June 29, 2023

What is SaaS?

SaaS Insights

Software as a Service (SaaS) is a cloud computing model that allows users to access applications over the Internet. But there's far more to it - find out here.

Nikesh Ashar

Software as a Service (SaaS) is a cloud computing model that allows users to access applications over the Internet. In the past, when you needed software to meet personal or business needs, you had to buy it and install it on your computer. But when it comes to SaaS tools, you don’t need to install anything locally. You can access the software remotely by paying a monthly or annual subscription. 

Thanks to SaaS, users can effortlessly access programs without the need to download or install them on their computers. They can access them anytime, anywhere, using a web browser on any device.

Moreover, SaaS offers notable advantages for internal teams within organizations. Since the software vendor takes charge of application management, databases, and updates, teams can focus on their core tasks without the hassle of maintaining the software infrastructure.

SaaS Visibility Tracker

Struggling to stay on top of your SaaS stack? Download the perfect resource to help you gain visibility of your software stack.

By entering your email you agree to the Privacy Policy and consent to receive emails from Cledara.

A Brief History of SaaS** 

SaaS as the software delivery model we know today was not possible until the late 1990s and early 2000s. Despite this, antecedents can be found in the development of the IT world. When tracing the historical background that made SaaS possible, we can distinguish three stages: 

  • Mainframe Era
  • DotCom Era
  • Cloud Computing Era

Let's take a closer look at each one.

Mainframe Era

The origins of SaaS date back to the 1960s. This was the era of mainframe computing when computers were not accessible to everyone because they were expensive and demanded considerable storage space. So computers were primarily used by government agents and academic researchers.

A milestone marking the beginning of remote software was MIT's development of the Compatible Time-Sharing System in 1961. With this mainframe model, a central computer stored the software and was connected to multiple terminals. Computational tasks could be executed on the central computer through these terminals without local programs being installed.

DotCom Era

In the following years, both software and hardware became more affordable and compact, enabling the production of personal and commercial computers. During the 1980s and 1990s, local program use prevailed. Users would purchase specific software and install it on their personal computers. However, this approach had scalability issues, as installing specific software at a large company, for instance, required significant IT efforts.

Around the same time, early online commercial transactions began, helping pave the way for SaaS growth in the 1990s. Platforms like Amazon and eBay proved that online transactions were secure and efficient. 

Cloud Computing Era

The Software as a Service (SaaS) model we know today is possible due to the development of Cloud Computing. Cloud computing involves using a network of remote servers connected to the Internet for storing, managing, and processing data.

Salesforce was the first SaaS application, launched in 1999. At first, SaaS platforms were seen as unreliable. Additionally, issues like bandwidth scarcity made early SaaS usage impractical. 

However, with improved internet infrastructure in later years, the expansion of SaaS became possible. Subscription-based applications are now a preferred option for individuals and businesses.

Cloud Computing Models: SaaS vs. IaaS vs. PaaS**  

There’s more to Cloud Computing than just SaaS. Other models also cater to organizations’ needs using remote servers. It's crucial to understand the differences between these three key concepts:

  • IaaS
  • SaaS
  • PaaS

The main difference between these three approaches is that, while SaaS is B2B and B2C at the same time, PaaS and IaaS are only B2B.

Let's explore a bit further.

IaaS (Infrastructure as a Service)

IaaS providers offer infrastructure like servers, storage, networking hardware, and virtualization resources. Organizations using IaaS services are still responsible for managing their data, applications, and operating systems.

A way to imagine this is if you want to have a pizza party.

IaaS is like buying all the raw ingredients and making the pizza from scratch at home. You have the control of what goes into it and how it's made, but it requires a lot of work. In tech terms, this means you get to control all the computing resources like storage, servers, and networking, but you have to manage it all yourself.

PaaS (Platform as a Service)

PaaS offers a resource framework for a company's internal developers. This hosted platform allows them to create tailored applications while the vendor manages the data center resources supporting the tools. These products give developers a solid structure to build custom applications, while server and storage management is handled for them. 

Popular PaaS include:

  • AWS
  • Google Cloud
  • Heroku
  • IBM Cloud

To continue the pizza analogy, PaaS is like buying a pizza kit. The dough, sauce, and cheese are provided, and you just add your favorite toppings and bake it. It's easier than doing everything from scratch. In tech terms, this means you don't have to worry about the basic infrastructure like storage and servers. They are managed by the service provider. You just focus on the application you're developing.

