Software has traditionally been installed directly on a computer or managed on company-owned servers. Today, many applications are delivered through the internet instead. This model is known as Software as a Service (SaaS).
But what is SaaS and how does it work in practice?
SaaS allows users to access software through the internet, usually without installing and maintaining the application themselves. The SaaS provider manages much of the underlying infrastructure, software updates, security controls, and availability, while customers typically access the service through a web browser or app.
SaaS is now used for many everyday business activities, including email marketing, accounting, customer relationship management (CRM), project management, communication, file storage, analytics, and collaboration.
This guide explains how SaaS works, its main benefits and limitations, common examples, pricing models, and what businesses should consider before choosing a SaaS product.
What Is SaaS?
SaaS stands for Software as a Service. It is a software delivery model in which an application is hosted and operated by a provider and made available to customers over the internet.
Instead of buying software once and installing it permanently on a local computer, customers generally subscribe to a SaaS service and access it online.
For example, a business might use an online accounting platform instead of installing accounting software on an office computer. The provider operates the service, while the business uses the application through an internet connection.
The exact features, pricing, storage limits, integrations, and administrative controls vary from one SaaS provider to another.
A Simple SaaS Example
Imagine a company needs project management software.
With traditional software, the company might need to:
- Purchase a software license
- Install the application
- Maintain compatible computers or servers
- Install updates
- Manage backups
- Troubleshoot certain technical problems
With a SaaS product, many of these responsibilities are handled by the provider. Employees generally create accounts, sign in, and use the application online.
The business still has responsibilities, such as managing user access, protecting passwords, configuring the service correctly, and reviewing its subscription.
How Does SaaS Work?
SaaS generally operates using cloud infrastructure. The provider hosts the application and supporting systems in its own data centers or through cloud infrastructure providers.
When a customer uses the service, their device connects to the SaaS application through the internet.
A simplified process looks like this:
User’s device → Internet → SaaS application → Provider’s infrastructure → Data and services
The exact architecture differs between providers, but the basic idea is that the software is centrally operated rather than being fully installed and maintained on every customer’s computer.
1. The Provider Hosts the Software
The SaaS company operates the application and the infrastructure required to deliver it.
This can include:
- Application servers
- Databases
- Storage
- Networking
- Monitoring systems
- Security mechanisms
- Backup systems
Customers normally do not need to manage this underlying infrastructure themselves.
2. Users Access the Application Online
Users typically access SaaS applications through a web browser or dedicated mobile and desktop applications.
For example, an employee could sign in to a project management platform from a laptop and access the same account from another supported device.
An internet connection is often required, although some SaaS applications provide limited offline functionality.
3. Data Is Stored and Processed by the Service
Depending on the product, customer information may be stored in databases or other storage systems operated by the provider.
When a user creates a record, uploads a document, sends a message, or changes a setting, the SaaS application processes the request and updates the relevant data.
Businesses should understand where their data is stored, how it is protected, and what happens to it if they stop using the service.
4. The Provider Maintains the Application
One major characteristic of SaaS is that the provider is responsible for maintaining the service.
This commonly includes software updates, bug fixes, infrastructure maintenance, and improvements.
However, customers should not assume that every security or compliance responsibility belongs to the provider. SaaS security is often a shared responsibility, meaning the provider and customer each have different responsibilities.
For example, a provider may protect its infrastructure while the customer remains responsible for user permissions and account security.
Key Features of SaaS
Although SaaS products differ significantly, many share several common characteristics.
Internet-Based Access
Users can generally access the software from supported devices through an internet connection.
This can make SaaS convenient for organizations with employees working across different offices or locations.
Subscription-Based Access
Many SaaS services use monthly or annual subscriptions rather than a traditional one-time purchase.
Some providers also offer free plans, usage-based pricing, or customized enterprise agreements.
Automatic Updates
The provider generally manages application updates instead of requiring every customer to manually install a new version.
This can reduce maintenance work for customers.
Centralized Management
Organizations can often manage users, permissions, billing, integrations, and other settings from an administrative dashboard.
The available controls depend on the particular SaaS product and subscription level.
Scalability
Many SaaS platforms allow customers to change plans or add users as their needs change.
However, scalability is not automatic in every situation. Businesses should check pricing, usage limits, performance requirements, and contractual conditions before assuming that a service will scale economically.
What Are the Benefits of SaaS?
