What is SaaS?
SaaS stands for software as a service. A SaaS product is software that is sold as a recurring subscription and is centrally hosted by the software company, instead of hosted on a local computer. SaaS products can be accessed via web apps, mobile apps, and desktop apps.
There are so many different types of SaaS products. Some common examples of what a SaaS product could help a user do are:
- Track business expenses
- Track personal spending
- Design a social media graphic or poster
- Pre-schedule posts for social media
- Create and share a design mockup
- Write and share a document or note
Most likely, you’re using at least one SaaS product in your personal life, and several in your professional life.
How is SaaS different from software?
You might be wondering whether or not SaaS is any different from software. Let’s explore that!
What makes SaaS unique is that it’s sold as a recurring subscription (instead of a large, contractual licensing fee) and that it’s accessible via the cloud instead of an on-premise hard drive. Those are the two things that clearly set it apart from software.
By nature of cloud computing, SaaS products can typically be accessed from any device, anywhere in the world.
While the subscription-based setup and cloud computing are the core differentiators, there are other things that seem to be assumed in how SaaS is different—or is expected to be different—from traditional software, and those are:
- Easy to use
- Easy to onboard
- Simple, attractive UX
Sure, there are SaaS products that are clunky, but when we think of SaaS, we think of something that is quick, clean, and smooth. When we think of software, we might think of older, legacy solutions with complicated menus that require extensive training in order to use.
Is SaaS just the new way of saying software?
Some have argued that we should all stop using the word SaaS and go back to using the word software, since 95% or more of all software solutions today are sold using the centrally hosted, subscription-based SaaS model.
“It’s high time we kill the term Software As A Service (SaaS) and call it what it is – software”. – John Greathouse
However, that’s an unpopular opinion. The fact is that thousands upon thousands of professionals around the world are using the term SaaS all on its own, or are using it interchangeably with software.
We can’t just go backwards and erase a term that has become enormously popular. Besides, there are still those core differentiators (subscription model, cloud computing) that set it apart from its predecessor.
And, while SaaS was originally thought to help with just certain business processes like CRM, it has quickly grown to cover even the most complex enterprise use cases like supply chain and ERP.
Top SaaS examples
Now that we understand what SaaS is and how it’s different from traditional software, let’s take a look at some examples to make everything crystal clear.
We’ve pulled up the top SaaS examples to increase the likelihood that you’ve either heard of these or used them before. That way there can be no confusion around what is SaaS.
Chat and collaboration software Slack is known for minimizing the amount of email needed internally at companies and organizations around the world. Instead of a long winded, formal email to a colleague complete with intro and outro, you can just send someone a quick message on Slack like “where is this file?”
The tool saves people time on internal communication, and with the various channels (organized kind of like chat rooms or forums) multiple people can hop in on the same conversation threads easily.
Marketing platform MailChimp began as an email marketing tool and grew to include additional tools like a marketing CRM, brand templates, social media campaigns, and a landing page builder.
Google’s suite of apps like Gmail, Google Docs, and Calendar are loved by consumers and businesses alike. Consumers get the tools for free. Businesses can pay extra for additional storage and to have a custom domain for their email account (instead of @gmail.com).
As an example, you might have a board for social media marketing. You’ll have one column for ideating, one column for creating content, one column for publishing and promoting, and one column for review results. Then you create a card for each individual tasks and move it through the columns. This helps you get an immediate overview of the status of all of your projects. And of course, you can also use Trello to comment on tasks with colleagues, upload files, and more.
Consumer budgeting app EveryDollar helps people set a budget and track their spending. On the free plan, you have to enter transactions yourself, but for $99 per year, your transactions are entered automatically and all you have to do is categorize them into the correct budget category. When you update it regularly, you can make smart budget decisions in the moment instead of guessing how much you’ve already spent at restaurants that month.
What is B2B SaaS?
A B2B SaaS product is one that is sold to a business. B2B SaaS products can be used by multiple people within an organization, making the sales process more complex. Often times, the person who holds the purchasing power isn’t the intended user.
Even though the sales process can be complex, the monthly or yearly subscription costs can yield great profits because businesses are willing to pay for SaaS products that save them time, save them money, or help them make more money.
What is B2C SaaS?
B2B SaaS products are those that are sold to consumers, or more likely, given to consumers for free.