SaaS (Software as a Service)

As previously mentioned, SaaS is the cloud computing model that allows you to use software applications without the need to install any software locally. The supplier is in charge of the program in terms of: 

  • Maintenance
  • Updates
  • Database Administration 
  • Server administration 

And finally for our pizza analogy, SaaS is like ordering a pizza from your favorite restaurant. It's already cooked and ready to eat. You don't have to worry about making it yourself. In tech terms, this is a ready-to-use software that runs on the cloud. You don't have to worry about anything technical. Just log in and use the software.

How Does SaaS Work?**

To understand how SaaS works, it's essential to explore the key elements and underlying technologies that make it possible. Certain specific characteristics make the SaaS model work. Among them, we can highlight: 

  • Cloud-based infrastructure
  • A subscription model
  • Centralized management
  • API and integrations
  • Security and compliance

Cloud-Based Infrastructure

SaaS leverages cloud computing technology to enable remote:

  • Data storage
  • Data processing
  • Management of data, servers, databases, and software

This infrastructure plays a crucial role in the seamless operation of SaaS applications, as they rely on remote servers' processing power and storage capabilities to run efficiently.

Subscription Model

One of SaaS's defining characteristics is subscription-based pricing. Users typically pay a recurring fee, either monthly or yearly, for access to the software. 

This model offers flexibility, allowing companies to scale their usage up or down according to their needs. It also reduces the upfront costs associated with purchasing licenses for traditional software installations.

Centralized management

In a SaaS model, the software provider is responsible for managing the application. This includes ensuring it's up-to-date, fixing bugs, and deploying new features. With centralized management, users don't have to worry about software maintenance.

API & Integrations

SaaS applications typically offer APIs and integration capabilities, enabling seamless connections with other software tools and platforms. 

This helps companies create a cohesive technology ecosystem where:

  • Data can flow across platforms and be reconciled automatically
  • Teams can build cross-platform workflows and automate repetitive tasks

Security & Compliance

SaaS providers are usually responsible for ensuring the security of their software and maintaining compliance with industry standards and regulations. 

This may include security measures like data encryption and authentication protocols, as well as adhering to privacy laws and guidelines such as:

  • GDPR

SaaS Advantages**

It’s no coincidence that SaaS has grown steadily from its beginnings to the present day. In fact, SaaS brings multiple advantages for growing companies. For example: 

  • Flexible payments 
  • Scalable usage
  • Cost savings
  • Better collaboration
  • Accessibility 
  • Automatic updates
  • Data security 
  • Customization

Let's take a closer look at each of these advantages.

Flexible Payments 

When you use software as a service you do not pay for a program upfront. Instead, you get a subscription. This can be monthly or yearly, and the price can vary depending on specific features and the number of users who’ll be accessing the software.

For example, when using a project management tool like Trello, you don’t pay for the software itself. Instead, you pay for monthly or annual access. If you want to quit using the software, you can just cancel your subscription and be done with it. And, in some cases, you could even get a partial refund. 


Another advantage of SaaS is its scalability. SaaS allows businesses to adjust their subscription plans quickly and easily to match their evolving needs. This can include:

  • Adding or removing users
  • Increasing storage capacity 
  • Upgrading to a more advanced feature set

With SaaS, companies can grow and adapt without making excessive investments in software or infrastructure.

Cost Saving

SaaS enables growing businesses to save costs significantly in two primary areas:

  • Infrastructure - The expenses for servers, databases, and their maintenance are borne by the providers.
  • Workforce allocation - Thanks to SaaS, IT teams don’t have to spend hundreds of hours installing and updating software. This potentially prevents overhiring IT specialists and keeps your existing team focused on high-priority tasks. 

Better Collaboration

A well-integrated SaaS stack allows stakeholders across your company to stay aligned and collaborate in real time. SaaS platforms operate as shared work hubs, where everyone can stay on top of the information and processes they need to do their jobs.


SaaS platforms can be accessed through almost any device with an internet connection. This allows you to work on the run but also guarantees that your digital workspace can be accessed from almost any computer. No threshold of storage space or computing power is required.

Automatic Updates

Not only does your SaaS vendor handle infrastructure and databases, but also their program's maintenance. Their internal team is responsible for:

  • Fixing bugs
  • Updating the application
  • Enhancing the software

Your in-house IT team doesn't need to do anything, as these updates occur automatically.

Data security 

SaaS providers typically maintain PCI compliance, ensuring high levels of security when handling sensitive data. 

Many providers exceed these requirements, offering even more robust security measures to protect your information and provide peace of mind.


