if you want real-time updates and flexibility to access the software from anywhere, SaaS tools are the best. Also, SaaS software has a low setup cost, making it affordable for every business.
Yes, SaaS tools are highly customizable and can be modified to meet your business needs. You can even optimize the user interface, data fields, and dashboard to alter what you see. However, it is worth asking the vendor before purchasing it.
Unlike traditional software that relies on operating systems, SaaS software depends on your internet connection. Therefore, most SaaS vendors offer an uptime guarantee of 99.99% to prevent your system from going down for long. Besides, as a safeguard, many SaaS companies have developed "offline" functionality to help you keep working without the internet (for example, Google Docs).