B2B SaaS really confuses people. Spotify isn’t really a SaaS because it’s more about the audio content and less about the software. Amazon Prime isn’t really a SaaS because it’s more about the free delivery (and the video content) and less about the software.
To be a true SaaS product, a consumer needs to be using the SaaS product for the sake of the software.
Microsoft’s OneDrive, which allows consumers to automatically save their files to the cloud and access them from anywhere, is a great example of a SaaS product that people are willing to pay for.
Slack and Trello could be used by students, community organizations, clubs, etc., but these consumers are most likely on the free plan, while the product itself would still be considered B2B.
Why B2B SaaS is a better opportunity for entrepreneurs than B2C SaaS
There are a lot of reasons why B2B SaaS is a smarter business than B2C SaaS.
Consumers like free apps
It’s a fact, consumers don’t want to pay for software. People get really peeved when any mobile app isn’t free. Why should they have to pay for software? They’ve been trained that so many apps are free, so why are some of them not free?
There are fewer use cases
As of right now, there just aren’t that many use cases for what consumers need with software. The popular ones are saving photos, editing photos, budgeting, taxes, writing lists and notes, and tracking their calendar and their family’s calendar.
The use cases for consumer SaaS have already been covered. There’s extreme competition. If you’re convinced you’ve got the next big idea in consumer SaaS, by all means go for it. You might be the next billionaire. But most likely, you’re up against steep competition, or you’ll need to build software that lets someone access a physical product or service (kind of like how Uber was built to help you get a ride quickly).
Businesses are willing to pay for SaaS products
Most consumers aren’t willing to pay for SaaS products, but most businesses are. Why? Because SaaS can eliminate time consuming manual processes. SaaS products can reduce the need to hire new staff and can make current staff members more efficient.
Particularly within marketing, sales, and product design, SaaS products can help businesses increase revenue.
There are many unsolved problems in business
While consumer tools are largely covered, there are still industries and roles that are stuck doing things the old way. Time consuming processes, manual procedures, physical and written documentation…these all still plague a lot of industries.
Also, within B2B there’s something called nicheing, which means that you cater your business towards a specific industry. This helps you serve your customers better because you’re building a product that meets their needs.
Within SaaS, the impact of nicheing depends on the product. Take Slack for example. The “Slack of the real estate industry” wouldn’t be all that different. It would still be a chat platform for teams. But the “task management tool of the real estate industry” would be much more helpful than a generic task management tool, because it would have different tracks and templates associated with processing property transactions.
If you want to use nicheing to your advantage, make sure your niche makes a big impact on your product. Otherwise, it’s just a marketing gimmick.
Understanding the SaaS business model
While all SaaS products are sold as a subscription (by definition), they can have very different business models.
You can read this post for more information, but in a nutshell, a SaaS business model is comprised of the following factors:
- The pricing tiers
- Additional user costs
- Additional storage costs
- Other add on costs
It’s important to remember that freemium is not a business model or a pricing model. It’s an acquisition model. This means that freemium users and growth are essentially marketing costs.
How to build a successful B2B SaaS product
There is still a ton of untapped potential within B2B SaaS. It seems like every other day, someone else on Indie Hackers announces their first 1,000 or first 10,000 paying customers.
SaaS businesses are highly scalable. When you increase users, you increase hosting costs and your need for developers, QA testers, and customer support representatives. But you don’t increase associated physical materials costs like ecommerce companies would, or direct man hours costs like services businesses would.
With all this potential reward, there’s a lot of risk. SaaS products are expensive to build when compared with other business startup concepts.
Too often, entrepreneurs build a product with two many features. Even worse, entrepreneurs build something that no one needs.
In order to get it right, follow these steps:
- Vet your idea – Follow our process to make sure you’re building something that the market needs and will pay for.
- Create a high-fidelity prototype – Work with a smart development team that doesn’t start building right away, but instead helps you create a high-fidelity prototype.
- Get feedback on your prototype – Before you build, show your prototype to people who match your target customer, as well as colleagues.
- Approve the backlog with your development team – Based on market feedback to your prototype as well as your own changes, make updates to backlog for your product.
- Build your minimum viable product – Make sure to partner with a development team that won’t build more features than needed in order to start charging customers and producing revenue.
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