What is a SaaS?

SaaS is an abbreviation that is thrown around a lot on the internet and I think a lot of people tend to skim over it and don’t quite understand what it is. Despite the mishmash of uppercase and lowercase, the basic premise is actually quite simple to understand.

Put simply…

A SaaS is a digital product that a user pays for on a recurring basis. Whether that’s monthly or annually, the user is paying for time-limited access to the product. After that time has passed, unless the user renews, they have no rights to access the product or even any of the data they created within it.

Fundamentally, a SaaS provides the user with a solution that solves a problem they have, with that solution being some piece of software. The software is always served through the Internet.

SaaS products can be made for end consumers (business to customer, or B2C) or to organisations (business to business, or B2B).

SaaS products don’t usually provide the only solution to a problem, but they usually provide one of the most frictionless solutions to a problem.

An easy example of a SaaS product is cloud storage. Most people now pay for cloud storage, whether that’s through Apple’s iCloud, Google Drive, or another provider.

The solution of cloud storage solves the problem of needing to back up photos and files.

An alternative solution already existed: back up your files to a hard drive at home. However, there is a lot of friction involved in this solution. For one, it’s involves a very manual process of plugging in your phone and a hard drive to a computer, then copying the files over. And if you run out of storage on your hard drive, you would have to buy a whole new hard drive.

Cloud storage is frictionless, so much so that most people don’t even think about it. Running out of space is now a problem that can be solved in seconds by tapping a few buttons to upgrade your plan.

Even without mentioning the additional bells and whistles that are made possible by cloud storage, like file sharing, it’s a fantastic example of how a SaaS can solve a problem in such a frictionless way.

In our fast-paced world, making something as frictionless as possible in itself has value. In my opinion, it also makes it quite beautiful. When you take something that used to be as complex as backing up your photos to a hard drive and turn it into a ‘Sync’ button and an interface that just has all your photos right there — that’s the beauty of SaaS.

What does SaaS stand for?

SaaS stands for ‘Software as a Service’. It’s a modern software distribution model. In the old days, software was one of those things you bought on a CD (or downloaded from the internet), installed it on your computer and would own that software forever. Updates to the software would usually be provided for a limited time or not at all. Some time later, a new version would come out which you would have to purchase again if you wanted the latest features.

By appending ‘as a Service’ to the end of ‘Software’, you remove the implication of ownership. The software is intended to help the user solve a problem they have, in a way that is more cost effective than solving the problem in an alternative way, or not solving it at all.

It gets software closer to the old business adage of ‘time equals money’. I’m generalising a lot here, but if a piece of software is provided at a cost lower than the cost a business would pay otherwise (e.g. by employing somebody to do the task manually), it makes financial sense for the business to pay for that software.

Why as a service?

Software as a Service, as opposed to just software, provides a number of advantages for both software developers and its users:

Software developers

1. Revenue is much more predictable and regular. You roughly know how much you’ll bring in next month based on your current user base.
2. It’s relatively easy to launch a SaaS, take payments, and provide updates. Creating a web app is made easy with a bunch of frameworks available, and card payment processors make it easy to take payments and integrate with your SaaS. Providing updates is as simple as modifying your code and deploying it.
3. Control over your product and users. Since the software is hosted on servers you control, you can monitor its use, access analytics, and understand how your users are using it to solve their problem. In theory you can take a data driven approach to further improve your software in ways that you know will amplify the user experience. It’s also usually much harder for users to pirate or abuse your software.

Users

1. Trialling software is made much easier. Rather than shelling out up-front, users can try multiple solutions, just pay for a month or so to test it out, and cancel if it’s not useful. This makes it less risky to users.
2. Support and updates are guaranteed. As long as the user is paying, software creators are strongly incentivised to keep users happy by offering great support and new features.
3. They are more flexible. If the user wants more seats or a plan offering more features, they can easily add them. If the user wants to downgrade, they can do so easily.

Don’t get me wrong — there are also disadvantages. I’ll go into these in detail another time, but the main ones I see for developers are churn (when users cancel their subscription), ongoing costs to cloud platforms like AWS (Amazon Web Services), and a high level of competition, which can result in high marketing costs

For users, subscribing to a SaaS can often work out much more expensive in the long run. Not having ownership of a piece of software can be psychologically off-putting, resulting in users possibly seeing lower value in your software. SaaS products also require an Internet connection to run, and the fact everything they do while using a SaaS product is logged and stored in the cloud gives rise to privacy concerns.

The subscription boom

You may have found that recently, everything seems to have become a subscription. The world appears to be shifting to a business model where companies prefer some of your money each month, rather than a lot of your money once.

I’d pinpoint the start of this with entertainment platforms like Netflix and Spotify, but the subscription model has now made its way into completely different and unexpected markets, like coffee subscriptions that offer unlimited coffee at a particular chain, and mechanics that offer a bundle of services for one annual price.

Ultimately these companies want customer loyalty. By making everything a subscription, you’re tied into their ecosystem, whether that be for your morning coffee, entertainment, or car repairs.

I’ve noticed that other methods of attracting customer loyalty have fallen to the wayside. Loyalty cards seem to be a thing of the past, even at coffee shops!

It will be interesting to see where this goes in the future. Is a subscription for everything the way forward?

I think the answer to this question will depend on the experience customers have with subscriptions, and in particular the ease of cancelling them. I’ve heard of many people signing up to a subscription that they weren’t aware of, and not realising until they checked their bank statement many months later.

I myself have been caught out with this. I realised I was signing up to a subscription at the time, but forgot to cancel it before the next payment was taken. This wasn’t a cheap subscription and I was fuming. Had an email been sent to me in advance, warning me of the upcoming charge, I would’ve been able to take action.

And if I hadn’t taken action, I would only have myself to blame.

Subscriptions that take advantage in this way only serve to reduce customer trust, and make them more cautious about signing up to a subscription model in the future.

When I build my own SaaS, I only want to be charging customers who are actually using my product. I will endeavour to ensure that my users are fully aware when they are signing up to a subscription, and let them know about any upcoming charges.

If you build your own SaaS, I hope you will do the same.