Software as a Service (SaaS) is a software distribution model where applications are hosted in the cloud and made available to customers over the internet, typically via subscription. Instead of buying and installing software, you pay a recurring fee to access it.
SaaS vs. Traditional Software
| SaaS | Traditional Software | |------|---------------------| | Subscription pricing | One-time purchase | | Hosted by provider | Installed locally | | Automatic updates | Manual updates | | Access anywhere | Access on one machine | | Lower upfront cost | Higher upfront cost | | Data in cloud | Data on premises |
Examples of SaaS
You probably use SaaS daily:
- Productivity: Google Workspace, Microsoft 365, Notion
- CRM: Salesforce, HubSpot
- Communication: Slack, Zoom
- Design: Figma, Canva
- Marketing: Mailchimp, Hootsuite
- Development: GitHub, Jira
Benefits of SaaS
For Users
- No installation or maintenance
- Access from any device
- Always up to date
- Lower initial cost
- Scalable usage
For Providers
- Recurring revenue
- Direct customer relationship
- Continuous improvement
- Data on usage patterns
- Lower piracy
SaaS Business Model
Pricing Models
- Per user: $X per seat per month
- Tiered: Free, Pro, Enterprise
- Usage-based: Pay for what you use
- Freemium: Free tier with paid upgrades
Key Metrics
- MRR/ARR: Monthly/Annual Recurring Revenue
- Churn: Customers who cancel
- CAC: Customer Acquisition Cost
- LTV: Customer Lifetime Value
- NRR: Net Revenue Retention
Building a SaaS Product
Key considerations:
- Multi-tenancy: Serve multiple customers efficiently
- Scalability: Handle growing usage
- Security: Protect customer data
- Reliability: Uptime guarantees (99.9%+)
- Integrations: Connect with other tools
- API access: Enable customization
SaaS Challenges
- Customer churn
- Feature creep
- Competition
- Data security responsibilities
- Scaling infrastructure
- Customer support at scale