What Is SaaS?

Definition

SaaS stands for Software as a Service, a way to license and operate software entirely in “the cloud.” In short, this means that any software offered ‘as a service’ does not need to be installed on your computer in order to be used. You simply create an account on the software vendor’s website, log in, and use the software entirely from a window in your web browser. SaaS programs are also sometimes called “on demand software,” but mercifully, that is not in usage as another acronym. (But if you see the term floating around the internet, just know that it’s referring to SaaS.)

The prevalence and near-predominance of SaaS piques the interest of first-time entrepreneurs and Enterprise-sized businesses alike. In fact, deploying software in this kind of online-only platform creates a rare win-win scenario for businesses and consumers alike. SaaS is not a flash in the pan; it’s a milestone in technology that will become an integral part of our future.

The usage of Software as a Service is usually accomplished through nothing more than a web browser on an internet connected computer. But in more complex or high-bandwidth cases, some SaaS usage is better accessed through a small client downloaded to your computer. These clients act as a more convenient interface to the same online software. (Examples include installing mobile clients on your phone or tablet for CRM apps or using desktop clients to access gaming networks.)

In this article, we’ll cover a bit more than just the basics. Read on to get the full picture, and see how SaaS might benefit your business.

Benefits of SaaS

I’ve broken down the major benefits of SaaS from the perspectives of both the software vendor and the end user, but in both cases, software of this type could be summarized as “faster, cheaper, easier, smarter.” Investors and early adopters don’t hear those words, though; instead, they just hear “cha-ching.”

For Software Vendors:

For the vendor, SaaS deployment is all about reducing costs and increasing BI (Business Intelligence):

• No media to purchase (physical CD or DVD on which to load the software to sell as a physical product)
• No media encoding (dedicated disc burners, physical location to house production equipment, etc)
• No packaging (disc inserts, jewel cases, boxes, cellophane, etc)
• No shipping of any physical product to any distributor. (Just as Netflix put Blockbuster out of business, there is no software on a CD to distribute to retailers).
• No retail space needed (no contracts or partnerships to worry about, which further reduces costs for the end-user and increases profits for the vendor).
• Much more accurate metrics on usage, which guides product development.

For Users:

• No exorbitant one-time license, but a much more manageable recurring subscription.
• No (or few) technical requirements to meet.
• No IT department needed in-house.
• Near instantaneous deployment (zero local installation and minimal configuration).
• New upgrades and security patches are done automatically and in the background
• Wide variety of tech support is usually included, from extensive documentation to live chat to good old fashioned phone calls (in some cases)..
• Scalability. No more optimistic over-reach. Subscribe to exactly what you need, and upgrade when you’re ready.
• Compatibility. Remember when Microsoft Word documents could not be opened if the other user had a different version of Word installed? Or when the other user had a different platform altogether (Mac vs PC)? With SaaS, all users access the exact same software. Compatibility issues all but disappear.
• Ubiquity. Need to access your software admin when you’re out of the office? As long as you know your user name and password, you have full access to your software subscription from any internet connected computer. If you’re traveling, simply go to your hotel’s data center or a library and log in to get some impromptu work done. Many SaaS developers also support access from mobile devices, so your tablet can be your go-anywhere workstation.

If the budget-friendly perks of SaaS were its only benefit, that would still be monumental. SaaS allows you to lease something beyond your normal budget limits, greatly extending your purchasing power. If a piece of software costs a one-time $1500, but you subscribe to its service for $30/mo, you’ll have paid for the software in full in 50 months (a little over 4 years). But that’s 4 years of doing business that you might not have been able to accomplish otherwise.

But wait! There’s more! See also “Extensibility” below, as a single perk deserving of its own subheading.

Drawbacks of SaaS

It’s not all sunshine and rainbows, but nearly. Here are some of the trade-offs.

