What is the Difference Between SaaS & Cloud?
Updated on May 4, 2020
It might be confusing to hear Software-as-a-Service (SaaS) and cloud computing referred to as two different elements. To the layperson, they sound like the same thing because they both operate from the cloud.
They are, however, very different elements.
In this article, we’ll look at the three applications that operate in the cloud and how they differ. We’ll look at their advantages and disadvantages, and how to choose the right application for your business.
What is Cloud Computing?
Cloud computing refers to the internet in general. Services in the cloud can be divided into three categories:
- PaaS
- IaaS
- SaaS
We’ll discuss the first two briefly in this section. We’ll go over SaaS in more detail in the next section.
PaaS: Platform as a Service
PaaS gives clients components of the software that they need. Think of it as providing a framework on which to build a customized application. If you want to start your own SaaS business, you might get a PaaS provider to create a base for your developers to work on.
This allows companies access to a core infrastructure that they’d otherwise have to create for themselves. Producing a core infrastructure would be expensive to create from scratch.
Examples of PaaS include:
- Windows Azure
- Google App Engine
- Force.com
- AWS Beanstalk
- OpenShift
IaaS: Infrastructure as a Service
IaaS takes things a step further by providing fully built resources. These allow companies to access networking, monitoring computers, storage, and so on. These are the services that the company will use after they’ve built their software over the framework of PaaS.
The advantage here is that it’s a pay as you use model.
You can rent as much storage space as you need. If you need to scale up or scale down, it’s easy to do. There can be some overlap between companies offering PaaS and IaaS services.
Examples of IaaS include:
- Cisco Metacloud
- DigitalOcean
- Amazon Web Services
- Microsoft Azure
- Rackspace
- Linode
What Is Software-as-a-Service (SaaS)?
SaaS is different in that it’s a distribution model.
The software is a complete product and is distributed by a third party. The software is ready to go out of the “box,” so to speak.
SaaS Benefits and Examples
SaaS is popular, both with users and as a business model in its own right.
The benefits for users include:
- Access to useful software at reduced rates
- No need to install software or find space for it on servers
- Increased efficiency
- Accessible globally – all you need is an internet connection
- Will usually work on several different devices
- Easy to scale because a third-party foots the bill for the infrastructure
- Real-time access to software
- Can accommodate one user or thousands
- Software updates are automatic
- You’re renting the software, not buying it outright
- You don’t need an IT department to keep the software inline
The benefits of SaaS as a business model include:
- High scalability potential
- Once a business reaches a mature stage, onboarding costs plummet
- Businesses enjoy a recurring income
Examples of SaaS include:
- Salesforce
- Quickbooks Online
- Citrix GotToMeeting
Characteristics of SaaS
Still a little confused? Don’t worry about it; it’s not a simple topic.
Let’s go over typical SaaS characteristics, so you get a clearer picture of what SaaS is. Typically, SaaS is:
- Managed from one centralized location: Users can log in from anywhere, but the software itself is managed by one company.
- You’ll use a remote server: If the software is installed on your own server, it’s not SaaS. SaaS is hosted on the service provider’s servers.
- You can access it online: This is critical. If you can’t access the service while you’re offline, it’s probably a SaaS product.
- You don’t have to update your software or hardware: As the software is controlled by the service provider, they’re responsible for updating it. If the servers or other hardware needs to be upgraded, the service provider is responsible.
Do You Need a SaaS Product or Cloud Computing?
A better question would be, “What type of cloud computing product do you need?”
Some businesses will need a combination of the three types of cloud services.
Say, for example, that you want to create your own SaaS product to sell.
You might use PaaS as a basic framework to build your software over. Doing so gives you a head start on the tedious process of developing software because the basic functionality is already there.
An IaaS product could also provide useful storage solutions, or a network to distribute your end product.
Finally, you’d want to use SaaS services from other companies in order to improve your profit margins.
If you’ve already developed your product, and created your distribution network, you’ll only need SaaS services. In the end, then, the SaaS services prove to be the most important of the cloud computing services available. They’re necessary for new and established businesses.
