Feeling lost and confused about software as a service (SaaS) – aka cloud-based programs, which operate on third-party servers via the internet – and whether or not you should invest in one? Relax. SelectHub has a complete rundown of the cloud platform and how it can streamline your business practices.

A popular option for many businesses, SaaS solutions aren’t going away anytime soon. In fact, according to MarketsandMarkets, the global cloud computing market may reach as much as $832.1 billion by 2025. Let’s review this software type, its history, characteristics, benefits, examples and limitations.

What This Article Covers:

• What is SaaS?
• History
• Qualities and Benefits
• What Makes a Great SaaS Solution?
• Examples
• Limitations and How to Overcome Them
• The COVID-19 Impact
• Frequently Asked Questions
• Further Reading

What is SaaS?

SaaS (Software as a Service) is a cloud-based software that runs on a third-party server through the Internet. Unlike on-premise deployment, it’s available on any mobile device — i.e., phones, tablets, and laptops — and is accessible from any location with a strong internet signal.

We sat down with Sam Gupta, a principal consultant of the digital transformation consulting firm ElevatIQ, to better comprehend how SaaS changed ERP.

“Traditionally, ERP systems were deployed in the on-prem setting,” he said. “Due to the limitations of the delivery model and upfront costs involved, ERP solutions were inaccessible to small-to-medium-sized businesses. SaaS made it more accessible, as you [no] longer require your internal IT to maintain your systems. You also don’t have to spend millions of dollars before knowing if you will have any tangible business benefits because of an ERP.”

History

Although SaaS sounds new, it launched as an application service provider (ASP) in the 1990s. IBM and other computer providers first conceptualized computer storage in the 1960s.

David Dozer, president of Blaze IT, described SaaS to us in its beginning phase as immature.

“In the early days of SaaS, it wasn’t in a mature enough state to meet complex needs,” he said. “So what ended up happening was a lot of legacy products began to be sold as cloud even though it was the same old infrastructure just running in a data center and having to be accessed through a remote desktop connection. But over time, true cloud players entered the market with solutions that met the complex needs of larger enterprise-level businesses.

“As legacy on-premise applications scrambled to keep up, they began offering certain SaaS options that were still basically cloud-hosting solutions,” he continued, “and then also rolling out some portions of an app that were cloud while other functions were still limited to client-server applications.”

Computer Storage in the ’60s

IBM and other businesses introduced the notion of renting computer capital by giving computing power and storage space to enterprises developing their unique software.

It was hard for small and midsize businesses (SMBs) to acquire robust and expensive computers during this time. Instead, they relied on time sharing or terminals merged within a company’s computer mainframe. SMBs, universities and government agencies could access data via keyboards and monitors linked to the terminals on mainframe computers so they could receive data without investing in bulky computers.

Time sharing remained intact until the ’80s because computers became smaller and less expensive.

Computers for Everyone in the 1980s and ’90s

The ’80s and early ’90s were booming with personal computers and the internet, making time sharing a thing of the past. Employees started having computers at their desks and started interlocking with local area networks (LANs). These LAN connections enabled companies to host crucial intel on servers and apps on their local computers. Since employees could access business information and applications from their computers, LAN became the preliminary stage in cloud computing.

Not Enough Space and The Rise of ASPs

ASPs were the first development of cloud technology. ASPs’ primary function was to hold and supervise software from third-party vendors through client-server apps installed on computers.

Hewlett-Packard, SAP and Qwest created the ASP industry consortium in 1999 because software was booming at a rate that computer hardware couldn’t maintain. Companies had problems hosting thousands of computer programs without taking up space on hard drives. Instead of relying on LAN and in-house storage, they turned to storing data off-site and obtaining it through the internet. However, ASPs started experiencing drawbacks.

SaaS Successes Built on ASPs’ Mistakes

Like most software, ASPs experienced limitations. Some of these drawbacks included:

• Difficulty scaling with businesses as they expanded.
• The lack of scalability caused slow interface speeds.
• ASPs are only hosted third-party apps instead of offering original programs.
• ASPs lacked multi-tenant infrastructure. Although the coding was pretty much the same as the cloud’s, user data was separate.

