What Is Software as a Service (SaaS)?

Innovate rapidly with software delivered via the cloud.

What is SaaS?

What is SaaS?

Software as a service (SaaS) is a cloud-based software delivery model in which the cloud provider develops and maintains cloud application software, provides automatic software updates, and makes software available to its customers via the internet on a pay-as-you-go basis. The cloud provider manages all the hardware, middleware, application software, and security. So SaaS customers can dramatically lower costs; deploy, scale, and upgrade business solutions more quickly than maintaining on-premises systems and software; and predict total cost of ownership with greater accuracy.

In the early 2000s, the first generation of SaaS solutions was siloed, inflexible, and designed to solve a single business problem. Since then, SaaS has evolved dramatically. Today, a modern cloud suite can span—and connect—everything from financials, human resources, procurement, and supply-chain processes to commerce, marketing, sales, and service solutions. Other benefits of a modern, complete SaaS solution include:

  • Connected, end-to-end business processes built-in
  • Ease of configuration and personalization
  • Rapid data portability
  • Comprehensive cloud security
  • Embedded analytics
  • Support for emerging technologies, from artificial intelligence (AI) to chatbots, Internet of Things (IoT), and more

The Origins of SaaS

In the 1960s, mainframe computers were connected to dumb terminals that shared the mainframe’s software—a software delivery system known as time-sharing. As the cost of computers began to fall in the 1980s, many businesses created their own local version of time-sharing, which was called a local-area network (LAN). However, the business (not the technology provider) was responsible for supplying and managing the hardware and network.

With the advent of the internet in the 1990s, providers began hosting software and making it available to customers via the internet. This forerunner of SaaS, called the application service provider (ASP) model, had serious limitations, however. For example, each customer required their own version of the software, which meant they had to install some software on users’ computers. Configuration was costly and time-consuming.

And, finally, ASP solutions typically didn’t offer a way to collect and aggregate data efficiently.

SaaS Is Born

The first SaaS solutions emerged in the late 1990s, when the term SaaS was originally coined. This new model delivered much greater efficiencies than the ASP model. A single instance of the application could serve multiple users and even customers, thanks to its so-called multitenant architecture. Local installation of software was no longer required. And it provided a way to collect, aggregate, and centralize valuable application data.

While the delivery model has remained constant since the early 2000s, SaaS has evolved significantly from first-generation siloed solutions to modern SaaS suites that enable high visibility across the business and can extend the power of SaaS through emerging technologies such as IoT, AI, chatbots, digital assistants, and blockchain.

Business Benefits of SaaS

From its inception, the SaaS model was designed to deliver a core set of business benefits:

Lower upfront costs

  • Eliminate the need for additional hardware and middleware
  • Reduce installation and implementation costs

Predictable ongoing costs

  • Eliminate unpredictable costs of managing, patching, and updating software and hardware
  • Turn capital expenses into operational expenses
  • Reduce risk with experts managing software and overseeing cloud security

Rapid deployment

  • Get up and running in hours instead of months
  • Turn on and use the latest innovations and updates
  • Automated software patching

On-demand scalability

  • Scale instantly to meet growing data or transactional demands
  • Reduce disruptions while maintaining service levels

Beyond the Baseline: SaaS as a Platform for Innovation

Beyond the Baseline: SaaS as a Platform for Innovation

While cost reduction and IT efficiency drove the development of first-generation SaaS solutions, modern SaaS solutions have become platforms for innovation to meet the competitive challenges of the digital age, such as

  • The Uber effect. From Netflix to Uber, disruptive, cloud-based businesses are toppling traditional industries
  • The power of small. Cloud, mobile, and social are enabling small and startup enterprises to create innovative products and reach markets with unprecedented speed
  • The age of consumer discontent. Armed with mobile and social, consumers have more choices and more information than ever before

In response to these competitive challenges, a modern SaaS suite can drive innovation across the business by supporting faster innovation, providing superior customer experiences, and enabling better business decisions with built-in analytics and a holistic view of the business.

Modern SaaS Suite Capabilities

Connected, cross-business solutions

  • Connect and optimize cross-departmental business processes
  • Gain a holistic view of your entire business

Faster, more flexible update paths

  • Access new capabilities as soon as they become available
  • Choose to update at the speed of your business, not on a provider’s timetable

Easy personalization

  • Quickly personalize solutions for your business needs
  • Preserve valuable customizations through updates

Data portability

  • Share and/or move data across SaaS, on-premises, and private cloud applications
  • Avoid expensive, time-consuming data-egress costs

Built-in analytics

  • Access data in real-time
  • Quickly prepare, visualize, and analyze data to see trends and patterns
  • Incorporate third-party data for rich analytics

Faster innovation leveraging emerging technologies

  • Enhance productivity with built-in self-learning and adaptive intelligence
  • Innovate quickly across the entire value chain with AI, IoT, blockchain, chatbots, and other emerging technologies

A Single SaaS Suite of Applications, Built for the Cloud

A Single SaaS Suite of Applications, Built for the Cloud

Some SaaS providers simply move their on-premises software to the cloud and call it SaaS. This model has its drawbacks and does not take full advantage of the cloud delivery model. In fact, you may end up with many of the same limitations as with on-premises solutions, including significant support bills, high IT-related overhead costs due to the same slow upgrade process, and disconnected systems—all of which reduce innovation and agility in your business.

However, a SaaS suite engineered from the ground-up for the cloud can provide:

Rapid access to innovations. Because innovation is so critical in the digital age, businesses want to take advantage of the latest capabilities. SaaS engineered for the cloud speeds innovation cycles and gives you faster access to the latest innovations. By contrast, the on-premises in-the-cloud SaaS model requires you to wait for innovations because of the longer development cycles typical of on-premises solutions.

Connected SaaS business processes. Businesses want a SaaS solution that supports like procure-to-pay or order-to-cash in the cloud—without costly integrations and complex management. To make this possible, a modern SaaS suite is built on a single, standards-based platform that includes a common, enterprise-wide data model; a unified user experience (including mobile and social); shared security levels; synchronized release schedules; and more.

The Future of SaaS

Market experts agree that the future of SaaS is strong. According to a 2017 Gartner report, sales of SaaS solutions will continue to grow at nearly 20 percent per year, from US$39 billion in 2016 to US$76 billion by 2020. Innovation in the SaaS solutions themselves is expected to help drive that growth.

  • AI. While still relatively new, AI is expected to become an increasingly baked-in part of enterprise SaaS applications, including adaptive intelligence (which learns and adapts to user data and behavior).
  • Autonomous IT management. AI and machine learning will also play vital roles in driving more autonomous, less human-reliant management across the IT stack.
  • Chatbots, IoT, and blockchain. Each of these technologies is increasingly vital to digital innovation and forward-thinking providers are already finding ways to offer them in their SaaS offerings.
  • Vertical depth and horizontal connectedness. While SaaS began as a way to quickly provide vertical solutions to a single department, businesses increasingly need and expect cross-business visibility as well. Look for more vertical depth from providers offering cross-business suites as well as more APIs and turnkey integrations for hybrid solutions.