What is SaaS

Published on: Mar 27. 2012
Labels: business

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(concept art: Cloud Computing)

From year to year SaaS changes the way of doing business through the Internet and many vendors have migrated from the internal infrastructures or computer networks to a Software as a Service business model.

The concept of SaaS allows companies to:

  • reduce capital investment in IT infrastructure
  • rationalize costs
  • pay monthly payment
  • independently control the amount of necessary software and hardware in accordance with their needs
  • focus on the achievement of strategic goals (and not the maintenance of individual components of the IS)
  • increase the efficiency of business processes
  • have global accessibility

Software as a Service (SaaS) vs. Software as a Product

The most important difference between Software as a Service model over the traditional models is that the software is not purchased, but paid for the use of its services.
When buying software, the most common traps that companies encountered are the ones that come with the software which can double the cost of software. Here are some of the things that should  be taken into consideration when deciding to purchase software to support your business:

  • license for the operating system and database
  • the server which has the application and database
  • network infrastructure that will enable multi-user environment
  • administration for maintaining server and network infrastructure is necessary if you want to ensure the continuity of your business. For some companies it is simply not profitable to hire a system administrator
  • investing in a system for making backups of data and also have a person who takes care of monitoring and enforcement

In contrast, the main goal of SaaS technology is to offer finished specific software solutions so that the users no longer need to spend valuable resources and time, to develop and maintain it themselves, but they can be used directly on computers over the  internet.

SaaS Architecture

When looking at Software as a Service applications from tehnical point of view there are three key features that separate a well designed application from a badly designed one. These features are scalability, multi-tenancy and configurability.


A scalable application needs to be designed from the ground up to load balance effectively with increasing customer instances, maximize concurrency and use application resources effectively and on demand.


Multi-tenant-efficient architecture should support multiple tenants while maximizing sharing of hardware, memory and other resources using a single instance of the application.


The application needs to be configurable to meet the needs of each tenant. Since the code cannot be modified as changes for one tenant could affect the other on the same server, this is achieved through the use of metadata and a metadata execution engine.

SaaS Advantages

  • Cost reduction - besides paying for only what you need, you can use the software without making the initial investment in the machinery, software base and additional software needed to run the application in an in-house environment.
  • Stability and security - bugs and errors are treated directly, faster than can be done with in-house staff. Data security is insured by backups and contingency plans in case of loss of information or hardware failure.
  • Automatic updates - immediate access to new updates and features.
  • Customization - the application can be customized based on a set of predifined configuration options. This way a single customer can alter the set of configuration options that affect its functionality.
  • Platform compatibility - no requirement from you operating system. You can use Mac OS, Linux or Windows, all you really need is a browser and an internet connection. This way you can switch platforms if you choose to.

SaaS Disadvantages

Connection to the Internet - one of the requirements of SaaS is a high speed internet. For many companies this doesn't pose a problem but it is still something to consider when choosing the application.

Low level of confidence in data security - some companies may have an issue with their data being stored on third party servers. Certain businesses might have regulations governing the acquisition, storage and use of the information they gather from customers.

Top SaaS companies

Each year the number of SaaS providers grows rapidly. Here we will mention some of the more notable SaaS providers.

Amazon EC2 - web service designed to make web-scale computing easier for developers. Used to reduce the time needed to obtain and boot new server instances.

AT&T - AT&T Synaptic Compute as a Service is a cloud computing solution that lets you access the servers in the AT&T cloud.

Cisco - using its CloudVerse Cisco provides simplicity, security, scalability, agility and experience to any device in any location.

Citrix Systems - provider of server and desktop virtualization, Software as a Service and cloud computing technologies.

Dell - provides customers with an efficient cloud computing solutions to achieve flexible infrastructure.

Google - Google has been pushing the development of cloud computing for over a decade. Today more than 4 million businesses use Google Apps.

IBM - SmartCloud is the IBM cloud computing solution. 80% of the Fortune 500 use IBM cloud computing capabilities.

iCloud - a service that allows you to store your music, photos or documents and wirelessly access them on all your devices.

