First of all, to answer the question in the title: Yes, Netflix is a SaaS company that sells software to watch licensed videos on demand. It follows a subscription-based model whereby the user chooses a subscription plan and pays a fixed sum of money to Netflix monthly or annually.
SaaS is not a new concept.
It’s actually been a business model since the 1960s. Back then, computers were enormous (remember the computer room – yes, room – in the movie Hidden Figures?):
Computers were also very expensive, making it unrealistic for any company other than a large enterprise to purchase one, never mind several. That’s pretty much how the SaaS industry started – although back then they called it a “time-sharing system”.
But the first SaaS company, Concur, started selling software licenses directly to enterprises in 1998 (they were acquired by SAP in 2014 and renamed SAP Concur).
What Is SaaS?
SaaS, which stands for software as a service, is a software that you can access via your Internet browser without the need to download it onto your computer, laptop or smartphone.
SaaS usually comes as a subscription-based service where the user pays a fixed amount monthly or annually for using the software. All the user’s data are kept in the SaaS provider’s data center.
Also called cloud computing, SaaS is actually one of three main categories of cloud computing. The other two are infrastructure as a service (IaaS) and platform as a service (PaaS). Email services that you commonly use like Gmail and Yahoo are probably the best examples of SaaS companies.
SaaS is a hot-selling business model because it provides greater flexibility to the customer and every SaaS company works on specific verticals to differentiate their product from others. It won’t take long for the SaaS model to be adopted by almost every company looking to expand its reach globally.
Top SaaS Stats, Trends and Forecasts
Here are a handful of SaaS stats to give you a greater picture of this business model:
- A survey by Finances Online suggests that about 86% of companies will be running entirely on SaaS by 2026:
- Enterprise SaaS revenue crossed the $100 billion-mark in 2026 and is growing at an average rate of 30% per annum:
- The usage-based pricing model (aka “pay as you go”) is on the rise and is quickly becoming the most preferred pricing offer for SaaS companies.
- 93% of C-suite executives are adopting or planning to adopt cloud SaaS.
- 70% of CIOs are attracted to cloud-based SaaS for its agility and scalability.
- 38% of companies adopt cloud-based systems to enhance disaster recovery.
Dive Deeper: 3 Steps to Increase SaaS Conversion Rates with Customer Education
How SaaS Differs from Traditional Software
There are several differences between SaaS and traditional software. The major differences are:
- The SaaS model requires a fee to be paid on a recurring basis. Most SaaS companies offer a seven-day or a one-month free trial to all users before the payment is charged.
- With traditional software, a one-time fee is charged where the buyer pays a fixed amount in advance before purchasing the software.
- To start using SaaS software, there is no need to install anything on your computer or laptop, as the software runs on a cloud server.
- Traditional software runs on a computer or laptop and requires the software to be installed before the application can begin functioning.
- SaaS offers automatic software updates that need no actions taken from the user.
- In contrast, frequent updates are needed with the traditional software model (which can be annoying!).
- Multiple users can use SaaS software at a time.
- Only a single (or a couple) user can use traditional software, which often requires user training to get started.
- SaaS offers better security, and there is no need for data backups.
- Traditional software relies on the protection of your system’s antivirus, and you need to make regular backups of your important data.
- The SaaS company takes care of the maintenance costs of running the software, which cuts down a significant chunk of expenses, making SaaS software cost effective and user friendly.
- Traditional software requires a single software for every computer, with extra maintenance costs borne by the person or the company using the software, making traditional software more costly.
- SaaS software can be accessed from any desktop computer, laptop, tablet or mobile phone.
- Traditional software, on the other hand, can be used only from a single system on which the software is installed. You can’t work from anywhere with traditional software unless you bring your laptop.
Dive Deeper: SaaS CAC: A Guide to Customer Acquisition Costs
Major Benefits of SaaS over Traditional or Licensed Software
SaaS offers several advantages over traditional or licensed software. The top SaaS advantages are as follows:
- Low Cost: One of the major benefits of SaaS is its operational costs. SaaS applications save you a lot of money because you don’t need any additional support staff to install, maintain or upgrade the software. SaaS companies already manage the cost of maintaining and upgrading the software. There is no need to deploy extensive infrastructure to install the SaaS software, and the need to buy additional hardware is also avoided.
- Easy to Use: SaaS apps are easy to use. You only need to access the SaaS website or app and log in to your personalized dashboard. If you are using a SaaS application for the first time, you can get started within minutes simply by creating your account and choosing a pricing structure that suits your business. Traditional software is not always easy to use because it requires a lengthy installation process and customization with regular upgrades that degrade the overall user experience.
- Offers Easy Integration with Other Software: Almost all SaaS providers offer easy integration with other software. For example, if you use HubSpot and wish to connect Salesforce to it, it’s quite simple. SaaS software offers hundreds of integrations with popular software to combine the power of different software required for the smooth running of your business. This is not possible with traditional software as they run on a standalone basis and thus do not offer easy integration with other software.
- Lots of Customization Available: SaaS is not a one-size-fits-all software. Instead, they offer lots of customizations, and you can choose your own set of features and integrations to get started, or add features later on. SaaS companies offer you a personalized dashboard that contains the data you want to see, and you can easily customize your dashboard to include other data and integrations to manage your business. Such easy customization is not possible with traditional software. You can see an example of this below from ClickFlow, a SaaS tool that assists with creating, testing and monitoring content:
- Eliminates Workload of Upgrades: SaaS removes the need for manual upgrades and messy updates. All the updates automatically happen in the server and are taken care of by the SaaS company. This saves you a lot of time and frustration, leaving you free to concentrate on the work that matters most for your business. This is not true with traditional software where updates are a constant, usually frustrating, process for the user.
- Flexible Pricing: SaaS offers flexible pricing options for every business, large and small, depending on their exact needs, unlike traditional software where you have to pay for the entire suite of software and install it just to get started. With SaaS, you can begin by choosing a freemium plan or a trialware plan and then upgrading your plan according to your business growth.
Disadvantages of SaaS Over Traditional Software
Although SaaS is the preferred business model for most IT companies, it does have some limitations. The most significant disadvantages of SaaS over traditional software are:
- Security Risks: Data theft, phishing, malware and hacking are some of the threats that haunt SaaS businesses. Unauthorized access and loss of data are common if proper security measures are not taken.
- Product Failure: Launching a SaaS business is pretty easy because people do not like installing extra software. Hence, most of the startups launching nowadays are adopting a SaaS model. However, most of the newly launched companies lack adequate experience, and if proper measures are not taken, the chances of product failure increases. In fact, about 92% of SaaS companies fail within the first three years.
- Limited Software Integration: Every company uses, at a minimum, an average of three to four software products to run their business. Now, imagine opting for another SaaS product and integrating the existing software with it. Not all SaaS providers offer software integration with every application that your company might be using currently. Hence, software integration capacity is limited.
SaaS definitely has its downsides, but the advantages clearly outweigh the limitations.
Now, let’s take a look at some of the top successful SaaS companies that have become role models for other young companies to be inspired by.