What Is Software-as-a-Service?

Software-as-a-Service (SaaS) is a software licensing model in which access to the software is provided on a subscription basis, with the software being located on external servers rather than on servers located in-house. Software-as-a-Service is typically accessed through a web browser, with users logging into the system using a username and password. Instead of each user having to install the software on their computer, the user is able to access the program via the internet.

Key Takeaways

  • 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 to access programs via the internet, instead of having to install the software on the user's computer.
  • SaaS has many business applications, including file sharing, email, calendars, customer retention management, and human resources.

Understanding Software-as-a-Service (SaaS)

The rise of Software-as-a-Service (SaaS) coincides with the rise of cloud-based computing. Cloud computing is the process of offering technology services through the internet, which often includes data storage, networking, and servers. Before SaaS was available, companies looking to update software on their computers had to purchase compact disks containing the updates and download them onto their systems.

For large organizations, updating software was a time-consuming endeavor. Over time, software updates became available for download through the internet, with companies purchasing additional licenses rather than additional disks. However, a copy of the software still needed to be installed on all devices that needed access to it.

With SaaS, users don’t need to install or update any software. Instead, users can log in through the internet or web browser and connect to the service provider’s network to access the particular service.

SaaS is considered an example of endogenous growth theory, which is an economic theory that subscribes to the belief that economic growth can be achieved through developing new technologies and improvements in production efficiency. Technology companies, financial services companies, and utilities have led the business world in adopting SaaS technology.

With SaaS, users can access software through a web browser from multiple locations, including outside the office.

Advantages of Software-as-a-Service

SaaS offers a variety of advantages over traditional software licensing models. Because the software does not live on the licensing company’s servers, there is less demand for the company to invest in new hardware.

It is easy to implement, easy to update and debug, and can be less expensive (or at least have lower up-front costs) since users pay for SaaS as they go instead of purchasing multiple software licenses for multiple computers.

SaaS has numerous applications, including:

  • Email services
  • Auditing functions
  • Automating sign-up for products and services
  • Managing documents, including file sharing and document collaboration
  • Shared company calendars, which can be used for scheduling events
  • Customer relationship management (CRM) systems, which is essentially a database of client and prospect information. SaaS-based CRMs can be used to hold company contact information, business activity, products purchased as well as track leads.

Types of software that have migrated to a SaaS model are often focused on enterprise-level services, such as human resources. These types of tasks are often collaborative in nature, requiring employees from various departments to share, edit, and publish material while not necessarily in the same office.

Disadvantages to Software-as-a-Service

Drawbacks to the adoption of SaaS involve data security and speed of delivery. Because data is stored on external servers, companies have to be sure that it is safe and cannot be accessed by unauthorized parties. Slow internet connections can reduce performance, especially if the cloud servers are being accessed from far off distances. Internal networks tend to be faster than internet connections.