For Software Vendors:

• Data security becomes (almost) the sole responsibility of the vendor. One exception to this is when users are required to purchase an SSL certificate to encrypt the connection with the vendor. This is usually only required by merchants who need to maintain PCI compliance.
• New software vendors have a harder time breaking into the industry, because more of the technical burden falls on their shoulders; the software must not only be produced, but hosted on a server, and the UI (user interface) must be entirely accomplished through a web browser window. The complications with delivering software entirely in the cloud keep snowballing into bigger and more technical issues, but I think you start to get the picture.

For Users:

• Reliable high speed internet access is a must. And since when was any ISP known for its reliability? In cases where the SaaS implementation processes orders and financial transactions, any downtime is especially troublesome. Some SaaS vendors particularly plagued by downtime are starting to offer “offline modes,” which sync up all offline transactions to the server when the connection is restored. But this is not a standard feature yet.
• If you ever decide to migrate to another software solution, you’ll have the arduous task of transferring large quantities of data solely over the internet. No ethernet or firewire transfer or CDs to endlessly copy your backed-up files. Nope, you’ll rely on good ol’ internet-governed progress bars. And remember, upload speeds are commonly 1/10 the speed of downloads.
• Any of your business processes served by the software vendor are at risk if the vendor should go out of business or otherwise discontinue the software.
• Arguments over data ownership can ensue. Check your SLA (service level agreement) before signing up and committing to a service.

Range of Vendors

SaaS is a revolutionary milestone for how business is conducted, on par with email, cell phones, and fax machines (technologies which in their time redefined and remade the business landscape). The widespread use of SaaS is already prevalent, and the technology is well out of its infancy. In fact, you’ve almost certainly been using it for years, whether you were aware of it or not. Ever heard of Facebook? Netflix? They are both Software as a Service. They’re not merely handy, albeit complex, websites; each is an online program, which needs nothing but a web browser to access.

Here’s just a small cross section of the industries already using SaaS, as well as a few specific examples which you might recognize:

• eCommerce software (website builders like WordPress and Wix, and shopping carts like Shopify and Bigcommerce, etc)
• Group messaging software (Slack, Asana)
• Customer Relationship Management (CRM)
• Enterprise Resource Planning (ERP)
• Management software
• CAD software
• Development software
• Games and Entertainment
• Accounting software
• Invoicing software
• Human Resource Management (HRM)
• Service Desk Management (i.e., Help Desk Software)

CRM apps have especially dominated the SaaS model. Salespeople who commonly work on-the-go are able to access all of the data they would have in the office: full contact info for every lead (including contact history, notes, and relevant documentation), sales pipeline tracking, opportunity management, and even sales forecasting, right from their phone or tablet. Yet, though this “on-demand” sales data in the palm of your hand is impressive, it’s far from the full scope of what SaaS can facilitate.

You don’t have to be a high-tech salesperson to make use of SaaS applications. We’ve already mentioned Facebook, which is used by individuals of all ages. But whether you’re a consumer or a business owner, SaaS opens a lot of doors.

Range of Customers

Who can benefit from SaaS? It would be sufficient, and succinct, to simply say “umm, everyone.” But because we like to be thorough at Merchant Maverick, I’ll elaborate.

• Merchants
  • B2C (Business to Consumer) Most retail eCommerce is already served by a combination of SaaS solutions.
  • B2B (Business to Business) These types of businesses can leverage SaaS to sync up calendars, task managers, CRM and ERP suites, and even inventory, invoicing, shipping, etc…
  • Internal use. Employees need to collaborate more efficiently than they can by standing around the water cooler. Sometimes employees are divided by cubicles, floors in an office building, or hemispheres of the planet. Using SaaS, internal communication platforms like Slack allows for instant, secure, global communication.
• Personal use. Many of the above-mentioned software categories also have apps designed for individual use. Some SaaS CRM apps simply remind the user of people’s birthdays, and an increasing majority of games are designed to be played with other gamers around the world.

