Software-as-a-Service (SaaS)

SaaS (Software as a Service) is a business model where software is provided as a service over the internet, instead of the client purchasing and installing it on their own computers.

Think of it as a "software subscription." Instead of buying a DVD with the program (as was done before), you subscribe to it and use it directly from your browser or through a mobile app, paying periodically (monthly/yearly).

Key characteristics of SaaS:

• Internet delivery (in the "cloud"): No need to install or maintain software on your server or computer. A browser and internet connection are sufficient.
• Subscription payment model: Instead of a one-time large sum for a license (as with traditional software), customers pay regularly (monthly or yearly). This makes the software much more accessible.
• Centralized hosting: The software is located on the SaaS company's servers. They take care of updates, security, backups, and maintenance.
• Remote access: You can access your data and software from anywhere and any device.
• Multi-tenant architecture: The same software serves all clients ("tenants"), but each client sees and has access only to their own data.

Analogy to make it clear:

Traditional software is like buying a DVD with a movie. You pay once, own it, but if a new version comes out (Blu-ray, 4K), you have to buy it again.

SaaS is like a Netflix subscription. You pay a monthly fee and have access to the entire library. Netflix takes care of updates, new movies, and servers. You just use it.

Advantages for customers:

• Low initial costs: No need for large investments in licenses and server infrastructure.
• Quick implementation: You can start working with the program in hours or days.
• Automatic updates: You always have access to the latest version of the software without additional fees.
• Scalability: You can easily add or remove users or functionalities according to your business needs.
• Accessibility: Work from anywhere.

Advantages for the provider (SaaS company):

• Predictable revenue: The subscription model brings recurring and predictable monthly/yearly revenue (often called MRR/ARR).
• Easier customer acquisition: The lower initial price reduces the barrier for customers to try the product.
• Closer customer relationships: More frequent interactions (billing, support) allow for better understanding of their needs.
• Ability for rapid improvement: Updates and new features are distributed immediately to all customers.

Popular examples of SaaS:

• For business: Salesforce (CRM), Slack (communication), Zoom (video conferences), Notion (project management)
• For regular consumers: Netflix, Spotify, Google Workspace (Gmail, Docs), Dropbox

How does a SaaS company make money?

The main revenue model is subscription, but it can be structured in different ways:

• Per-user pricing (e.g., $10/month per user): Charging per user (e.g., $10/month per user)
• Tiered pricing (e.g., Basic, Pro, Enterprise plans with different features and prices): Tiered pricing (e.g., Basic, Pro, Enterprise plans with different features and prices)
• Usage-based pricing (e.g., payment based on data volume transmitted or number of transactions performed): Usage-based pricing (e.g., payment based on data volume transmitted or number of transactions performed)

Summary:

SaaS is a model that transforms software from a product that is purchased into a service that is used. This is a fundamental change that dominates the modern technology market.