SaaS, when combined with PaaS (hardware Platform as a Service), forms what we call 'Cloud Computing'.
SaaS and PaaS describe the business model of users logging into a centralized hub to access their software products. Users open their files and software only while online, using only their web browser and passwords. It is a resurgence of the 1950's and 1960's mainframe model, but tailored to web browsers and Internet standards.
SaaS/Cloud Example 1: instead of selling you a copy of Microsoft Word for $300, a cloud computing model would "rent" word processing software to you through the Internet for perhaps 5 dollars a month. You would not install any special software, nor would you be confined to your home machine to use this rented online product. You simply use your modern web browser to login from any web-enabled computer, and you can access your word processing documents in the same way that you would access your Gmail.
SaaS/Cloud Example 2: your small car sales business would not spend thousands of dollars on a sales database. Instead, the company owners would "rent" access to a sophisticated online sales database, and all the car salesmen would access that information through their web-enabled computers or handhelds.
SaaS/Cloud Example 3: you decide to start a health club in your hometown, and need computer tools for your receptionist, financial controller, 4 salespeople, 2 membership coordinators, and 3 personal trainers. But you do not want the headaches nor the cost of paying part-time IT staff to build and support those computer tools. Instead, you give all your health club staff access to the cloud of the Internet, and rent their office software online, which will be stored and supported somewhere in Arizona. You will not need any regular IT support staff then; you will just need occasional contract support to ensure that your hardware is maintained.
The Benefits of SaaS/Cloud Computing:
The primary benefit of Software as a Service is reduced cost for everyone involved. Software vendors do not have to spend thousands of hours supporting users over the phone... they would simply maintain and repair a single central copy of the product online. Conversely, users wouldn't have to shell out the large up-front costs of fully purchasing word processing, spreadsheet, or other end user products. Users would instead pay nominal rental fees to access the large cntral copy.
The Downsides of SaaS/Cloud Computing:
The risk of Software as a Service and cloud computing is that the users must place a high level of trust into the online software vendors that they will not disrupt the service. In a way, the software vendor holds its customers "hostage" because all of their documentation and productivity is now in the vendor's hands. Security and protection of the file privacy becomes even more necessary, as the massive Internet is now part of the business network.
When a 600-employee business switches to cloud computing, they must choose their software vendor carefully. There will be dramatically-reduced administration cost to use cloud computing software. But there will be an increase in the risks of service disruption, connectivity, and online security.
More on cloud computing...