SaaS can provide several practical advantages, particularly for organizations that want to avoid managing large amounts of software infrastructure themselves.
Lower Upfront Infrastructure Requirements
A business generally does not need to purchase and maintain its own servers just to run a SaaS application.
This can reduce certain upfront infrastructure requirements.
However, subscription costs can become significant over time, especially when an organization has many users or requires advanced features.
Easier Deployment
Because the provider operates the application, getting started can be simpler than deploying traditional software across an organization’s infrastructure.
In many cases, users only need to create accounts and configure the service.
Access From Different Locations
SaaS can be useful for distributed teams because employees can often access the same service from different locations.
This can support remote work and collaboration, provided the service and organization’s policies allow it.
Regular Software Updates
Customers typically receive updates as part of the service instead of purchasing and installing every major software version separately.
This can reduce some maintenance responsibilities.
Flexible User Management
Many business SaaS applications allow administrators to add or remove users and assign different levels of access.
This is particularly useful for organizations with changing teams.
What Are the Limitations of SaaS?
SaaS is not automatically the best option for every organization. It also introduces important considerations.
Dependence on Internet Access
Many SaaS applications depend heavily on internet connectivity.
If the internet connection is unreliable, access to cloud applications may be affected. Offline features can reduce this problem for some products, but availability varies.
Ongoing Subscription Costs
A subscription can appear inexpensive initially but become a significant long-term expense.
Businesses should calculate the expected total cost based on:
- Number of users
- Subscription period
- Required features
- Storage
- Usage
- Premium integrations
- Support requirements
Vendor Dependence
When a company relies heavily on one SaaS provider, moving to another service may require time and resources.
Before committing to an important platform, businesses should investigate data export options, migration support, contract terms, and service limitations.
Data and Privacy Considerations
Organizations need to understand how a SaaS provider handles customer information.
Important questions include:
- What data is collected?
- Where is it stored?
- Who can access it?
- How can data be exported?
- How long is data retained?
- What happens when the subscription ends?
- What security and compliance controls are available?
The appropriate requirements will vary depending on the organization, industry, location, and type of information involved.
Less Control Over the Underlying Infrastructure
With SaaS, customers generally have less direct control over the servers, operating systems, and underlying infrastructure than they would with self-hosted software.
That trade-off can make SaaS easier to operate, but it may not suit organizations that require extensive infrastructure-level customization.
SaaS vs Traditional Software
The main difference is how the software is delivered and managed.
| Feature | SaaS | Traditional Software |
|---|---|---|
| Installation | Usually minimal or browser-based | Often installed locally |
| Infrastructure | Primarily managed by provider | More responsibility for customer |
| Updates | Usually managed by provider | Often managed by customer |
| Pricing | Commonly subscription-based | Can be one-time, subscription, or other models |
| Internet dependency | Often significant | Can often operate offline |
| Custom infrastructure control | More limited | Generally greater |
| Maintenance | Mostly provider-managed | More customer-managed |
Neither model is universally better. The right choice depends on the organization’s technical requirements, budget, security needs, internet reliability, customization requirements, and operational preferences.
Common SaaS Examples
SaaS is used across many areas of business and personal productivity.
Common categories include:
Customer Relationship Management
CRM platforms help organizations manage customer information, sales activities, communication, and related workflows.
Accounting Software
Online accounting services can help businesses manage invoices, expenses, financial records, and reporting.
Project Management
Project management platforms help teams organize tasks, deadlines, projects, and collaboration.
Marketing Tools
SaaS marketing platforms can support activities such as email campaigns, customer engagement, analytics, and content management.
File Storage and Collaboration
Cloud-based storage services allow users to store, synchronize, share, and collaborate on files across supported devices.
Communication Platforms
Businesses use SaaS communication tools for messaging, video meetings, file sharing, and team collaboration.
SaaS Pricing Models
SaaS companies use different pricing structures. Understanding them can help businesses compare products more accurately.
Per-User Pricing
The customer pays based on the number of users or seats.
This model can be straightforward, but costs may increase as the organization adds employees.
Tiered Pricing
The provider offers different packages with different features and limits.
A basic plan may be suitable for smaller teams, while advanced plans may include additional administration, integrations, storage, or support.
Usage-Based Pricing
Some services charge according to usage, such as storage, transactions, API calls, or other measurable resources.
This can be flexible but may make monthly expenses less predictable.
Freemium Pricing
A provider may offer a limited free version while charging for additional features or capacity.
