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The concept of SaaS, or Software as a Service, dates back to the 1960s. IBM was one of the pioneers in this area. Yet, it wasn't until the 1990s that SaaS had the resources it needed to grow. Today, 80% of businesses use a SaaS application. On top of that, this industry is expected to keep growing in the next few years.
This article will cover everything you need to know about SaaS. We'll start by explaining the concept of SaaS and differentiating it from PaaS and IaaS. We'll also go over how the SaaS business model works and what the advantages of using SaaS are. As well we'll give you some examples of SaaS applications.
What is SaaS (Software as a Service)?
SaaS is software available online through third parties. Instead of installing software on your computer, you can access it online. In these cases, it doesn't need complex software and hardware management. As we'll see later, Google Apps (now Google Workspace) is an excellent example of a popular SaaS product.
How does SaaS work?
So, how does the SaaS business model work to make it so successful? As we've mentioned, SaaS is a product offered through the Internet. This means SaaS is in charge of maintaining servers, databases, and software. Meanwhile, SaaS users pay a subscription to gain access to the software.
As it relies on recurring payments, one of the bases of the SaaS business model is customer retention. And what is the key to customer retention in SaaS? Well, it seems to lie with customer service. In fact, the main reason SaaS customers switch providers is customer service. This even comes above the existence of better or more complex products.
Yet, it's worth mentioning that another aspect of this model is regular updates. These updates don't need to be big or mind-blowing. Some involve keeping SaaS up to date, improving security, and adding new features. Of course, other reasons make the SaaS business model work so well. We'll take a look at them below.
SaaS vs. PaaS vs. IaaS
These acronyms refer to three different types of cloud computing. Since they can create confusion, we'll review them in this section. We have already explained the concept of SaaS, so we'll move on to comparing SaaS vs. PaaS vs. IaaS. Let's see what each one stands for. PaaS = Platform as a Service | IaaS = Infrastructure as a Service
IaaS includes cloud-based and pay-as-you-go services. These include storage, virtualization, and networking and are often handled by IT administrators. Meanwhile, PaaS is software and hardware tools developers use and are available online. An example would be Google Compute Engine, while a measure of PaaS would be Windows Azure.
The main difference is the level of the given control. Moving from IaaS to PaaS to Saas provides companies with more control. In summary, we use IaaS to transfer data, PaaS to build software, and SaaS to use various tools. They're all becoming more and more popular as more and more companies move to the cloud. When we wrote this article, IaaS was taking the lead.
The 5 Types of Software as a Service (SaaS)
1. Vertical SaaS. These are products focused on a specific task for a specific industry. Vertical SaaS targets particular niches and has a more limited target market. For instance, CreditCheck, which was developed by Capicua, and BioQ are examples of this.
2. Horizontal SaaS. In contrast with vertical SaaS, horizontal SaaS products meet general business needs. This can cover various industries, like retail, insurance, and manufacturing. Office 365 and Salesforce are a couple of examples of this type of SaaS platform.
3. Packaged SaaS. These types of SaaS help a company manage a particular process. For instance, to improve customer relations or to boost marketing. This includes CRM software and financial management. An example of this would be HubSpot, a CRM platform.
4. Collaborative SaaS. Collaborative SaaS helps organize and improve teamwork. It can be anything from instant messaging and video conferencing to project planning. Slack and Asana are both excellent examples of this type of product.
5. Technical SaaS. In this case, SaaS focuses on managing or improving development or technical processes. One example is CloudSponge, which aims to improve marketing outcomes.
What are Software as a Service (Saas) Pricing Models?
We've discussed that SaaS is usually a subscription-based product. Not only are there exceptions, but there are also different subscription models.
1. Freemium SaaS. SaaS platforms such as Slack and Dropbox are great examples of the freemium pricing model. They offer many free features and allow users to obtain paid packages or upgrades if the free version does not meet their needs.
2. Flat Rate SaaS. Some companies choose to offer a SaaS product for a monthly or yearly flat rate. As a result, all customers get the same product for the same price. For instance, this is the case for the Canvas Pro plan.
3. Tiered SaaS. As it allows companies to offer different packages, this is one of the most popular SaaS options. Companies often have two or three packages with increasing features and prices. For example, the Basic, the Pro, and the Enterprise package. At first, this gives smaller companies an affordable product. Also, it allows catering to larger businesses needing complex features or tailored solutions. QuickBooks is an example of a SaaS product that uses this model.
4. Per-User Rate SaaS. Some companies charge a subscription based on the number of users. As they only pay for people using the SaaS, this can be effective for small and medium businesses. For example, Jira charges a flat rate per user. But it also combines it with the tiered pricing model.
5. Usage-Based SaaS. Other companies may charge you according to how much you use their product. This is the case with Stripe, where you pay for each transaction processed. Also, PayPal has a similar system. Some companies may mix and match instead of sticking to one pricing model.
The Benefits of Software as a Service (SaaS)
1. SaaS Access
SaaS platforms are available anytime and anywhere, as long as you have an Internet connection. This is an excellent benefit for remote teams, both those using and installing the software. Also, SaaS technology makes onboarding processes easier for recruits. This means they only need login credentials to access the tools they need to start working. Moreover, it allows IT professionals to focus on more pressing tasks. As a result, SaaS saves companies time and increases efficiency.
2. SaaS Costs
Software licensing costs for SaaS are usually lower than for the traditional model. Different people and companies share online software; in a way, prices are also shared. Often, companies gain access to features that allow quick scalability. In many scenarios, they may not be able to afford it. As a result, this increases the chances for growth.
With tiered and user-based plans, companies can choose which best suits them. Also, they can upgrade to a better plan or add more users once they have financial resources. Last but not least, SaaS is usually based on a subscription model. This way, calculating expenses is easier, saving companies time and money.
3. SaaS Scalability
As mentioned, SaaS offers different tiers, integrations, and/or functionalities. In general, this depends on each venture's size. This makes it very easy to scale up your company if needed. There's no need to find or develop new software in these cases. Also, migrating from one tool to another can be time-consuming and lead to data loss. With added features and higher tiers, companies can focus when planning future growth.
4. SaaS Compatibility
As we've mentioned, SaaS upgrades are automatic. This means there are no risks of team members working with different versions. Otherwise, it might translate into compatibility issues and prove costly.
5. SaaS Upgrades
SaaS providers are constantly working on new upgrades for their products. When there's a recent upgrade, you don't need to buy a new license for it, and its availability is automatic. Besides, not having work downtime for update processes makes it time and cost-effective.
Conclusion
Although we may not pay them much attention, we use SaaS platforms daily. They have countless uses and are accessible to both individuals and companies. We hope this article has given you a clear idea of what SaaS is and its business model.
