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What is Software as a Service (SaaS): Definitions and Examples

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Software as a Service (SaaS) is a software delivery model that allows businesses to use the software over the internet without the need to purchase or install it on their own computer systems.

SaaS provides a cost-efficient way for organizations to access and utilize software anywhere and at any time. Many organizations, especially start-ups benefit greatly from SaaS tools.

Some SaaS tools such as Notion and SurferSEO have started to integrate AI into their services to enhance efficiency for their users. Many more SaaS tools are expected to follow.

If you are running a business, chances are, you have already used some Software as a Service (SaaS) applications. Examples of SaaS applications you may have already used are Gmail, Hotmail, or Outlook. These applications are SaaS applications because they allow you to store and access your messages from any internet-connected device such as your phone or computer.

According to a Statista report, organizations today are using approximately 130 SaaS applications on average in 2022. This helps accelerate the growth of the SaaS industry, with Forbes suggesting that the number of SaaS tools could grow beyond 50,000 applications in the next few years.

This article will explain what SaaS is, how it works, and give you some examples of popular SaaS tools that you can use to help you run your business.

What is Software as a Service (SaaS)?

SaaS is a software delivery model in which a provider that hosts applications allows businesses to access and use their software. In other words, it is a subscription-based cloud service that allows organizations to access and run applications over the Internet instead of buying, installing, and maintaining their own software.

Most SaaS solutions take care of operations, maintenance, and security.

How does Software as a Service (SaaS) work?

SaaS works under a cloud-based model. SaaS providers store applications and data on their servers or servers provided by a third-party cloud service. Customers who subscribe to a SaaS solution are given access to the application, usually by registering and logging in through a web browser or devices with network connections.

SaaS is designed with

  • A multi-tenant architecture - All the clients and applications of a SaaS vendor share one central infrastructure. It's similar to living in a big apartment building where everyone has their own apartment, but they all share the same building and facilities.

    This type of infrastructure allows for fast updates.
  • Customizable application - Users can customize applications to match their specific business needs without affecting the shared system.

SaaS providers handle the management of platforms, operating systems, and middleware.

🔎Tip: The cloud is a global network of remote servers that host and manage databases. Other cloud-based models include PaaS and IaaS. Learn more in our article: SaaS vs. Paas vs IaaS: What It Is, Differences & Examples

A brief history of SaaS

In the late 1990s, SaaS solutions emerged as a game-changer in the tech industry, with pioneers like Salesforce, NetSuite, and RightNow offering web-based customer relationship management systems. Since then, the SaaS model has been growing thanks to advancements in cloud computing, which lower costs and simplify processes.

By 2023, a pioneer like Salesforce had become the largest CRM platform, and 90% of the Fortune 500 companies in the world are using Salesforce to manage their business relationships.

Today, there are numerous SaaS options available, offering a wide range of software services through the cloud. Well-known names include Microsoft Office 365, Google G Suite, Slack, and Dropbox.

🔎 Insight: McKinsey & Company indicates that the Software-as-a-Service (SaaS) market's value will reach around $200 billion by 2024.

Examples of SaaS Tools

The SaaS market is teeming with software vendors and products that can cater to various software applications and services. There are many types of SaaS tools, and the most widely used are:

  • Customer Relationship Management (CRM)
  • Enterprise Resource Planning (ERP)
  • Human Resources Software
  • Security Software
  • Accounting Software
  • Invoicing Software
  • Ecommerce SaaS Tools

Let's take a closer look at some of them.

Examples of Invoicing SaaS

With invoicing SaaS, you can issue invoices, track payments, and manage expenses online. This solution offers ease by eliminating manual tasks like creating invoices and chasing unpaid invoices.

Additionally, many providers now have mobile apps that let you issue invoices on the go, perfect for those who are constantly moving between meetings and visits.

Below are some examples of invoicing SaaS in the market:

  • Stripe allows you to integrate a payment platform into your business to accept payments online from customers around the world. Major brands such as BMW, Amazon, and Twilio also use Stripe on their platforms.
  • QuickBooks allows you to track cash flow, integrate payroll, capture receipts and invoice payments, and accept credit cards and ACH.
  • FreshBooks offers enhanced customer communication capabilities like client reminders and automated notifications when bills are due.

đź’ˇ Tip: Check out our comprehensive guide on invoice payments.

Examples of Ecommerce SaaS Tools

Before the rise of SaaS tools, aspiring entrepreneurs had to hire website developers to build a website for them, whether it was a normal website to give information or an ecommerce website to sell their products. Nowadays, SaaS tools have enabled people without technical backgrounds to create their own websites without hiring developers.

Below are some examples of such tools:

  • Shopify allows you to build your online store anywhere in the world using drag & drop functions without any coding experience.
  • Bigcommerce allows you to build ecommerce websites and simplify ecommerce management online. Popular brands such as Ted Baker and Johnnie Walker are examples of websites built using this tool.
  • Wix allows you to create websites using drag & drop functionalities or choose a free template from 900+ samples. It is normally used to create ecommerce websites, bloggers, personal portfolios, etc.

Advantages & Disadvantages of SaaS

Before you decide to look for new tools for your business, it's important to weigh the pros and cons. Below, we will cover the pros and cons of SaaS tools to help you determine whether they are the right tools for you.

Advantages of SaaS

The key advantages of SaaS tools are

  • Affordability

SaaS solutions can eliminate the need for expensive hardware purchases and ongoing IT maintenance. This makes them a cost-effective option for businesses of all sizes, especially for entrepreneurs or start-ups. This allows you to reinvest that into other areas of the business, such as marketing and product development.

