6 Questions About the SaaS business Model for Beginners
1. What is SaaS?
SaaS stands for Software-as-a-Service and it’s a way of delivering applications online/over the internet, rather than purchase and installed locally. Usually, access to the software is delivered on a monthly or yearly contract or on a usage basis. The SaaS business model is now widely used and more and more applications are now available in the cloud.
2. How is this model different from a traditional on premise software model?
In traditional, on-premise licensing model, buyers purchase a perpetual license which means they own a license to the software. The software is deployed on-premise typically by the purchasing company’s IT team. The purchaser also pays 15-20% annually for support and maintenance fees. In a SaaS model, the software is installed over the web and the subscription fees include the software license, support and maintenance, and other fees. The software vendor deploys, upgrades and maintains the databases and servers for the application.
3. What is the SaaS business or payment model?
In the SaaS business model, payment is usually based on usage, meaning customers pay for what they use, usually on a monthly or annual subscription basis. This reduces upfront costs by spreading costs over time. It’s a major benefit of the SaaS model.
4. What are the benefits of a SaaS business model?
A major benefit of the SaaS model is that no capital expenditure is necessary as you pay for what you need and the costs are spread out over time. Secondly, there is convenience as you can connect from anywhere and any device as long as you have an internet connection. Thirdly, updates are automatic and frequent. Finally, it’s scalable, meaning that you can adapt it according to the number of people that need to use it and the amount of data you require.
5. Is SaaS the same as Cloud Computing?
SaaS is one of several cloud computing solutions for businesses. Other solutions include Infrastructure-as-a-Service and Platform-as-a-Service. The payment model is usually on a usage basis (per-seat, per-month charge) so the business saves on upfront costs by only paying for what it needs.
6. Who uses SaaS applications? Only digital or cloud companies?
SaaS is suitable for anyone. For example, if you subscribe to Dropbox or Apple’s iCloud to store pictures, that’s an example of using SaaS. Examples of subscription services include Stitch Fix, Kiwi Co (monthly subscription boxes), Blue Apron and HelloFresh (Food Services). Many small and medium-sized companies also use the SaaS business model for convenience. Leading B2B companies that provide SaaS products and services include Google, Adobe, Salesforce, Slack, Microsoft, Amazon Web Services, Zendesk and Shopify.