Understanding Software as a Service (SaaS)

When first encountering the term SaaS (Software as a Service), it can seem like a complex concept. However, it is quite simple to understand. In fact, the chances are that you use SaaS technology on an everyday basis. Let’s take a closer look at the revolutionary SaaS business model.

The Traditional Software Model
For decades, software developers relied on the traditional software delivery model. In the era before downloads, software was sold in disk form starting with the floppy disk; later developing to CD-ROM. The concept was straightforward, the client would purchase the software and either run the program directly from the disk or install the program on their computer—running the program from the computer’s hard drive.

Traditional licensing involved the input of serial keys upon installation. This serial key is usually a long string of letters and numbers—provided with the purchase of the software—that is entered the required field for software activation. This fundamental licensing principle is one that is not adopted with SaaS program development.

SaaS Explained
SaaS is a software distribution and licensing model involving the centralized hosting of software applications. This means the program runs from the software developer’s server, rather than running the software from your personal hard drive. Additionally, the licensing is issued on a membership basis— requiring typical website login instead of serial key entry.

Also referred to as on-demand software, SaaS applications are seen in a wide range of programs, including accounting software, office related software, collaboration, Management Information Systems (MIS), Customer Relations Management (CRM), customer service, CAD software, photograph editing software, learning management systems, and a host of others. The popularity of the SaaS in the software industry is constantly growing. In fact, nearly every leading enterprise software developer has incorporated this model.

Another term that is used to describe centralized hosting is the “cloud.” Cloud-based services can range from software to storage space. These services are usually offered on mobile and desktop devices.

While the popularity of SaaS has grown exponentially over the past decade, the centralized hosting model was originally implemented in the 1960’s, by the IBM Corporation. IBM, at the time, offered database storage and computing power enhancement to large organizations internationally, from the IBM data centers. The advent of the internet during the 1990’s was responsible for the expansion of the model. The term SaaS was originally used by the Software & Information Industry Association in a February 2001 report.

SaaS Cost
Traditionally, software companies would receive an upfront one-time charge for the use of software; this is where SaaS differs. SaaS is usually offered on a subscription basis in which membership sign-in is required for application use. There is usually a monthly or annual fee charged for access to the software.

SaaS applications have begun to dominate the software landscape and continue to grow. As more companies start to understand how this model can be incorporated into their business, we will see even more companies making the shift to the SaaS distribution structure.