What is SaaS (software as a service)?
By Joey van Vliet, founderUpdated
In short
SaaS (software as a service) is software you use over the internet and rent by the month or year, instead of buying it and installing it yourself. The vendor hosts the software and takes care of maintenance and updates. All customers work on the same platform, each in their own separate environment. Exact Online, HubSpot, Microsoft 365 and Shopify are well-known examples.
Also known as: software as a service, cloud software
How SaaS works
You log in through a browser or an app and pay a subscription, usually per user or based on usage. Your data sits with the vendor, not on your own server. New features and security updates reach everyone at the same time, without you installing anything.
With most SaaS packages, a single installation serves many customers at once behind the scenes. Each customer has its own environment, a tenant, with data kept separate from everyone else’s. That’s what lets the vendor maintain the software for everyone at once. It’s also why you can only tailor it to a limited extent.
SaaS, on-premise and custom software
- SaaS: quick to start, predictable monthly costs, no management of your own. You do follow the vendor’s way of working and its roadmap.
- On-premise: you install software on your own servers or in your own cloud environment. More control, but the management, updates and security are yours too.
- Custom software: software built for your process. You decide what it does and you own it, along with the upkeep that comes with it.
It’s rarely either-or. Most businesses use packages for standard work, such as accounting, payroll and CRM, and only have the part that’s truly specific built. That part of their own talks to the rest through an API. How to make that trade-off is covered in custom software or off-the-shelf.
Why it matters in practice
A common misconception: that SaaS is always cheaper. The entry cost is low, but per-user licences grow with your headcount, even when usage doesn’t. So calculate over several years, including integrations, customisations and the hours your own people put in.
When choosing, also look at what only becomes visible after you sign:
- Your data: can you get it out without the vendor, through an export or an API, and are all the fields included?
- Integrations: does the package talk to your accounting, webshop or CRM, and which data comes across? See integrations by system.
- Agreements: where is your data processed, is there a data processing agreement, and what happens to your data if you cancel?
If you want to build and sell a SaaS product yourself, the questions are different: how to keep customers apart, how subscriptions and payments tie in with features, and how a new customer goes live without writing code for it. That’s covered under SaaS development.
Frequently asked questions
What is the difference between SaaS and the cloud?
The cloud is the umbrella term for computing power, storage and software you get over the internet instead of on your own servers. SaaS is the form in which you use ready-made software. In the cloud, you can also rent just servers or a platform and manage the software yourself.
What are the drawbacks of SaaS?
You depend on the vendor: on its prices, its roadmap and its choices about features. Customisation is limited. Your data sits with the vendor, so your agreements on processing, export and cancellation need to be in writing. And per-user licences can cost more after a few years than you expected at the start.
