What is SaaS? Everything You Need To Know

By: Mabh Savage - Guest Contributor on April 10, 2024
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Today's businesses revolve around apps and software. However, that same software requires hardware, infrastructure, and skilled personnel to keep it running. This can be challenging for IT departments that are stretched thin on resources, people, and money. Thankfully, SaaS management solves many of these problems.

According to Gartner, the end-user spending forecast for SaaS has steadily increased from $174,416 in 2022 to $243,991 in 2024. [1] These solutions can save your business money by eliminating the need for on-premise infrastructure or maintenance, and allow you to focus your time and budget on running other parts of your business. However, choosing the right SaaS is essential to ensure budgets are spent wisely.

What is SaaS?

Software-as-a-Service (SaaS) refers to cloud-based applications purchased on a subscription basis from external service providers. In contrast to traditional software, which is installed on and run from a local computer or server, SaaS apps live in the cloud. Users access the app over the internet, typically with a web browser.

When you subscribe to a SaaS app, the work of developing and hosting the app is already done for you. All the hardware, software dependencies, middleware, and app data that are required to make an application live in the cloud provider's network.

With traditional software, companies may have to make substantial investments in server hardware and system administrators to keep an app up and running. SaaS apps offer flexible payment options, and you can get started using them right away. For many IT departments, SaaS represents significant cost savings and requires fewer personnel to maintain.

How does SaaS work?

Every SaaS application provides different features and benefits to businesses. However, many will work like this:

  • A business researches and chooses a SaaS vendor that meets their needs.

  • The business selects a subscription plan that meets their needs while remaining within budget.

  • The SaaS provider gives the business decision-maker credentials to log in to their cloud-based platform. In some instances, there may be multiple logins, including an administrator username and password.

  • Using the login gives users access to the SaaS features. Some of these may be downloadable assets, but normally, there will be a cloud-based dashboard of tools and services.

  • Users can contact the SaaS provider via the platform if any glitches arise.

Some SaaS may also integrate with existing systems utilizing APIs (application programming interfaces) and webhooks.

Benefits of using SaaS

SaaS software has a number of benefits over traditional applications, including:

  • Cost-effective: With SaaS, you only pay for the right to use an app, instead of spending money on infrastructure and personnel to develop and host an app.

  • Flexibility and scalability: The pricing for most SaaS apps is per user, and it's easy to add more users as needed. This model is much more flexible and scalable than what can be achieved with traditional software.

  • Access from anywhere: Instead of installing an app on multiple PCs and laptops, a company's users can access a SaaS app from anywhere they have an internet connection. This makes international offices and remote work much more manageable.

  • No maintenance: Where self-hosted software requires system administrators to troubleshoot software and apply updates, the cloud provider handles all maintenance on a SaaS app. Updates are applied automatically and typically at a more frequent pace.

Carefully researching, choosing, and implementing SaaS could provide a significant ROI (return on investment) for savvy businesses.

What are the challenges of using SaaS?

While SaaS apps have many benefits, they can also present some challenges. The most common challenge is integrating data across multiple cloud applications, especially apps that come from different providers. Sharing data across SaaS apps typically requires custom solutions that use the apps' APIs. Organizations without developers who can create custom workflows from the APIs are likely to face integration challenges.

Maintaining a hybrid infrastructure—with some apps in the cloud and some on-premise—can sometimes be costly to maintain. In addition, converting to an all-SaaS environment typically takes time, meaning organizations will need to manage a hybrid environment for some time.

What are the different types of SaaS?

SaaS solutions are available for nearly every type of app you can think of. However, in the context of software, there are six common types of SaaS apps:

  • Customer relationship management (CRM): CRM apps provide a centralized location to manage customer data and track customer interactions. CRM SaaS apps provide remote and traveling salespeople with the flexibility to work from the road.

  • Enterprise resource planning (ERP): ERP software consolidates core business functions such as accounting, HR, and manufacturing so that businesses get a centralized view of their data. With built-in metrics and analytics, ERP SaaS apps allow for high-level strategic planning.

