Software as a service (SaaS ) is a software licensing and delivery model in which software is licensed on a subscription basis and is centrally hosted. SaaS is also known as on-demand software, web-based software, or web-hosted software.
SaaS is considered to be part of cloud computing, along with several other as a service business models.
SaaS apps are typically accessed by users of a web browser (a thin client). SaaS became a common delivery model for many business applications, including office software, messaging software, payroll processing software, DBMS software, management software, CAD software, development software, gamification, virtualization, accounting, collaboration, customer relationship management (CRM), management information systems (MIS), enterprise resource planning (ERP), invoicing, field service management, human resource management (HRM), talent acquisition, learning management systems, content management (CM), geographic information systems (GIS), and service desk management.
SaaS has been incorporated into the strategies of nearly all enterprise software companies.
History
Centralized hosting of business applications dates back to the 1960s. Starting in that decade, IBM and other mainframe computer providers conducted a service bureau business, often referred to as time-sharing or utility computing. Such services included offering computing power and database storage to banks and other large organizations from their worldwide data centers.
The expansion of the Internet during the 1990s brought about a new class of centralized computing, called application service providers (ASP). ASPs provided businesses with the service of hosting and managing specialized business applications to reduce costs through central administration and the provider's specialization in a particular business application. Two of the largest ASPs were USI, which was headquartered in the Washington, D.C., area, and Futurelink Corporation, headquartered in Irvine, California.
Software as a service essentially extends the idea of the ASP model. The term software as a service (SaaS), however, is commonly used in more specific settings:
While most initial ASPs focused on managing and hosting third-party independent software vendors' software, contemporary SaaS offerings are typically provided by the software developer. Whereas many initial ASPs offered more traditional client-server applications, which require the installation of software on users' personal computers, later implementations can be Web applications that only require a web browser to use. Whereas the software architecture used by most initial ASPs mandated maintaining a separate instance of the application for each business, SaaS services can utilize a multi-tenant architecture, in which the application serves multiple businesses and users, and partitions its data accordingly.
The acronym first appeared in the goods and services description of a USPTO trademark, filed on September 23, 1985. DbaaS (Database as a service) has emerged as a sub-variety of SaaS and is a type of cloud database.
Microsoft referred to SaaS as "software plus services" for a few years.
Distribution and pricing
The cloud (or SaaS) model has no physical need for indirect distribution because it is not distributed physically and is deployed almost instantaneously, thereby negating the need for traditional partners and middlemen. Unlike traditional software, which is conventionally sold as a perpetual license with an up-front cost (and an optional ongoing support fee), SaaS providers generally price applications using a subscription fee, most commonly a monthly fee or an annual fee. Consequently, the initial setup cost for SaaS is typically lower than the equivalent enterprise software. SaaS vendors typically price their applications based on some usage parameters, such as the number of users using the application. However, because in a SaaS environment customers' data reside with the SaaS vendor, opportunities also exist to charge per transaction, event, or other units of value, such as the number of processors required.
The relatively low cost for user provisioning (i.e., setting up a new customer) in a multi-tenant environment enables some SaaS vendors to offer applications using the freemium model. In this model, a free service is made available with limited functionality or scope, and fees are charged for enhanced functionality or larger scope.