SaaS is often referred to as customizable because it allows users to configure and tailor the software to meet their specific requirements. 

Unlike traditional, off-the-shelf software, SaaS applications are designed to be adjustable according to each user's or organization's unique needs. 

Popular customization options may include:

  • User Interface - Users can personalize the appearance and layout of the software to suit their preferences.
  • Workflows and processes - SaaS applications often provide configurable templates and process flows that can be adapted to match a business's specific procedures.
  • Integrations - SaaS apps can be customized to integrate with other tools and platforms. This is done through APIs and third-party connectors such as Zapier or Make.
  • Reporting and analytics - SaaS applications typically provide options to build custom reports and dashboards.
  • Access and user roles - Organizations can customize user roles and access permissions.

All in all, SaaS allows you to adapt the software to your business needs and preferences. 

SaaS Adoption Challenges**

SaaS tools are essential to running any modern company. But they also come with some challenges

Managing your SaaS stack isn’t easy. The challenges that SaaS brings involve diverse teams, such as: 

  • HR
  • IT
  • Compliance
  • Finance

Efficient and sustainable SaaS management requires engaging these different departments and establishing a series of shared processes. 

Just to name a few, some of the more relevant challenges of SaaS are: 

  • Preventing uncontrolled subscriptions
  • Making the right purchase decisions 
  • Preventing shadow IT
  • Preventing and managing service interruption
  • Managing onboarding and offboarding processes 
  • Minimizing security risks

Let's see what each one’s about.

Preventing Uncontrolled Subscriptions

One of the main challenges associated with SaaS is the problem of unchecked subscriptions. With the SaaS ecosystem’s constant growth, it appears that there is an online tool available for every task within a company. And it’s not wrong for your team to want to expand their stack.

But indiscriminate and excessive subscriptions can strain both your finances and your operations. 

Watch out for: 

  • Tool redundancy - Are there two or more tools being used for the same purpose?
  • Underutilized applications. Are you paying for tools that are not being used to their full potential?

Making the Right Purchase Decisions 

Given the abundance of tools, choosing the right subscription involves a careful decision-making process. To select the appropriate tools that align with an organization's needs and budget, strategic planning and evaluation are essential. 

When making a purchase decision, you have to take into account: 

  • Compatibility - Ensuring that chosen SaaS tools integrate well with existing infrastructure and systems is essential, and assessing this aspect can be difficult.
  • Vendor reliability. Determining the credibility and stability of SaaS vendors is crucial to ensuring consistent, long-term support and service.
  • Costs & ROI - Comparing the true long-term costs of various SaaS options, considering factors such as upgrades, support, and data storage, can be complex.

SaaS purchasing decisions have become so important in recent times that they have led to the emergence of a new role: The Chief Information Officer (CIO). These professionals are responsible for evaluating and selecting the right tools for the organization based on its needs and budget. 

Shadow IT

SaaS introduces another challenge known as Shadow IT. This term refers to the unapproved and unmanaged use of software within a company, bypassing the IT team's oversight.

Shadow IT typically arises when employees independently subscribe to software or try out a new tool using a free version without consulting the IT department. 

Shadow IT’s consequences usually include:

  • Hidden expenses
  • Lack of visibility of SaaS Stack
  • Compromised data security
  • Unrecorded processes

Service Interruption

An infrequent yet noteworthy challenge is service interruption. Since SaaS applications are not entirely under your control, a failure or interruption in service can occur without your ability to resolve it. This may lead to lost workdays or being unable to meet customer objectives or deadlines.

It’s crucial to select the right provider when subscribing to a SaaS tool. Choosing a provider that offers a reliable product with minimal disruptions and flawless service is essential to mitigating this risk. 

More commonly, service interruptions are caused by payment processing issues. The best way to mitigate this is to rely on a SaaS management platform that helps you manage your payment information and renewals in a centralized way. 

Onboarding & Offboarding processes 

Although it’s easy to dismiss it as a detail, proper SaaS management can make a big difference when onboarding and offboarding team members.

When onboarding new team members, it is crucial to equip them with the necessary tools to effectively perform their duties and contribute from day one. This entails providing them with:

  • Access to essential tools
  • Special business accounts
  • Documentation for process understanding

However, the challenge doesn't end there. When an employee leaves the company, it becomes equally important to maintain control over SaaS usage. This involves:

  • Minimizing information loss
  • Preventing data breaches
  • Restricting former team members' access to your tool stack.

