No matter where you turn, consumers and companies use SaaS (Software as a Service) on a daily basis. Whether you watch movies on Netflix or host a conferencing session with Zoom, you rely on SaaS. Since 2018, businesses have been adopting SaaS for their growing needs. Many small businesses are beginning to incorporate the SaaS business model, especially those wanting a more scalable solution to help them continue growing their companies. SaaS looks to increase in popularity over the next few years.
How Does a SaaS Company Work?
First, take a deeper look at the basics of SaaS. Generally, Software as a Service is a solution model that offers externally managed, owned, and delivered software. Most SaaS can be accessed through your web browser. All of the customer data is stored on a cloud infrastructure. With that, there is no need to provide data-center-based or in-house applications for customers. SaaS allows customers to access their data from any device in the world, provided they have a solid internet connection. Many of these SaaS providers offer mobile apps to their customers.
In most cases, SaaS provider companies require users to pay on demand, but subscription fees or licensing models are also common. Depending on the SaaS platform, there are several tools that customers can implement for their businesses. A few SaaS platforms, like Shopify, provide e-commerce hosting. Some even offer cloud-based customer relationship management solutions (CRM), such as Salesforce.
Now that you understand the basics, how does Software as a Service work? A SaaS service provider or website will offer cloud services to its customers. The SaaS company also hosts the user's data through the internet. The providers are responsible for updating and maintaining the servers. Plus, these companies will make any necessary software updates to the platform.
Many SaaS applications are multi-tenant solutions, meaning two or more companies may share the same server or use the same database. For many startups and small businesses, this option is an excellent solution to help reduce their maintenance costs and find a better pricing structure for their customer needs. With a focus on scalability, these SaaS resources allow businesses to increase their online storage to improve the customer experience.
Types of SaaS Companies (With Examples)
With the Software as a Service licensing model, users will have a recurring charge or pay a subscription fee to access the software on the provider's external server. The software has many functions, including providing web development, content creation, human resource management, email marketing, and file-sharing solutions. Every software company must be accessible from the internet without requiring an installation. Otherwise, the company is not considered a SaaS provider. With that broad definition, any business can be called a SaaS company as long as these providers host customer applications and make them available via the internet.
What are some examples of SaaS? Many people cite Netflix as a SaaS company. This company offers a subscription model. Users will pay a fee to watch video content on-demand from the internet. Netflix allows the material to be downloaded, but most users immediately access the videos without any hardware installation.
Facebook is on the border of whether you can define it as a SaaS company or not. This social media platform does not require installation and can be accessed on any device with an internet connection. Also, users can scale it for data storage. However, some cloud experts are still undecided about whether it can be considered a SaaS messaging service and social media site.
A clearly defined SaaS company is Google Workspace. This application operates through cloud computing models like other types of file storage applications. Additionally, Google Drive can store users' photos, videos, and other files on an external basis. Users can access all features online from a mobile device or desktop computer. Several pricing plans are available so that customers can find the right storage solutions for their needs.
Benefits and Risks of a SaaS Model
A company can provide better customer and supplier benefits when adopting a SaaS business model over traditional software installation. With these services, the users will pay a recurring fee to access the software, all of which is hosted on a cloud infrastructure. Many business owners want IT solutions but are hesitant to invest in traditional hardware. With SaaS, these companies can conduct all of their daily operations in an online space. For example, a company can offer customer support through Zendesk, eliminating the need to create an in-house software solution.
Which companies would fit the SaaS model? Any businesses that supply customer products should consider using the SaaS model. Businesses with niche applications, management software, or email marketing resources might consider the SaaS model. Those companies that offer more features to their consumers are best suited for SaaS.
Recurring income is the primary advantage of the SaaS business model. The SaaS model would benefit businesses offering services as part of a subscription plan. These models are the best choice when they can be scalable and customizable to suit the needs of their customers.
Now take a look at the benefits and risks of the SaaS business model.
For those small-to-medium businesses and startups, the cost-effectiveness of the SaaS model is one of the best advantages. A business that supports multiple operating systems might want to choose SaaS over a traditional software installation. The company's software must also be designed to work on various devices. With SaaS, these services are supported by web browsers.
Companies are more likely to build loyalty and strengthen customer retention when consumers have access to easy-to-use services. This SaaS software allows customers to log into the platform without installation. As a result, customers are more likely to engage with the software as part of their everyday workflows.
SaaS providers are the best way for businesses to offer their clients free trials or "freemium" services. As a digital SaaS marketing strategy, those options can turn potential clients into reliable customers for your services. Plus, adding new features is more convenient with help from SaaS. Companies can push out updates to the customer without disrupting the business's services.