  • Accounting software: Many organizations have adopted accounting and finance SaaS apps for their flexibility and collaborative capabilities.

  • Human capital management (HCM) and human resources (HR): Human resource-focused SaaS apps include timecards, performance appraisals, and other tasks typically associated with HR departments.

  • Project management: With SaaS project management apps, teams can easily collaborate on projects, allocate resources, view project milestones, and communicate with each other.

  • Collaboration software: Email, calendars, and messaging features are now commonly hosted in collaborative SaaS apps.

Common SaaS security concerns and how to mitigate them

  • Misconfiguration: To meet stringent security standards and ensure compliance with industry and national regulations and legislation, SaaS configuration must be completed with care. Missing out on steps or failing to read disclaimers could result in vulnerabilities. Consider engaging your Chief Information Security Officer (CISO) during software implementation.

  • Software supply chain management: Your SaaS vendors must meet the same security standards you do, and their vendors must do the same. Check that vendors meet relevant ISO requirements and ask how they verify the security of their supply chain.

  • Access controls: Hundreds of usernames and passwords that all grant access to every aspect of a piece of business software can create confusion and security vulnerabilities. Make a list of who needs access and at what level before sourcing the relevant credentials from your vendor.

​​​​Some IT leaders were wary of placing company data in the cloud in the early days of SaaS apps. Over time, cloud security has generally proven to be reliable. While security concerns exist with any type of software, user behavior is a primary cause of security lapses, ranging from careless employees to insufficient remote work security.

How can businesses of all sizes leverage SaaS to achieve their goals?

All businesses can leverage the power of SaaS but careful research is required to make the most of your software purchase. In fact, Software Advice's 2024 Tech Trends Survey* indicates that 58% of U.S. software buyers have experienced remorse for at least one software purchase they made in the past 12 to 18 months. 

Here’s what software buyers mention as the top reasons:

  • 35% say total investment was more expensive than they were led to believe

  • 34% indicate difficulty training and onboarding users

  • 32% believe the technology is not as advanced or has fewer features than is necessary

  • 32% mention difficult and/or slow technical implementation

Businesses of all sizes should take the time to carefully consider their SaaS choices. To help you do so, check out our guide for optimizing your software contract negotiation. This will help you bring in key stakeholders and develop a negotiation plan once you’ve narrowed down your software vendors. A solid plan will help your team avoid the curse of software purchase regret.

Future SaaS trends

Going forward, you can expect SaaS apps to incorporate some of the latest trends in the technology industry. For example, artificial intelligence-enhanced cloud applications will likely become the norm over the next few years. And as Internet of Things (IoT) devices become more prevalent on manufacturing floors and in warehouses, you can expect to see SaaS apps that integrate better with IoT.

Another trend that is taking hold within SaaS is the usage-based pricing model. Right now, per-user subscription fees are the norm in the world of SaaS, but customer demand has caused some providers to look at charging based on data storage, the number of monthly API calls, bandwidth usage, and other usage-based pricing. For IT departments that are short on staff and operating within tight budgets, SaaS is only becoming more cost-effective.

Learn more about SaaS

Now that you've learned all about how Software-as-a-Service works and how companies use it, check out some of our other SaaS resources:

Survey methodology

*Software Advice's 2024 Tech Trends Survey was designed to understand the timeline, organizational challenges, adoption & budget, vendor research behaviors, ROI expectations, satisfaction levels for software buyers, and how they relate to buyer's remorse.

The survey was conducted online in July 2023 among 3,484 respondents from the U.S., U.K., Canada, Australia, France, India, Germany, Brazil, and Japan, with businesses across multiple industries and company sizes (5 or more employees). Respondents were screened to ensure their involvement in software purchasing decisions. This report focuses on the 700 respondents from the U.S. Respondents were screened to ensure their involvement in software purchasing decisions.