Software as a Service (SaaS) - definition & overview

Software as a service (SaaS) is a model of software distribution where customers pay a monthly subscription or licensing fee and a third-party, typically the software vendor makes, the application available over the internet. In the SaaS model, rather than purchasing a physical copy of an application and installing it on a local server, the customer relies on the software vendor to facilitate access to the application via the internet, hosting and maintaining it on their own servers.

The defining characteristic of Software-as-a-Service is that customers pay a monthly subscription fee to access a hosted application, rather than pay a one-time perpetual license fee to own the product. When customers pay to access a hosted application, the vendor is responsible for server maintenance, updates and availability. In contrast, when customers pay to purchase an application, they must provide the hardware (servers), and maintenance and perform upgrades independently.

When a customer purchases a SaaS software tool, it is typically the vendor that provides hosting for the application and facilitates access - but this is not the only option. There are also application service providers, or ASPs, companies that earn a profit by managing data centers and hosting applications for their own networks of customers.

In essence, companies that subscribe to SaaS services are paying a monthly subscription fee to have a third-party organization manage IT infrastructure. The SaaS software delivery model helps to reduce the cost and time to deploy a new piece of software, creates increased certainty around the annual cost-of-ownership for software, reduces costs, and outsources labor tasks that would otherwise happen in-house.

SaaS, IaaS (infrastructure-as-a-service) and PaaS (platform-as-a-service) together make up the three most common models of cloud service delivery. They differ only in terms of which parts of the technology stack are managed by a vendor or third party and which are managed in-house.

When a company chooses to host an application on-premises, it manages every aspect of the technology stack. This includes applications, data, runtime, middleware, the operating system, virtualization, servers, storage and networking.

If a company purchases IaaS, it still manages nearly the entire technology stack. In this model, third-party vendors handle servers, storage and networking functions.

PaaS provides an even greater level of outsourcing, with only applications and data managed in-house and all the rest of the technology stack functions outsourced to an application service provider.

In the SaaS model, organizations outsource the entire technology stack. Networking, storage, servers, virtualization services, operating systems, middleware, runtime, data and the application itself are all hosted by a third-party vendor and none of the functions are managed in-house.

Applications are easy to access

SaaS applications are typically hosted through the internet, which makes them accessible from any connected device. Computers, tablets, and mobile phones can all be used to access and interact with hosted applications. In the past, licensed applications that were hosted on a company's internal servers might be accessible exclusively through the company intranet. For SaaS companies, the method of delivering an application through the internet means easier and more convenient application access for customers in a variety of contexts.

Third-party host performs updates and maintenance

Contracting with a SaaS software provider can relieve your in-house IT organization from significant labor overhead in the form of routine server maintenance, patch management and performance updates. When you purchase physical software from a vendor and install it on your own servers, your IT organization will be responsible for discovering, downloading and implementing any software updates or patches. If you choose to subscribe to Software-as-a-Service, the vendor takes responsibility for server maintenance, installing patches, and ensuring the availability of the application.

SaaS solutions offer excellent vertical scalability

One of the key advantages of hosted applications in the SaaS delivery model is the ease with which they can be scaled. When customers require additional bandwidth, more servers, additional licenses, or more features, the software vendor can typically deliver on those requirements relatively quickly. With a reliable SaaS provider, organizations can expand IT infrastructure and capacity without the additional overhead expense of new servers and networking equipment.

SaaS solutions help reduce upfront costs

The SaaS business model has played a major role in enabling more companies to adopt a greater variety of software solutions and expand their respective IT infrastructure and capabilities without taking on massive capital costs. In the past, organizations that wanted to implement a new software solution would have to purchase the application, customize it to their requirements and install and host it on their servers. SaaS companies use economies of scale to minimize the cost of hosting their application for all of their customers. They also play a role in ensuring customer satisfaction by managing the availability and downtime of their applications, and by providing customer support when necessary.

Two of the biggest challenges faced by companies adopting multiple SaaS solutions are obtaining a unified view of network activity and security, and effectively managing cloud-based applications. A growing need for unified management solutions for cloud-based applications has more organizations turning to Sumo Logic's operations analytics platform, which uses machine learning to help reduce application downtime, troubleshoot errors and optimize the customer experience.