A Business Owner’s Guide to Software as a Service (SaaS)

For those within the IT space, software as a service (SaaS) isn’t a new or difficult concept to understand. For the average business owner, however, Saas and the verbiage used in discussing it can sound like a foreign language. The software solutions on the market within the SaaS are both plentiful and valuable when implemented effectively. However, they differ greatly from traditional software, and thus – have important and unique elements to understand. So, it’s critical business owners understand at least the basics around the topic to be able to make informed decisions for the business.

Traditional Software vs. SaaS Solutions

Before Saas capabilities, traditional software deployment required users to download and install the software to their devices. In most cases, the software was usable by the device indefinitely (or until a new version was released). This meant a one-time purchase prior to initial installation and no ongoing costs.

SaaS options, on the other hand, are stored in a cloud network rather than on a business’ devices. Users pay a fee to access the software, the frequency of which varies from weekly to monthly and even annual subscriptions. Those payments go to the cloud-based service provider offering the software.

From a business owner’s perspective, what are the benefits of choosing SaaS solutions over traditional software downloads that have led to significant growth in the industry over the past few years? Opting for a cloud-based option means all maintenance and security are handled by the service provider, limiting the effort and liability on the business side.  

Additionally, SaaS solutions are quick and easy to implement as they don’t require downloading software onto each device on which it is to be used. This also means scalability is much easier with SaaS options as they make adding or removing a user simple. When it comes to updates and security patches, those are all handled by the provider, meaning very little manpower is required to manage a suite of SaaS solutions. Overall, these options are less expensive than in-house alternatives and the ongoing costs associated with maintaining those.

One downside to some SaaS solutions is the lack of customization options for businesses. These solutions are accessed by many users, often across industries and geographic locations. Some come with built-in customization options, but many do not – which is not ideal for all applications. Cloud security is also a concern with some SaaS options, but security standards for these applications continue to improve.

Other Cloud Service Models 

Software as a service represents just one type of cloud service model within the software space.  Infrastructure as a Service (IaaS) preceded SaaS and continues to be a popular choice for business owners because it offers them a suite of resources (network, storage, etc.) via the internet on a pay-as-you-go basis. IaaS providers provide all host infrastructure components, but management responsibility when it comes to maintaining applications and operating systems still falls on the business.

Rather than offering a specific software, Platform as a Service (PaaS) offers businesses a complete cloud platform, including servers, networks, storage centers, operating systems, and databases. PaaS options are popular with businesses that want to build and test software applications quickly and inexpensively. Doing so within an on-site environment is much more costly, in both time and money. Some PaaS providers offer these platforms on a pay-as-you-go model, and others require long-term contracts that specify which resources are accessible and by how many users.

Typical SaaS Pricing Structures

Pay-as-you-go is a common pricing model for SaaS applications as well. In rare cases, the software is free or ad-supported. Rather than collecting revenue from users, cloud providers charge advertisers for marketing space within the platform. When it comes to free software, it’s often the case that only a basic version of the software is free, and premium features are accessible via a paid subscription. This pricing structure is referred to as “freemium.”

Many SaaS providers charge on a per-user basis, meaning subscription fees are based on the number of users a business requires. Often, these are grouped into tiers for a simpler pricing structure. Equally as common is a feature-based tiered pricing structure. The cost for businesses using the solution is determined by the total functionality or features the subscriber requires. Those utilizing less of the software’s capabilities pay less than those using more of its functions and features.

Navigating the World of SaaS

Understanding how SaaS works is just the first step in effectively implementing and managing SaaS options for your business. For each business function (i.e. bookkeeping) an organization requires, there are often many different options for providers. Being able to compare options and select the best combination of SaaS options (or their in-house alternatives) is difficult and often requires some level of trial and error.