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History and Working of Saas Model

The Question of SaaS

In the beginning, the computing pioneers of companies such as Apple and Microsoft provided the customer firsthand with the hardware and the software to undertake their digital pursuits. The rise of the internet, the speed of modern communications, and the risks and threats to users since that time have seen a shift in our online culture. The application providers decided to take back control of the user experience by creating the Software as a Service (SaaS) concept, where they allow the user to access their platforms remotely while the company stores the data equally remotely. This article looks at the history and workings of the SaaS model…


Software as a Service or SaaS as it has come to be known is – as pointed out by Casey for TechTarget – a model for the distribution of software in which an organization supplies software remotely through cloud computing over the internet.

The model can feature more than two parties: there can be the user, there can be the independent software vendor (ISV), and then there can also be the cloud provider who hosts the software for the user. It tends to be with much larger companies that the ISV and the cloud provider merge.

Typically, SaaS applications are activated through web browsers and this makes sense seeing as most communication devices in the modern era come preloaded with web browsing software. Equally, SaaS providers are free from setting up and maintaining browser applications.

Usually, to gain access to SaaS, a user will pay the provider a subscription fee and they will then be granted a secure account where they can log in. Due to their wider prevalence across the online digital ecosystem, some organizations provide SaaS applications for free such as Google and their free Google Docs software example.

The Internet

As a concept and according to Wikipedia, SaaS first emerged in the 1960s and so is somewhat of an older idea than one might expect. Ultimately, this involved providing computing power and data storage services to banks and other similar entities, although by today’s standards it was a crude parallel.

It was the expansion of the internet in the 1990s and application service providers (ASPs) that saw the emergence of the conventional SaaS model where commercial enterprises were furnished with specialized business applications.

By creating centralized administration and specialization, costs were immediately reduced. In essence, SaaS simply extends the notion of the ASP model. The acronym itself first appeared in 1985. Some of the most commonly used SaaS applications are Google’s workspace apps, Microsoft 365, Netflix, Zoom, Slack, DocuSign, and Trello.

The Good

Figure 1 shows an outline of the advantages brought to a business by using the SaaS model (Jelvix) Figure one provides an outline of the advantages that using SaaS brings to a business. One of the main benefits is the stabilizing of revenues. As users pay a subscription, income is assured and forward business planning can be achieved.

A well-planned and useful service can lock users in for years and in large numbers. Through the platform too, a business can have a constant dialogue with its users. The software can be adapted and improved accordingly and a loyal user base can be a positive consequence. Once again, consumers might then remain for years contributing to the business’ revenue stream. The Saas model too is a dynamic one. As new threats or risks emerge, as new technology or practices appear, or as the wants of customers change, so too can the software be changed? This is easier to achieve than with software purchased directly by the consumer and used by them locally.

Another benefit of SaaS is the ability to make payment flexible. The provider can offer a range of services to the consumer depending on what they wish to pay, or, what they think the service is worth. Users too, can test a reduced version for a teaser price initially and then commit more financially if they like the product. The software is essentially scalable. Further still is the possibility of bringing partners together; two business could combine their services and increase overall functionality for the user.

The Not So Good

As with anything, there are also some drawbacks to using the SaaS model (and pointed out by Comptia). Firstly, much of the control that a user has with locally used software is taken away. Essentially, the user becomes completely dependent on the software provider.

For various reasons, a disruption to the service can occur and there is little the user might try to do to resolve it. A provider too may also bring in changes that at least some users do not like (or may not be compatible with the technology they are using).

The user too is dependent on the integrity and resilience of the company providing the software. The provider might be vulnerable to online attacks or even become a criminal entity itself say, and sell personal data for example. Users may also become subject to ads if the provider decides to raise capital through advertising say.

Consumers can also find it difficult to switch to different vendors should they choose to. If a user has been committed to a product for a long time, the amount of data held by their provider might be large and cumbersome and act as a trap to continued use of the service. Some providers may also utilize propriety data or tech which can further complicate a user’s moving of vendors.

One of the more key issues surrounding SaaS use through cloud computing has been that of security. Reservations about SaaS use pointed out by TechTarget are encryption and key management, identity and access management, security monitoring, incident response, poor integration into wider business environments, fulfillment of data residency requirements, data privacy, costs of third party tools, and lack of profile consultation of technical experts during the sales process.

The Apparent Secret

According to Andrew Burak of Relevant, to achieve success in – or to even acquire unicorn status – as a business providing SaaS, the following things need to be achieved: attempting to find the market for your product (or fit) at the earliest possible opportunity, reaching ‘$2 million’ in Annual Recurring Revenue (ARR), and then using growth factors of three, three, two, two, and two, to reach an apparent ARR in five years worth ‘$144 million.’ This may seem like a somewhat simple formula, and Burak mentions as much in his article.

SaaS has become a huge moneymaker in the modern digital world. It is a dynamic and evolving software business model, and datapine has made some predictions about what lies ahead for the industry in the short and long-term. These are artificial intelligence, machine learning, centralized analytics, vertical SaaS, the increased need for API connections, the accessibility of Martech (the software marketers utilize to optimize their marketing efforts and achieve their objectives), migration to PaaS (Platform as a Service), the level of attention given to customer retention and churn, greater merging between different platforms, and the capabilities of low-code (a visual approach to software development). The sector is expected to continue to undergo widespread evolution for some time to come.

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