What is Software-as-a-Service?

Software-as-a-service is a way of consuming software applications over the internet at a regular monthly or yearly cost.

It is commonly abbreviated to SaaS or referred to as “cloud-based”, “hosted” or “on-demand” software.

Under a software-as-a-service model, an application is centrally hosted in one or more data centres. Users do not have to download anything. They simply open a web browser, go to a website and log in. It is available from any computer.

Today, almost any software product imaginable can be consumed as a service.

Common software-as-a-service applications used by businesses worldwide include:

  • Desktop productivity software (such as word processing and spreadsheets)
  • Anti-virus and security software
  • Customer relationship management (CRM)
  • Enterprise resource management (ERP)
  • Human resource management
  • Messaging and collaboration applications

Software-as-a-service offers a number of advantages over buying boxed versions of software in a store.

The main advantage is that buying software outright is a capital expense (CapEx) for a business, whereas consuming software-as-a-service is an operating expense (OpEx).

This is important because businesses are under pressure to do more with less. Software-as-a-service allows them to spend less upfront while immediately getting the full benefits of the software.

Another advantage is that software-as-a-service users always stay updated on the latest version of a software application with access to the latest features. There is no chance of the software you use becoming outdated.

Software-as-a-service users generally pay a regular subscription fee to access the service. However, some software-as-a-service applications are made available under a “freemium” model, where a limited version is provided free and users can subscribe to access more “premium” functions.

Under software-as-a-service, user data is stored by the service provider, not on the user’s premises.

Data location has caused some concerns for some highly-regulated industries such as healthcare and finance. Service providers have alleviated those concerns by setting up in-country hosts for their applications in many locations worldwide, which also keeps the data local to that country.

Software-as-a-service (and cloud computing services generally) has also given rise to a trend called ‘shadow IT’ or ‘stealth IT’. Staff in a business may begin using software-as-a-service to gain access to new line-of-business technology, without asking permission from management or IT. Though it may cause security and software compliance challenges, shadow IT also offers a way for business units to innovate cheaply and develop ideas to the point of a formal proposal.

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