While SaaS looks like a great option for a business, there are a few drawbacks. The SaaS business model is only a viable option if it meets the company's current financial position and product offerings. Unfortunately, setting up the SaaS platform does have a high up-front investment. Maintenance costs and hosting fees are often too high for those startups. Along with that, it may take time for a business to have a large customer base that can benefit from SaaS services.
When implementing a SaaS product, the business will need a team capable of UI design and web development. In the case of usability issues, these team members can adjust the SaaS software. For those individuals thinking about starting a SaaS company, the marketplace is competitive, leaving very little room for those new players. New businesses must find a way to stand out from rivals. In some cases, they can boost their visibility with an effective marketing campaign. By incorporating SaaS, businesses can boost their SEO services with a solid strategy. These services can increase customer engagement and drive more traffic to a website.
How Does a SaaS Company Differ From a Software Company?
There are many ways that SaaS can differ from traditional software. In most cases, the benefits are viable for both users and providers. Customers want accessibility. By their nature, cloud- and internet-based applications are considered multiplatform. A SaaS company offers low-maintenance services that remote and in-house teams can access. SaaS is an excellent option for those who want to replace their on-site servers but still need a solution for licensed software storage.
SaaS companies are invaluable for disaster recovery. Their storage options allow businesses to continue operations. If an emergency strikes the user's hardware, the data is already stored on a cloud-based infrastructure, making it recoverable. These SaaS backup systems can store data more securely and reliably than traditional software. Users can set the frequency of the backups. With that, companies can schedule these updates automatically without manually inputting them into the system.
Unfortunately, there are some disadvantages of SaaS. Remember that SaaS platforms are not the ideal solution for every company. Sometimes, the client's software needs human intervention. Additionally, if the company does not have a solid customer base, it could be challenging to make the switch to a SaaS platform. Traditional software may be a better option for companies that have yet to find or define their audience.
If a company wants the most advantages, its software must already be a popular option with consumers. Also, the software needs to have the potential to reap recurring revenue. Adobe was able to meet those challenges. This software provider had a successful licensed, stand-alone product. Over time, Adobe was able to switch from the one-time payment model to cloud-based subscription plans.
SaaS systems can be changed and upgraded at a quick pace, which can affect both the users and developers. Over time, customers become accustomed to a company's SaaS services. These individuals do not want a stale product. Customers want to use products that constantly improve their services and platforms. However, some vendors might not like continually updating the products since that does cost money and time.
Also, the frequent back-end processes and APIs that need to be changed could have unintended consequences, especially for those customers who need to integrate the SaaS platforms. Many businesses rely on SaaS solutions because these services are easy and quick. SaaS solutions can complicate or slow operations, leaving users without a convenient option. SaaS is not a better fit than traditional software companies in those cases.
Top SaaS Companies List
There are two types of SaaS software providers: business-to-business (B2B SaaS) and business-to-consumer (B2C SaaS). Those B2B companies focus on the day-to-day company operations while B2C SaaS is geared to individual users. Take a look at the fastest growing SaaS companies.
Microsoft has always been one of the top leaders in business technology, and it is one of the largest SaaS companies in the world. Office 365 outsells its package versions of the software. The Microsoft team focuses on client onboarding, customer acquisitions, and consumer retention, making it a more robust enterprise software provider for those businesses with a large customer base.
Hubspot has developed cloud-based, inbound marketing software that helps businesses with content management, website analytics, social media marketing, and search engine optimization.
Amazon Web Service's SaaS is the top reseller of platform solutions from third-party vendors. Along with that, Amazon offers a platform that helps companies build their own SaaS applications.
Atlassian is an enterprise software company that helps software developers, content creators, and project managers develop products. One of its flagship products is called Jira, a project management and issue-tracking platform.
One of the most popular collaboration platforms is called Slack. Since Salesforce acquired it, Slack has been expanding its capabilities. This SaaS platform offers messaging options, search features, and archiving tools for remote teams.
For those who want a cloud-based email marketing solution, take a look at Mailchimp. This SaaS offers end-to-end solutions to create and manage marketing campaigns and mailing lists. Mailchimp helps businesses integrate their contacts from other CRM tools to develop new mailing lists. Additionally, Mailchimp can provide analytical services with assistance from Google Analytics.
RingCentral offers communication solutions for various businesses. In its product portfolio, there are options for video capabilities and messaging services that can allow companies to communicate within the organization.
Paychex has been around since the 1970s, but this company has learned to avoid customer churn by relying on its SaaS business model. Paychex is a payment and financial vertical SaaS provider that offers human resources, payroll, and outsourcing solutions to those small-to-medium businesses. This company has been providing those SaaS services since 2013.
SaaS is an excellent solution for many businesses, but it is not the right choice for everyone. By understanding the scale and the customer base of their operations, companies can define whether a SaaS business model is the ideal solution for their needs.