Businesses should carefully review the restrictions of free plans before using them for important operations.
How to Choose a SaaS Product
Choosing SaaS software should involve more than comparing monthly prices.
1. Identify the Actual Problem
Start by defining what the organization needs to accomplish.
For example, instead of simply looking for “business software,” identify whether the actual requirement is customer management, accounting, project tracking, file collaboration, or another specific function.
2. Compare Essential Features
Create a list of features that are genuinely necessary.
Separate them into:
- Must-have features
- Useful features
- Features that are not necessary
This makes comparisons more objective.
3. Calculate the Total Cost
Look beyond the advertised starting price.
Consider:
- User licenses
- Annual subscription costs
- Add-ons
- Storage
- Premium integrations
- Implementation
- Training
- Data migration
- Support
4. Review Security and Privacy Information
For business-critical software, review the provider’s official security documentation, privacy policy, data-processing information, and available administrative controls.
Requirements will differ depending on the sensitivity of the data being handled.
5. Check Integration Options
A SaaS product may need to connect with existing tools.
Check whether it supports the integrations, APIs, or data export formats your organization needs.
6. Test Before Committing
When possible, use a free trial or demonstration before purchasing.
Test the workflows that matter most rather than simply exploring the interface.
7. Understand the Exit Process
Before signing a long-term agreement, find out how you can export your data and what happens when you cancel.
A good exit plan can reduce disruption if the organization later changes providers.
Is SaaS Suitable for Small Businesses?
SaaS can be a practical option for small businesses because it can provide access to business applications without requiring the company to operate all of the underlying infrastructure itself.
For example, a small company might use separate SaaS services for accounting, customer management, email marketing, project management, and file collaboration.
However, using too many subscriptions can create unnecessary costs and administrative complexity.
A small business should regularly review its software subscriptions and remove services that are no longer providing enough value.
SaaS Security: What Should Users Do?
Using a SaaS platform does not eliminate the need for good security practices.
Businesses and individuals should consider:
- Using strong, unique passwords
- Enabling multi-factor authentication when available
- Limiting administrative access
- Reviewing user permissions regularly
- Removing accounts that are no longer needed
- Keeping recovery information current
- Monitoring unusual account activity
- Understanding the provider’s security documentation
- Backing up or exporting important information when appropriate
Security responsibilities vary between providers and products, so users should follow the service’s official security guidance.
SaaS and Cloud Computing: What Is the Difference?
SaaS and cloud computing are related but are not exactly the same thing.
Cloud computing is a broad concept involving computing resources delivered through networked services.
SaaS is one form of cloud-based service that provides software applications to users.
Other common cloud service categories include infrastructure and platform services. These give customers different levels of control over computing resources and application development environments.
A simple way to remember the distinction is:
Cloud computing is the broader concept; SaaS is a way of delivering software through that environment.
Frequently Asked Questions
1. What is SaaS in simple terms?
SaaS, or Software as a Service, is software that customers access as an online service rather than managing a complete local installation themselves. The provider typically operates the application and underlying infrastructure.
2. How does SaaS work?
A SaaS provider hosts an application and makes it available over the internet. Users sign in through a browser or supported application, while the provider manages much of the infrastructure, maintenance, and software updates.
3. Is SaaS the same as cloud computing?
No. Cloud computing is a broad category of technology services, while SaaS specifically refers to delivering software applications as a service.
4. Does SaaS require an internet connection?
Most SaaS applications rely significantly on internet connectivity. Some products offer offline functionality, but this varies by provider and application.
5. Is SaaS good for small businesses?
It can be. SaaS can give small businesses access to useful business applications without requiring them to manage all of the underlying infrastructure. However, businesses should compare total costs, security, features, integrations, and contract terms before choosing a service.
Conclusion
Understanding what SaaS is and how it works is increasingly important as businesses move more of their software and workflows online.
SaaS provides access to applications through an internet-based service, with the provider generally handling much of the hosting, maintenance, and software updates. This can simplify deployment and reduce certain infrastructure responsibilities.
At the same time, SaaS comes with trade-offs, including ongoing subscription costs, dependence on internet connectivity, vendor dependence, and the need to carefully evaluate data security and privacy.
The best SaaS solution is not necessarily the one with the most features or the lowest advertised price. A better approach is to identify the actual business need, compare total costs, evaluate security and integrations, test the service, and understand how data can be managed or exported if circumstances change.