Common Fees Associated with SaaS 

Although the SaaS subscription model is much more affordable than buying the same software outright, there are fees which can add up quickly if you’re not aware of them beforehand. But don’t worry- we’ve got your back. Here are the most common fees associated with SaaS. Not all fees will be relevant or imposed by all types of software, so do your homework before signing up.

• Recurring subscription, (monthly or yearly) at whatever tier of service you choose.
• Transactions fees, particularly for those services which provide commerce functionality to merchants.
• Online storage. If the software to be used is hosted in the cloud, then most (if not all) of the data that each user accumulates is also stored in the cloud, File storage is not insignificant, and this cost is sometimes passed on to the user. But the rate of growth in software technology has demanded commensurate growth in data storage technology, which in turn reduces the cost of those storage drives; basic supply and demand.
• Bandwidth overages. Also referred to as Visitor Quota, or some other similar name. Bandwidth fees sound unpleasant, and many consumers vociferously complain about these fees. But the vendors that choose to impose bandwidth caps and overage charges do so to protect the customers on the lower end of their pricing structure. Consider this; if a software vendor has a wide spectrum of bandwidth usage among its users, then bandwidth limits prevent the smaller merchant from paying for the greater bandwidth usage of the larger merchants. “Pay what you use” logic. On the other hand, very successful software companies have enough infrastructure to absorb a lot of the bandwidth-related costs, and are able to promote “unlimited bandwidth” which gives every merchant one less thing to worry about. And that is the core tenet of SaaS in the first place.
• SSL certificates. Again, these are mostly needed to ensure PCI compliance. Most vendors who need to ensure safe transmission of sensitive data ensure their own secured connection.
• Supplemental tech support. This is very circumstantial – it may be mandatory for some users, and irrelevant for others.
• Extensions. Which leads us to…

Extensibility

This could really be listed under “Benefits,” but it deserves enough explanation to warrant its own heading.

The “cloud sourced” deployment of software lends itself very well to enabling third party integrations. Solo developers, as well as companies that specifically focus on creating plugins, have a built-in audience when they list their add-ons directly on an SaaS vendor’s website. Most SaaS vendors promote their own “app marketplaces” where third parties may submit add-ons which extend the functionality of their software.

This is another win-win-win scenario. The vendor is benefited because a large collection of compatible add-ons will ensure that more customers find their software useful; new developers are benefited because they can be much more easily promoted, and customers are benefited because they can essentially pick whichever add-ons they need in order to create a perfectly tailored software solution.

The Future of SaaS

It is unlikely that SaaS usage will decline any time soon. It is also unlikely that locally installed software will be totally eclipsed. This leaves us with a hybrid deployment structure mandated on our desktop computers, and more importantly, on our mobile devices. If SaaS were ever to completely edge out local installs, our mobile technology would begin to see (even more) rapid advancement since the needs for local storage, local processing power, and copious battery power would be minimal. But that’s a dream for the distant future.

In the meantime, many software companies have fully committed to SaaS deployment. As these companies branch out and offer several categories of software, a new layer of SaaS ensues: SaaS Integrated Platforms (SIP). If “normal” SaaS is a doorway into a single store, SIP is a doorway into a shopping mall. You may be surprised to hear that you are probably using a SIP already. If you have an email address with a major provider like Google, it probably operates as a SIP, providing email functionality, text document and spreadsheet support, calendar features, video chat, online storage, and the like. Each of these are SaaS applications residing under one umbrella (one doorway, in keeping with our previous metaphor). These kinds of SIPs are increasing in number and in potential. You may have heard of a few: Google, Yahoo, Salesforce, Zoho, and Oracle are already in this realm of software development.

Between the impressive list of benefits, the very short list of drawbacks, and the increasing reliance on the internet during out daily lives, the usefulness of Software as a Service is only just beginning to manifest itself. As internet speeds increase and our devices become even more interactive, SaaS will quickly become the new norm in our lives. And I’ll be the old guy who remembers the era when cell phones could only call people.