These and other flaws allowed vendors to have better success with creating cloud platforms. Concur was one of the first companies to implement SaaS when it started offering programs that operated via a working web browser in 2001. Before switching models, Concur had to write, bundle, stock and ship CDs and pay commission expenditures to retail stores for traditional software. Changing this model allowed Concur to reap many benefits. Their gross margin reached 72% in 2010 and in 2014, SAP acquired them for $8.3 billion.
Other companies currently implement cloud deployments to make it easier for other users to save room on company servers and obtain real-time data.

Dozer explained how SaaS solutions became a real gamechanger.

“SaaS truly revolutionized the industry as true cloud platforms make deployment easier and create much more scalable systems,” he said, “especially when a business has people spread out all over the country or even the world. There will always be some complexity in ERP, but what SaaS has done for the industry is remove the unnecessary complexity that on-premise legacy applications are known for.”

Features and Benefits

Cloud programs come with various features and functionalities depending on the type of software you purchase. Each cloud software is different, but they share similar quirks and benefits.

Multi-Tenancy Model

A multi-tenancy model is a codebase that every user shares when they log into a cloud program. This model permits vendors to maintain it and update it regularly so you never work on an outdated interface. This structure saves users and IT teams time to increase their efficiency.

Subscription-Based Billing

Instead of dealing with licensing fees, contracts and vendor lock-ins, you can leverage subscription-based billing or billing that offers several payment options that you can start and stop at any time. Payment options include monthly, quarterly, annually, fixed and more and are typically designed to meet your budget.

Gupta said, “Now small businesses can acquire SaaS ERP software for a predictable monthly cost. The SaaS model also made newer features and functions easier as now you don’t have to wait for patches to be shipped to your door and rely on your IT team to install them. This allows companies to use the latest and greatest features built.”

Data Security

Users can implement various security tactics to ensure their valuable information is consistently protected. These methods are:

• Two-Step/Multi-Factor Authentication: Use two or more steps for signing into a cloud solution such as fingerprint scanning, facial recognition, passcodes sent directly to your phone and more.
• Data Encryption: Encrypt data in a code that can only be deciphered through an encryption key, ensuring your data remains protected from hackers.
• Users Permissions: Establish permission and restriction settings for all or particular users, so data is only seen by those you approve.

Gupta conveyed, “The SaaS model also makes it easier for companies to comply with ever-changing regulatory guidelines and cybersecurity threats. SaaS vendors are continuously advancing their capabilities as the threat actor[s] gets superior with their malicious intent.”

Customization

This type of solution’s design enables you to configure it any way you need to meet your business requirements without extra fees or wrecking the infrastructure. Customization allows you to only pay for the modules and features you want instead of paying for a package and having unnecessary or extra tools.

Dozer declared that a SaaS program can meet almost any industry’s needs.

“With the advancements in cloud solution architecture, almost any module and/or industry are perfectly suited for SaaS,” he said. “In the beginning, SaaS really made the most sense for areas of the business where many of those staff were traveling or in remote positions. For example, cloud CRM was really at the edge of the SaaS curve because often salespeople are traveling all the time and needed an easy way to see and access critical information. Another great example is service technicians who are out in the field all the time.”

Saves Time

You save time because installing SaaS programs doesn’t take long; you just need the internet and the ability to migrate your company data.

What To Look For

Various tools and modules can increase the value of a SaaS solution for your organization. Gupta said the platform should be revamped and intended for a SaaS format instead of remodeling the legacy system.

“The challenge with SaaS, especially in the ERP market, is the market hype around SaaS,” he said. “The SaaS business model requires many moving pieces that need to be considered, like the technology used to build the SaaS application, the pricing model and the software delivery model. Since rewriting large apps such as ERP requires significant investments and substantial time, legacy enterprise software vendors had to find ways to shortcut the process. This shortcutting led to the birth of fake clouds, which would not provide all the benefits SaaS or native cloud applications offer.

“Each industry and business is unique with their needs of SaaS,” he added. “So what may be ideal for one company or industry may not be suitable for the other. What companies should do is not worry about ideal software. They should think about what is going to be the most fitting for their needs.”