  • Scalability

SaaS providers offer scalable systems that can quickly adapt to the changing needs of businesses without requiring upfront investment. This means companies can easily add new users, increase server space, or access software upgrades without disrupting their workflows or hiring additional personnel. This helps smaller businesses and start-ups gain access to powerful tools that can help them operate more effectively and efficiently.

  • Compatibility and integration

SaaS runs on the cloud, which can be used on various devices. Many SaaS can also be integrated with other software. For example, ClickUp, a project management SaaS tool, can be integrated with other apps such as Google Drive, Dropbox, and Microsoft Teams. Another example is Slack, a collaboration tool that can be integrated with Google Drive, Outlook Calendar, Salesforce, Notion, etc.

  • Time-effective

As SaaS tools and many cloud-based services integrate and adopt automation, it reduces the time for many manual work processes. Companies report that cloud platforms can speed up new feature releases by 20-40%.

  • Upgrades

SaaS providers have a large customer base, a rich source of customer feedback, and pressure from competitors. This motivates SaaS providers to offer updates and upgrades to keep customers satisfied.

Disadvantages of SaaS

Despite the good things that we have covered about SaaS, there are a few things you need to keep in mind, such as:

  • Security & Privacy

As with any technology, there are potential risks associated with SaaS solutions as well. Data security and privacy are primary concerns because data are stored on third-party servers. In the event of a security breach, companies could face financial loss or legal action. Furthermore, as the number of users on the system increases, server resource demands may exceed capacity, leading to slow performance or even downtime. Additionally, customized workflows may become outdated as customers switch between different versions or offerings, requiring costly upgrades or manual rewriting.

  • Missed Opportunities

Relying too heavily on one SaaS supplier could lead to missed opportunities for innovation and overlooking other potential solutions that could better suit your company's needs. For example, if a company is relying too much on billing SaaS tools instead of hiring an accountant to manage their finances, they could be missing opportunities to save on taxes or save costs in other areas of the business.

In conclusion, while SaaS solutions offer significant benefits in terms of scalability and affordability, it is essential to be aware of the potential risks and to work with reputable providers who prioritize data security and ongoing innovation so their functionalities will grow along with your business.

  • Unpredictable changes

Well, updates and upgrades have both pros and cons. It's a double-edged sword. Sometimes, the changes or updates in your SaaS tools may not solve your problem or suit your taste. Or you might need some time to adapt to it. You might also have to train your staff to use the new features. This can take some of your time.

  • Switching costs

You might want to change your software if the series of updates are causing more problems than they solve. Or maybe you have other reasons to look for a different SaaS provider. Nevertheless, switching is not always a simple process.

You may have to move huge amounts of data, not to mention if the providers use proprietary technologies and formats that are not easy to transfer between cloud providers. You might also need to train your staff again, deal with compatibility issues, and lose some customization features.

Web-Based SaaS vs Hybrid SaaS

Web-based SaaS is an application delivery model in which software and related data are stored centrally on the cloud. Instead of purchasing and installing software on their own computers, users typically 'rent' or borrow it online.

Even though web-based SaaS solutions offer many advantages, there are still some downsides:

Advantages

  • Low IT support costs when outsourcing hardware and software maintenance and support to the SaaS provider
  • It offers flexibility as it can be deployed quickly and easily

Disadvantages

  • More expensive to maintain, as they require more frequent updates and upgrades
  • Huge threats to data security as all data are being stored in the licensor's data center
  • More difficult to customize and tailor to specific needs and requirements

These downsides have nurtured the development of Hybrid SaaS: an innovative and secured SaaS model.

Hybrid SaaS combines Software as a Service (SaaS) and traditional on-premises software. This type of software provides customers with both on-site installation and cloud access.

It’s the perfect solution for businesses that need to store some data or applications locally while taking advantage of the specific flexibility of the cloud.

For example, an accounting firm could have its accountants use classic, on-site accounting software while client invoices and payments are managed off-site in the cloud.

Hybrid SaaS allows businesses to take advantage of the scalability and flexibility of cloud computing and integration with third-party services. This deployment provides greater control over the application and can provide increased security and performance.

The Future of SaaS

The future of SaaS is exciting and promising.

Artificial intelligence (AI) in SaaS is increasingly becoming the norm in the industry. According to Google's current CEO statement, Sundar Pichai, "AI is one of the most important things humanity is working on."

With this in mind, we started to notice some SaaS tools that we use have started to integrate AI into their services. For example, SurferSEO has formed a partnership with a popular AI platform called Jasper AI, allowing users to download a Chrome extension and generate SEO-optimized content with the click of a button.

Another example is Notion, which has released a "Notion AI" function that allows its users to work faster and generate content within their connected workspaces. Several options include improving writing, fixing spelling & grammar, making the texts longer or shorter, and even changing the tone.

From these two examples, we believe that we will see more AI integration in the future of SaaS, and it may change the way we work for the next decade.

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FAQs

What is Software as a Service (SaaS)?

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Software as a Service (SaaS) is a cloud-based software delivery model in which a hosting provider allows businesses to access and use the software.

What are examples of Software as a Service (SaaS)?

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What are the benefits of SaaS tools?

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What are the drawbacks of SaaS tools?

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Some of the links in this article may be affiliate links, which means we may receive a small commission, at no additional cost to you, if you decide to make a purchase through one of our recommended partners. We only recommend products and services we trust and believe will be beneficial to our readers. This helps support our efforts in bringing you valuable content. Thank you for your support!

Reviewed by
Djon Ly
Fact checked by
Swapnil Jamdade

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