Ever wondered what SaaS really means?
SaaS means “Software as a Service” and is both a licensing model, as well as a software product delivery model. SaaS is not that new, but it is becoming more popular as cloud-based applications are flourishing. It might seem new to some, since it's a departure from the more traditional “On-Premise” software applications.
So what is it then?
Put simply, SaaS is a distribution method where software applications are made available over the web and cloud by a software vendor. All the infrastructure, equipment, maintenance and other IT-related costs are covered by the vendor as part of the SaaS license fee. Companies can free themselves from any software to install or hardware to buy or maintain – all they need is an internet connection, and the software is there all the time.
In addition to the convenience of accessing the software application over the web and cloud, SaaS also differs in its pricing model. On-premise software is typically purchased through a Perpetual License, which means buyers own licenses of that version of the software. They also pay 20% to 30% per year in maintenance and support fees on top of the license purchase. SaaS, on the other hand, allows buyers to pay an annual or monthly subscription fee, which typically includes the software license, support, product upgrades and all other fees. With SaaS pricing, the customer is not burdened with a heavy front-loaded cost. With traditional On-Premise perpetual license, the buyer takes on a great deal of risk and has to cross their fingers that it’s all going to work. With the SaaS pricing model, the costs are spread out over time, and the vendor is more on the hook to make sure the client is happy so that they continue to renew. The risk is shared more equally with SaaS.
Another characteristic of SaaS, which may be one of the biggest benefits, is the continuous delivery of enhancements & upgrades. With traditional On-Premise software models, product upgrades to new versions are not typically included in the annual maintenance & support fees. Upgrades must be purchased separately to get the advantage of the capability in the new version. Further to that, product upgrades only happen every 12 to 18 months, so users are forced to wait a very long time for new capabilities to emerge in the software. This is not the case with SaaS. With its continuous delivery model, new features appear seamlessly into the software as often as every few weeks. There’s no compatibility issues, or downloads or tricky upgrades – it just happens automatically, seamlessly and free. SaaS vendors are able to react quickly to market trends, client requests, and key functionality that needs to be added to the software. They don’t have to wait for a Big Release to turnaround new features – new features are happening all the time. All SaaS clients are always using the latest version of the software and they get very quick feedback from product requests they’ve made.
An additional consideration is that it typically takes up to five years for a SaaS software product to catch up to what clients pay for On-Premise software on the very first day. With the ballooning popularity in SaaS solutions for business critical applications, and the obvious advantages it has over On-Premise software, it will be a challenge to imagine many software products still selling on a perpetual, on-premise basis in the coming years.