We also spoke to Laurie McCabe of SMB Group, who concurred with Gupta that SaaS isn’t a one-size-fits-all solution.

“I do think that a good place for anyone interested in exploring ERP if there’s an upgrader for the first time, start looking first at those products where they have been tailored to your vertical, and that always helps you narrow it down,” she said. “If you’re a construction company or you’re a small manufacturer, whatever you do, don’t just look at, ‘Oh, here’s the three people that pop up for ERP.’ Look at the three people that pop up for construction ERP or manufacturing ERP because you want to take advantage of the vertical quality.

“Really make sure the vendor does a lot of business with businesses like yours,” she continued. “Both in terms of size and industry, geography, all those things. Make sure that you can get a partner that you really feel comfortable [with], listens to you, understands what you’re trying to do, understands your requirements and your strengths. That can structure things well because, at the end of the day, you got this software, but it’s like a lump of clay, and the customer and the partner have to shape that lump of clay to be the great thing.”

Examples

Salesforce is just one example of the diverse cloud applications out there. Here are some other well-known examples:

• G Suite: Google’s G Suite offers various internet-based applications such as GoogleDocs, GoogleSlides, Calendar and more that enable users to store and access data anywhere.
• Amazon Web Services (AWS): AWS contains more than 150 services for businesses and entrepreneurs, including the internet of things (IoT), blockchain, machine learning, robotics and cybersecurity.
• Netflix: Whether you’re on the go or sitting on your living room couch, Netflix offers tons of shows and movies to satisfy your entertainment needs. It also implements machine learning to recommend TV shows and movies that you’ll enjoy based on what you’ve already watched.
• Uber: Receive real-time single or peer ride-sharing or mobility riding via scooters and bikes with Uber’s app that provides real-time data on locations, fares and more, no matter the place.
• Spotify: Considered the Netflix of music, Spotify is available on mobile devices and enables you to stream millions of songs, genres, playlists and more in real-time. Plus, it offers real-time suggestions to pair you with music that you’ll love and compiles playlists of your favorite music regularly.

Limitations and How to Overcome Them

Like most solutions, cloud solutions come with drawbacks. These limitations include:

• Security Concerns: Some users are uneasy about handing their data over to a third-party vendor, which is a reasonable concern. The best way to combat this drawback is to store sensitive data, including sensitive data, in more than one location. For example, you could store data on external hard drives. That way, if a vendor is down or experiencing issues, you can access your data from another source when you need it.
• Poor Performance or Slow Speeds: You may experience slow speeds or poor performance when accessing this software. The best way to remedy this pitfall is to ensure you have a robust private internet connection. If you log into a public wi-fi network, the speed might get bogged down by other nearby users. Also, your data may be more at risk on public wi-fi networks because more people can see and easily steal it.
• Lack of Control: Typically, third-party vendors can control how and when the software needs updates. Read the vendor’s service level agreement and bring up questions and concerns before purchasing a solution. This q&a will allow you to know how much control the vendor has over updates, renovations, data security and more.

McCabe believes that the SaaS industry has a gap in business process expertise.

“I’m talking particularly, at the lower end, maybe for companies that have never implemented ERP, or they’ve been on some old legacy ERP for like however many years, and now they have to think all this through again,” she said. “So I think there’s a lot that the providers of cloud ERP can still do to make it easier to access this expertise both via partners with the right skills, the vendor themselves, and then through online kinds of guidance that they could provide. And yeah, they’re doing some of that, obviously. There’s still a lot of room for improvement because we still hear too many stories of ERP implementations taking too long, not being great as they could be.”

COVID-19 Impact

The COVID-19 pandemic shook up, and continues to shake up, how we conduct business with a surge of remote work and virtually collaborating with partners worldwide. Gupta explained that the pandemic positively grew the SaaS Market.

“As businesses struggled to cope with the market swings and the requirements of working remotely, they had to find new ways of conducting business,” he said. “The same companies that wouldn’t have switched their on-prem apps had to rethink their strategy with COVID. They needed a way to access their business applications on any device and from anywhere for their business continuity. Many legacy and on-prem applications would require you to use VPN and are perhaps inaccessible unless the user accesses the application from the network.

