Software as a service (SAAS) describes a type of software that runs online. You do not need to install anything or buy any hardware. The users access the websites via a web browser.

Agile software products are about providing users with new, useful functions in incredibly short intervals. The technological conditions must be in place for this too happen. The goal is to make it easy to release new functions and update the software.

You can differentiate between two general release models for web applications.

1. Software as a service. This means the web application is installed on a central server system with as many servers as necessary. Access to data is separated on the software-side.

2. On-site service. The web application is installed on the user’s/user group’s dedicated server system. With this model, only the user’s data is stored on the system. If there are several instances of the web application, the data is separated on different server systems on the hardware-side.

In general, the updatability of the SAAS model is considered superior. Updatability, of course, is not the only criterion for choosing a model.

Examples using traditional global corporations

Many of the leading global software manufacturers have completely altered their software distribution model and are increasingly selling software in the cloud (SAAS). These include:

  • Microsoft ($62.48 billion in revenue) 
  • SAP ($12.5 billion in revenue)


Many companies offer SAAS exclusively:

  • Google ($23.6 billion)
  • Facebook ($2 billion)
  • ($1.8 billion)

Slightly smaller:

  • Zoho
  • 37signals

Some providers offer hybrid solutions

In this case, both pure online service and on-site installation are options:

  • Atlassian
  • Zimbra
  • SugarCRM 

Evaluation of SAAS as business model for providers


  • Lower-cost product prices are possible
  • No on-site installation required for customer
  • The business can be calculated more easily (liquidity)
  • No backup problems
  • No problems with different versions
  • Pirate copies are almost impossible
  • Short development cycles: SAAS is best suited for modern software development (e.g. “Continuous Deployment” with continuous integration (CI) and test-driven development (TDD)


    •  Lower support costs to operate the software
    •  Margins are often greater due to steady revenue
    •  Great customer loyalty and trust
    •  No problems with software updates
    •  Freemium models are possible
    •  SAAS is the business model for custom software of the future. No one has serious doubts about this
    •  SAAS often provides greater information security 



  • There are still acceptance problems on the German market 
  • Customers know they will become more dependent on the provider. This creates obstacles
  • The software’s customization options are reduced significantly
  • Selling the software is more difficult
  • In areas with poor internet connection, a pure online offer does not make sense
  • The lack of control of (sensitive) information and data protection are also frequently considered potential issues

Recommendation for providers with small companies as customers 

A hybrid SAAS and locally installable software solution is feasible. In this case, the software provider supplies their customers with an on-demand solution at a reasonable price. By contrast, larger and wealthier customers are offered the additional option to operate a copy of the solution on an internal server system using a virtual machine.

The software is called up and operated via a web browser, even though it runs internally. The software still remains a “black box” for the user. But, it is “protected” by its own firewall. This is still an important criterion for many companies.

The more courageous, however, will choose SAAS as the sole option from the get-go.

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This content was last updated on 11/07/2014.

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