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What is SaaS?
SaaS (Software as a Service) is an application hosted on a remote server and accessed through the Internet.
A simple and concrete example of SaaS are the "free" email (also called web-based email) systems offered on the Internet such as Microsoft Hotmail, G-mail and Yahoo Mail. Each program meets the basic criteria of an SaaS application: a vendor (Microsoft, Google or Yahoo) hosts all of the programs, logic and data in a central location and provides end users access to this data and the software which is run and used over the world-wide web.
This "simple" application architecture can then be applied to a wide range of software applications for use by either business enterprises or individual end-users.
Two Main Categories of SaaS
SaaS is often divided into two major categories:
- The so-called "line of business services" which refer to business solutions offered to companies and enterprises, and sold or made available to these enterprises on a subscription basis. Applications covered under this category include business processes such as supply-chain management programs, customer relations applications and others
- Customer-oriented services which are offered to the general public either on a subscription basis or (more often than not) offered for free but are supported by advertising. Web-based email services such as those cited above fall into this general category.
Software Ownership
Traditionally, the user purchases a software package and license by paying a one-time fee. The software thereby becomes the property of the user who made the purchase. Software support and updates are provided by the vendor or developer under the terms of the license agreement.
SaaS, on the other hand, does not have licenses. Rather than a single fee, payment for the use of software is through subscription. The user's access and use of the software ends when he stops paying subscription fees. Moreover, the software is not downloaded to the user's computer. In the example we used, G-Mail or Hotmail is not "resident" on your computer - you access and use it through the Internet but it is not loaded and stored onto your computer.
Key Advantages for the User
- Lower Costs. The user need not pay a single (usually large) licensing fee. He only needs to pay recurring subscription fees.
- Smaller Storage Requirements. The user need not store software or data stored on his computer so he doesn't need large data storage facilities. There is also the convenience of not needing to constantly backup data - storage is the responsibility of the SaaS provider.
- Fewer Personnel. SaaS reduces the need for specially trained IT personnel to handle maintenance, monitoring and software updates. The SaaS vendor will provide a dedicated team to handle these tasks.
Key Advantages for the Vendor
The primary advantage for the vendor lies in the continuous stream of income which will amount to much more than what can be expected in the traditional software licensing setup. Through SaaS, furthermore, vendors can mitigate piracy and unlicensed use of software and reduce losses associated with such activities.
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