“With the increasing number of uncontrolled access points, security requirements and IT overhead increased exponentially,” he continued. “So business[es] had to [make] the sudden switch to cloud applications as they allow easier retooling of their business processes, provides easier access from anywhere or any device and helps with the agility of the business model.”

Frequently Asked Questions (FAQ)

Here are some common questions that arise around SaaS solutions.

What is SaaS?

SaaS is cloud software that operates on third-party servers via the internet. It’s also available on mobile devices with a strong internet connection.

What Security Measures Do SaaS Vendors Take?

There are various security measures that vendors have when it comes to protecting data. Two-step or multi-factor authentication enables you to have more than one way to verify your identity when logging in to the system. Data encryption scrambles data to prevent hackers from seeing sensitive data. User permissions only allow certain employees to review company data. Be sure to ask vendors about their security measures before investing in a solution.

McCabe stressed the idea of vendors meeting security, data governance and privacy regulations.

“Really make sure that the vendors on your shortlist adhere to all the major security standards,” she conveyed. “And they can explain to you in plain English who has access to your data and why and where your data goes and where it doesn’t go and if you’re not happy with this and you wanna leave, how hard is it to get your data out of this system in a useable format, so you can put it into another solution. Definitely, the data privacy. You write your customer’s data and you want to make sure that [it’s] very, very self-contained.”

What’s the Difference Between SaaS and Cloud Computing?

It’s easy to confuse SaaS and the cloud. Ideally, they’re the same. But some qualities separate the two. In essence, SaaS is a program that isn’t on-premise and runs through a third-party vendor. It’s considered a subset of the cloud. Cloud computing, on the other hand, serves as the network to host SaaS and other programs. It’s available for data storage and runs on the internet.

Who Owns Your SaaS Data?

It’s crucial to review SaaS vendor service level agreements (SLAs) to ensure that you still own your company data. Typically, SaaS vendors let you keep ownership of information and even permit you to back it up locally at any time. However, if you find an SLA sketchy, have a lawyer or legal team review it before signing it.

What is a Private Cloud?

Private cloud, in a nutshell, is hardware or software that’s available solely for one client. You may host private clouds via third-party vendors or on your company servers as on-premise. Private clouds are typically more customizable, offer higher privacy and contain more scalability for expanding your organization.

What is On-Premise Software?

Unlike cloud software, on-premise programs run on company servers and hard drives only. If you’re a small business looking to stay trim without regional or global partners or clients, an on-premise application may be the bee’s knees for you.

Moving Forward

Understanding SaaS isn’t as difficult as you may think. We covered what it is, its history, qualities, benefits and limitations. Whether you choose cloud or on-premise platforms, the idea is to pick the best program that meets your company’s requirements.

How has cloud software helped you and your business? Let us know in the comments!

Further Reading

• The Best Cloud ERP Software Solutions
• The Best Accounting Software for SMEs
• PLM Trends: Future of Product Lifecycle Management
• What is Cloud Accounting? And The Best Software to Get It Done
• How Accounting Automation Optimizes Your Business

Contributing Thought Leaders

Laurie McCabe brings more than 25 years of experience in the IT industry to her current role as co-founder and partner of SMB Group. Laurie has built widespread recognition for her capabilities and insights in the small and medium business (SMB) market in several areas, including cloud computing, mobile solutions, business solutions, social networking and collaboration, and managed services.

Sam Gupta has been a thought leader in the digital transformation space for almost 20 years, emphasizing on financial systems and ERP. He is a principal consultant at ElevatIQ, a digital transformation consulting firm dedicated to business process automation, customer experience, ongoing enhancements and marketing automation.

David Dozer is a business consulting and ERP specialist with more than 15 years of experience in the enterprise software realm. He has dedicated his career to helping SMBs implement software and process solutions that meet real-world business needs. David has prior experience in IT Leadership roles, Consulting Management and ERP Product Management. In his current role as President of Blaze IT, David helps small and mid-sized distribution and manufacturing companies leverage cloud ERP solutions such as Acumatica to streamline their processes and consolidate critical business data into one easy-to-manage system.