Microsoft - Windows Azure is a Microsoft enterprise-grade Software as a Service platform.

NetSuite - offers a cloud based Software as a Service bussiness management solutions including ERP, CRM and eCommerce.

Oracle - Oracle's strategy is to offer public, private and hybrid clouds to allow customers to choose the right approach for them.

Salesforce.com - enterprise software for Customer Relationship Management (CRM).

SaaS companies revenues

In a shift to cloud computing many traditional software companies are trying to reduce their churn rate by providing cloud/SaaS offers.
SaaS revenue for 2010 was 16.6 bilion USD and that figure is projected to grow to 53.6 bilion in 2015.


  • Revenue - 1.657 billion USD (2011)
  • Operating income - 97.50 million USD (2011)
  • Net income - 64.47 million USD (2011)


  • Revenue - 1.87 billion USD (2010)
  • Operating income - 327.16 million USD (2010)
  • Net income - 277.07 million USD (2010)


  • Revenue - 193 million USD (2010)
  • Operating income - 25.6 million USD (2010)
  • Net income - 27.5 million USD (2010)

Glossary of SaaS Terms

Application Service Provider (ASP) - term that describes an alternative deployment model. Also sometimes called On-demand software. In ASP model the applications are most often hosted by a service provider outside of the end customer's premises and accessed by special purpose client software provided by the vendor.

Churn rate - the percantage of contractual customers or subscribers who discontinue their use of service during a certain time period. It is considered as one of the more important business metric because the cost of retaining an existing customer is less than acquiring a new customer.

Cloud computing - represents resources (hardware and software) for use as storage devices, servers, networks, operating systems and applications, all available on the Internet. The concept is derived from the idea of ​​renting IT resources as services to be paid on the basis of use. Cloud services include three main categories; Software as a Service (SaaS), Infrastructure as a Service (IaaS) and Platform as a Service (PaaS). Instead of worrying about the infrastructure, storage and maintenance, you can focus more on the profit of your business and better serve your customers.

Customer/Tenant - term that refers to the company or business that subscribes to the Saas offering.

Customization - all changes to the business logic, user interface, and/or database considering the requirements of a single customer. In practice, most Saas applications either do not allow customization or customization provided to one customer is made available to all customers and users.

HTTP - Hypertext Transfer Protocol - an application protocol used to transfer data on the Web. It is the foundation of data communication on the Web.

HTTPS - Hypertext Transfer Protocol over Secure Socket Layer - secure HTTP connection that is a combination of normal HTTP and an SSL/TLS protocol.

Independent software vendors (ISVs) - focused to developing and sale of their finished software products or income from the sale of licenses and the related maintenance.

Infrastructure as a Service (IaaS) - like Saas and Paas it falls under the cloud computing service. Mainly based on the virtual platform in the form of service. IaaS model personally takes care not only for the updating and maintenance but also for the platform and the installed software.

Multi-Tenancy - one of the essential attributes of Cloud Computing, used to maximize customer and user scalability. It provides maximum operational scalability and lower support costs for the service provider by leveraging common user interface, business logic, and/or databases for all customers and users.

Personalization - relates to minor "tweaks" to the configuration to support the business process of customer and users.

Platform as a Service (PaaS) - term that refers to the building and running custom applications. It provides all the infrastructure needed to run applications or developing and testing new ones over the Internet.

Storage Area Network (SAN) - a dedicated network used to connect remote computer storage devices to servers in such a way that, to the operating system, the devices appear as locally attached.

Structured Query Language (SQL) - programming language for querying and modifying data and managing databases in relational database management systems.

Further reading

SaaS on Wikipedia - http://en.wikipedia.org/wiki/Software_as_a_service 
Wikinvest - Saas - http://www.wikinvest.com/concept/Software_as_a_Service
SaaS on MSDN - http://msdn.microsoft.com/en-us/library/aa479069.aspx


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