"SaaS" is the acronymn for Software-as-a-Service. SaaS applications are web-native and are delivered as a service over the internet. Typically customers pay subscription or usage fees to "lease" their application from the vendor. Sometimes referred to as "on-demand", "cloud computing", or "service oriented architecture (SOA)", SaaS applications can be accessed at anytime, from anywhere using a high-speed internet connection and a web browser. SaaS applications do not require the installation of any desktop software nor do they require any hardware investment by the customer. SaaS applications run on a web-browser and, using Ajax technologies, can mimic the responsiveness and design of desktop applications.
The SaaS model provides multi-tenancy, which means that multiple customers are hosted from a central location managed and maintained by the vendor. One fairly recent trend is for vendors to host SaaS applications in "the cloud" so even the vendors themselves have minimal hardware costs. Typically SaaS applications use a single code-set for all customers and data is stored in a single database. Data for each customer is logically separated, as opposed to physicially separated.
Purchasing a SaaS application is a great way for companies to reduce costs as there is no hardware to purchase and the up-front setup & licensing costs are typically low. Vendors (ISVs) benefit from developing their products on the SaaS model in the following ways:
- Recurring-revenue from customers provides a stable revenue stream
- Lower operating costs
- Simplified implementations and upgrades
- Inherent data aggregation across customer-base
- Economies of scale by hosting multiple customers on a single production environment
- More flexibility in pricing options (i.e. subscription-based, usage-based, % of revenue, monthly, etc)
- Vendor lock-in; it is difficult for customers to switch to another vendor