Security Risks

SaaS providers have made great strides in the security policies that their products offer. However, it is necessary to be aware of at least two important points when purchasing a SaaS product:

  • Data breach protection -  Data is stored in the cloud, on servers hosted by the service provider. Ensure the system is not vulnerable to unauthorized access or data leaks.
  • Identity & access management - The vendor must provide robust identity and access control mechanisms. This protects your organization from unauthorized access. This includes weak password policies, lack of multi-factor authentication, and insufficient monitoring and control of user permissions.

Take Control of Your SaaS Stack with Cledara**

SaaS offers significant advantages over traditional software installations, such as cost savings, scalability, and easy accessibility.

But it comes with its fair share of challenges, including making strategic purchasing decisions, addressing potential security risks, and managing Shadow IT. Fortunately, these challenges can be mitigated. That’s where Cledara steps in. 

Cledara is the only SaaS Management Platform that allows you to: 

  • Get full visibility of your SaaS stack in one place
  • Easily negotiate with vendors
  • Collaborate between teams
  • Subscribe and unsubscribe to tools in one click
  • Make data-driven decisions 
  • Grant or quit licenses to employees
  • Get regular performance reports 

Over 1,000 companies worldwide have chosen Cledara to take back control of their SaaS stack. Will you join them? Book a demo today.



The software management solution for finance teams.

Learn more

Subscribe to our newsletter

Receive the latest insights in your inbox

Nikesh Ashar

I currently look after Quality Assurance and IT at Cledara. Having built a robust QA process and now a team, we work with Product and Engineering to make sure that our software is robust and well tested.

Share this post

Subscribe to our newsletter and stay informed on the latest SaaS insights

Explore more

Explore more

Introducing our Buyer’s Guides: A Smarter Way to Buy Software

Cledara’s buyer’s guides offer for free all the information needed to make an informed decision when it comes to purchasing software.
Read more

The Top SaaS Tools for 2023 based on data from 1,000+ companies

According to Cledara’s world-leading data on software purchasing, these are the 20 top SaaS tools for 2023—by spend, by usage and by growth.
Read more

The Software Stack Guide for Startups

All you need to know to set your software stack for scale. Including insights from 400,000+ software purchases and renewals.
Read more

Market Insights From our Worlds Leading SaaS Dataset

Leveraging our world-leading dataset on SaaS purchasing, usage, renewals, and churn we look at the health of the SaaS market, the purchasing differences between small and large organizations, new annual purchasing trends, and churn insights.
Read more

Ramp vs Brex: A Comprehensive Analysis

Which is best for your business, Ramp vs Brex? Our ultimate rundown can help you decide.
Read more

Have You Secured Your Software Stack?

SaaS security is a set of practices, protocols, and processes that have the primary goal of ensuring the security of a company's SaaS environment.
Read more

SaaS Market Defies Turmoil

Cledara can reveal that overall spending on software by companies has increased by 25% over the past 12 months. Uncover more spending patterns in the software market, the evolving role of finance teams, and the top emerging software applications.
Read more

What is an SBOM?

Software providers must now meet SBOM requirements in order to qualify as US public sector vendors. Learn everything you need to know about SBOMs in this post.
Read more

The Great Flattening

Jason Lemkin, founder and CEO of Saastr, discusses the shifts and challenges in the SaaS market at Saastr Europa 2023. He reveals how the market is experiencing a 'flattening' with a slowdown in growth and tightening fundraising landscape.
Read more

Avoid $65m Cloud Bills with a Cloud Management Platform

Wondering if it's time to adopt a Cloud Management Platform? Here's everything you need to know before investing.
Read more

What Is Software Asset Management? [Benefits & Best Practices]

Software Asset Management helps organizations gain control and optimize software costs and usage. Learn more about its benefits and some best practices in this post.
Read more

The Top SaaS Companies in 2023 According to Our Data

We dug into our data to see what we could learn about the 300 most successful SaaS companies in 2023.
Read more

IT Governance Framework: A Guide for Enterprise Companies

IT governance is a formal way to integrate an IT strategy into an organization's business strategy. In this post, we’ll cover everything you need to know about it.
Read more

State of AI in B2B

Discover the latest insights on AI adoption in the business world, as Cledara reveals the top 150 AI-powered SaaS products used by startups to improve efficiency and drive growth.
Read more

Technology Business Management (TBM): A Guide for Scaleups

Rationalize your IT expenses and align them with your business goals through Technology Business Management (TBM). Here's what you need to know.
Read more