This article was originally published on 10/23/2020.

In this article, Capterra answers the question what is Software as a Service (SaaS)? We look at the benefits of SaaS for both consumers and businesses. What does the future of the SaaS business model look like in Australia? Read more to find out.

What is software as a service?

The rise of Software as a Service (SaaS) and cloud management services has seen SMEs adapt to business risks and challenges, such as the pandemic, digital transformation, and cybersecurity threats. Broadly speaking, software solutions can help SMEs to simplify repetitive tasks, record and analyse data, improve customer relationships, and aid flexibility in the workplace.

Implementing the SaaS business model enables companies to keep up with their larger competitors and, above all, can help accelerate productivity with employee growth, sales and the ability to provide more services. But what is Software as a Service, exactly? And what is the future of SaaS in Australia? Read more to find out.

What is Software as a Service (SaaS)?

Software as a Service (SaaS) is software hosted on a cloud infrastructure that enables users to connect to and use services over the internet. Instead of buying a one-off version of a product, the SaaS business model works on a one-to-many distribution basis and relies on a subscription model to provide revenue. People pay for access to software provided over the internet, with updates and new features being continuously developed and released. 

High-speed internet with ubiquitous network coverage thanks to technology like Wi-Fi and 4G/5G combined with developments in browser technology, like HTML5 and Javascript, means that software can be accessed directly through a web browser. The user does not have to download or install anything (though bespoke apps may be developed), it works on almost any device, and updates can be pushed to users instantly.

Examples of SaaS

Nowadays, it is likely that most people with a smartphone, computer and internet access use SaaS regularly. From watching a film on a streaming service such as Netflix to hosting a web conference on Zoom, the SaaS business model has transformed how many people work and interact online. 

The following are examples of well-known SaaS companies:

  • Atlassian 
  • Canva
  • Shopify
  • Adobe
  • Spotify

How do SaaS and cloud computing differ?

Cloud computing has three main components, Infrastructure as a Service (IaaS), Platform as a Service (PaaS) and Software as a Service. This means SaaS is a subset of cloud technology. Most SaaS products run via a web browser (or similar) and are hosted in the cloud. But a cloud-based product runs in the cloud, including IaaS, PaaS and SaaS-based applications. 

To understand the difference, it helps to understand how cloud technology developed. Traditionally, a server would contain all of the files for a website, and users would directly connect to that particular server to access a website. 

As internet traffic grew, servers became more powerful, but single servers could not keep up with traffic loads. To combat this, sites would get split into cluster servers containing a website copy. Users would connect to the server that was closest to their location, reducing loading times for users and bandwidth for individual servers. This idea is the basis of the cloud.

The cloud is a series of interconnected data centres spread across the globe, each containing massive server farms. In the past, businesses might have had the server on their premises. The SaaS concept utilises the cloud to host their software and data. Copies of SaaS software are split across cloud servers (often around the globe), creating a user experience with speeds comparable to local installs in many cases.

What are the benefits of SaaS for consumers?

The benefits of SaaS for users mean they can access the same service from many different devices. This includes the ability to put down their work or to watch a TV show on one device and continue with it on another, with no lost progress or without losing their place.

SaaS typically pushes the same version of a product out to everyone. That means subscribers are always using the most recent version of a product. Users don’t need to worry about staying up-to-date or missing out on new features, as the product instead runs on cloud servers, meaning they will have access to the most recent version of the software. 

SaaS also runs on a subscription model, so there is more flexibility if customers want to stop using the product. Capterra’s Subscription Business Model survey found that most Aussie consumers (51%) who subscribe to platforms that deliver products or offer online services (e.g. fitness programs) pay anywhere from $21 to more than $30 monthly. This shows the consumer demand for SaaS services and their willingness to pay a lot to use them. Some services allow for monthly or annual payments, with many offering free trial periods to let consumers test the software before committing.

The benefits of the SaaS business model

The use of SaaS for SMEs who do not have huge budgets is essential because there are so many different tools that companies can install when operating in the cloud. The following are examples of how the SaaS business model can help companies:

  • Reduce upfront costs, such as licensing fees  
  • No need to install software on individual machines
  • Ability to integrate with other SaaS offerings 
  • Install instant updates for all users
  • Never goes out of date but automatically updates
  • Reduces burden on the IT team
  • Dependable data storage (the cloud)
  • Streamline manual processes for employees

In the age of remote working, SaaS tools can help with employee productivity and instil effective communication amongst remote teams. SMEs can also leverage the use of chatbots for better customer service and machine learning systems to help with market analysis, for example.

What is the future of SaaS in Australia?

As SMEs continue to digitise and invest in technologies, it seems likely that the SaaS market will continue to grow, especially with segments such as generative Artificial Intelligence (AI), PaaS, and low-code/no-code platforms. There is also the demand for flexible working arrangements to improve the work-life balance amongst Australian employees, with SaaS solutions playing a crucial role in facilitating remote work. 

For companies investing in software, various tools can help them to streamline operations, automate processes and continue with the hybrid model. Capterra's Tech Trends 2023 survey found that Australian companies plan to invest in IT, Customer Relationship Management (CRM) and cybersecurity software the most, which reflects the sectors that faced some of the biggest challenges in 2022.

From a consumer perspective, SaaS products have seen a surge in usage, especially in the era of mobile commerce. An estimated 3.7 billion people globally will use only smartphones by 2025 to access the web. Therefore, it seems that Australian SMEs can look forward to even more opportunities for growth and success by investing in and adopting the SaaS business model.

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