What is SaaS (Software as a Service)?

Software as a service (SaaS) is a cloud-based software delivery model in which the cloud provider develops and maintains cloud application software, provides automatic software updates, and makes software available to its customers via the internet on a pay-as-you-go basis. The public cloud provider manages all the hardware and traditional software, including middleware, application software, and security. So SaaS customers can dramatically lower costs; deploy, scale, and upgrade business solutions more quickly than maintaining on-premises systems and software; and predict total cost of ownership with greater accuracy.

In the early 2000s, the first generation of SaaS solutions was siloed, inflexible, and designed to solve a single business problem. Since then, SaaS has evolved dramatically. Today, modern cloud applications can span—and connect—everything from financials, human resources, procurement, and supply-chain processes to commerce, marketing, sales, and service solutions. Other benefits of a modern, complete SaaS solution include:

History of SaaS

In the 1960s, mainframe computers were connected to dumb terminals that shared the mainframe’s software—a software delivery system known as time-sharing. As the cost of computers began to fall in the 1980s, many businesses created their own local version of time-sharing, which was called a local-area network (LAN). However, the business (not the technology provider) was responsible for supplying and managing the hardware and network.

With the advent of the internet in the 1990s, providers began hosting software and making it available to customers via the internet. This forerunner of SaaS, called the application service provider (ASP) model, had serious limitations, however. For example, each customer required their own version of the software, which meant they had to install some software on users’ computers. Configuration was costly and time-consuming. And, finally, ASP solutions typically didn’t offer a way to collect and aggregate data efficiently.

The first SaaS solutions emerged in the late 1990s, when the term SaaS was originally coined. This new model delivered much greater efficiencies than the ASP model. A single instance of the application could serve multiple users and even customers, thanks to its so-called multi-tenant architecture. Local installation of software was no longer required. And it provided a way to collect, aggregate, and centralize valuable application data.

While the delivery model has remained constant since the early 2000s, SaaS has evolved significantly from first-generation siloed solutions to modern SaaS suites that enable high visibility across the business and can extend the power of SaaS through embedded technologies such as AI, machine learning, chatbots, digital assistants, IoT, blockchain, augmented reality and virtual reality.

SaaS benefits

Software vendors spent the last several years bombarding IT professionals and business executives with messages about the advantages of cloud computing in its various forms. Some of these messages targeted the accountants and number crunchers by discussing the advantages of operating expenses (OpEx) compared with capital expenditures (CapEx). Others targeted the IT community with messages about scalability, on-demand capacity and the cloud's ability to take over the mundane tasks of infrastructure management and allow IT talent to focus on business problems.

There is a great deal of truth to each of these arguments, but little energy has been devoted to explaining to LOB managers why business applications delivered in the cloud via the SaaS model and paid for on a subscription basis not only make a great deal of sense, but are key to bridging the innovation gap executives often complain about to their IT organizations.

SaaS is not a new concept. In fact, web-based applications delivered by application service providers (ASPs) actually pre-date the "cloud computing" concept as we know it today. Early applications delivered using the SaaS model often focused on sales force automation (SFA), customer relationship management (CRM) and web content management. Today Oracle delivers an entire suite of business applications for enterprise resource planning (ERP), project portfolio management (PPM), planning and budgeting, financial reporting, human capital management (HCM), talent management, sales and marketing, customer service and support, social networking, social marketing, and social engagement and monitoring.

Unlike those offered by many of the first-generation ASPs and other SaaS vendors, Oracle's SaaS business applications are modern and next-generation and backed by the Oracle name as well as the billions of dollars it has invested in software development and infrastructure to build and deliver its applications. If you’re a line of business manager looking to get your hands on the latest capabilities without the headache often associated with hefty upgrades, let's dive in and explore the benefits of SaaS applications.

From its inception, the SaaS model was designed to deliver a core set of business benefits over on-premises applications:

Cloud vs SaaS—What's the difference?

While cost reduction and IT efficiency drove the development of first-generation cloud apps, modern SaaS applications have become platforms for innovation to meet the competitive challenges of the digital age, such as:

• Extending the functionality of your SaaS applications to support collaboration apps like Slack and Zoom.
• The power of small. Cloud, mobile, and social are enabling small and startup enterprises to create innovative products and reach markets with unprecedented speed.
• The age of consumer discontent. Armed with mobile and social, consumers have more choices and more information than ever before.

In response to these competitive challenges, a modern SaaS suite can drive innovation across the business by supporting faster innovation, providing superior customer experiences, and enabling better business decisions with built-in analytics and a holistic view of the entire business.

SaaS capabilities

SaaS advantages

Some SaaS providers simply move their on-premises software to the cloud and call it SaaS. This model has its drawbacks and does not take full advantage of the cloud delivery model. In fact, you may end up with many of the same limitations as with on-premises solutions, including significant support bills, high IT-related overhead costs due to the same slow upgrade process, and disconnected systems—all of which reduce innovation and agility in your business.

However, a SaaS suite engineered from the ground-up for the cloud can provide:

Rapid application development and access to innovations

Because innovation is so critical in the digital age, businesses want to take advantage of the latest capabilities. SaaS engineered for the cloud speeds innovation cycles and gives you faster access to the latest innovations and applications. By contrast, the on-premises in-the-cloud SaaS model requires you to wait for innovations because of the longer development cycles typical of on-premises solutions and applications.

Connected SaaS business processes

Businesses want a SaaS solution that supports like procure-to-pay or order-to-cash in the cloud—without costly integrations and complex management. To make this possible, a modern SaaS suite is built on a single, standards-based platform that includes a common, enterprise-wide data model; a unified user experience (including mobile and social); shared security levels; synchronized release schedules; and more.

The future of SaaS

Market experts agree that the future of SaaS is strong. According to a 2017 Gartner report, sales of SaaS solutions will continue to grow at over 23 percent per year, from US$270billion in 2020 to over US$332 billion by 2021.

Innovation in the SaaS solutions themselves is expected to help drive that growth, including:

• With the adoption of Artificial Intelligence (AI) solutions on the rise, it is expected to become an increasingly baked-in part of the enterprise of all cloud applications. AI will drive adaptive intelligence solutions, which allows back-office and front-office applications to learn and adapt to user data and behavior.
• Autonomous IT management, AI, and machine learning will also play vital roles in driving more autonomous, less human-reliant management across cloud applications and cloud infrastructure.
• Beyond AI and machine learning, there are an additional set of adaptive intelligent technologies that are driving change to all SaaS applications. These included chatbots, digital assistants IoT, blockchain, virtual reality, augmented reality. Each of these technologies is increasingly vital to digital innovation and forward-thinking providers in how they extend their SaaS offerings.
• Industry SaaS solutions or vertical cloud applications continue to drive depth and horizontal connectedness for organizations. While SaaS began as a way to quickly provide vertical solutions to a single department, businesses increasingly need and expect cross-business visibility. As applications continue to evolve, look for more vertical depth from providers offering cross-business suites as well as more APIs and turnkey integrations for hybrid cloud solutions.

Discover SaaS applications that help you improve your customer engagements, increase your business’s agility, and react to change faster than ever before.

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