SaaS vs. PaaS vs. IaaS: What to use
Each cloud model offers specific features and functionalities, and it is crucial for your organization to understand the differences.
Whether you need cloud-based software for storage options, a smooth platform that allows you to create customized applications or complete control over your entire infrastructure without having to physically maintain it, there is a cloud service for you.
No matter which option you choose, migrating to the cloud is the future of business and technology.
When to Use SaaS
Does your company need SaaS? When is it advisable to use? Let’s go over situations where it makes sense to use SaaS.
- You’re a start-up or smaller company. You need to launch your e-commerce site fast and efficiently without having to deal with software or server issues.
- There’s a short-term project that needs fast, efficient, and cost-effective collaboration.
- When you don’t need the software very often; tax software, for example, is only needed once a year.
- You need access to the application via web and mobile.
- Your company doesn’t have the expertise in a certain role and need a cost-effective fix. Online accounting programs, for example, make it simple to keep your books in order without the expense of hiring a full-time accountant.
- Where SaaS solutions are more cost-effective. Accounting software, for example, can automate the assigning of income and expenses. It makes calling up reports easy. A fully-loaded accounting package might cost $300 per month. That still saves staff costs.
Concerns About Using SaaS
So far, there’s a lot to like about SaaS. At Empire Flippers, we present both sides of the case and let you decide. There are some issues that might come up when you’re considering using SaaS:
- Integration: Can the SaaS elements plug into your existing system and apps? Say, for example, that the SaaS provider hasn’t used open standards that make integration easier. Will you need to redesign your own systems in order to bridge the gap?
- You’re essentially locked in: A SaaS may make it hard for you to cost-effectively move your data to a new vendor. They have retention processes in place, and they work at creating a product that companies can’t live without. This makes it harder to switch providers.
- Lack of support: The more extensive the range of services you use, the more support you’re likely to need. A good SaaS provider will provide this support. Others provide only limited support. This, in turn, can limit the usefulness of the software due to a lack of knowledge on how to use it correctly.
- Data security: Data on the move is naturally more vulnerable to beaches. Working with a SaaS provider means that data moves between your servers and theirs frequently. You could have top-level security for your servers. Does the service provider?
- Customization: Most SaaS solutions are not very customizable. Building in this feature would affect the profitability of the service provider. It might also open the door to modifications that have serious security or functionality issues.
- You’re not in control: You’re using a service provided by the vendor. If that vendor changes the terms or goes out of business, you could be left high and dry. That’s why it pays to choose established SaaS providers.
- Restrictions in terms of features: Most providers offer standardized packages. That means that you invariably pay for features you won’t use. The range of features might also not be the exact mix that you need.
- Switching systems can be challenging: Say, for example, that your vendor decides to double the monthly subscription. There could be a more cost-effective option available, but that means retraining employees, and relooking at processes. Moving isn’t as simple as canceling the software and moving on.
- Network Issues: If the service provider has network issues, you’re impacted. They might shut down for maintenance, get shut down by a hacker, and so on.
That’s enough of the doom and gloom. The above-mentioned issues could come to pass.
That said, if you choose an established provider with a good reputation, these problematic issues are minimized.
Cloud computing and SaaS services are two very different animals. SaaS provides you with a full software solution. Cloud computing merely provides you with the tools to create your own solution.
Which option works best for your company will depend on what skills you have at your disposal. Using a SaaS can bridge a skills gap or improve efficiency in a highly cost-effective manner.
Buying and Selling a SaaS company
Owning a successful SaaS company has become a very lucrative business.
Investors love the opportunity to own a business that earns recurring revenue. If you have one, you might be surprised by SaaS revenue multiples.
To get a quick valuation of your business you can use our free SaaS valuation calculator.
If you don’t have the time to create a SaaS company, why not buy one?
The market only looks to be getting bigger.
Visit our marketplace of SaaS businesses for sale to see what’s on offer. The temptation of monthly recurring revenue makes it such an appealing asset to invest in.
If you need any more information feel free to set up a call with one of our business analysts. They will be able to talk you through the whole buying process.
