What is a SAAS Product

Software as a Service typically means SAAS (“SaaS”). SaaS is a software delivery model, through which applications are hosted on the cloud, delivered to customers through the internet, and licensed on the basis of subscriptions. Cloud computing is the process of offering technology related services over the internet. These services could be in the form of data storage, networking and managing servers. Unlike traditional softwares, SaaS products do not require customers to purchase anything upfront, or to maintain an application’s underlying infrastructure.

The cloud service provider designs, develops and maintains the software that SaaS delivers. Meanwhile, the subscriber can access the SaaS in question using a compatible client device which could be a web browser or a dedicated application with the help of an active internet connection. Instead of building and maintaining massive infrastructures, companies can just pay a cloud service to host it for them.This allows customers the ease of access through any web browser and access the SaaS product from there.

SAAS products and the Indian market

As the technology industry is moving from on premise application and software based technology to cloud based technology, SaaS products are the next big thing. The things that make SaaS products the most sought after in today’s times are cost effectiveness, instant decision making, greater flexibility, low risk, combined with an increasing mobile workforce and customers. The increased reliance on online platforms for transactions, cheaper bandwidth, especially through smartphones, 4G and 5G networks and implementation of GST are some of the other factors for the rapid emergence of a vibrant domestic SaaS market.

Almost all sectors of the industry have adopted SaaS products ranging from industries like hospitality to education to healthcare and wellness. This huge rise in the demand for SaaS products has led to a massive rise in startups dealing in SaaS products.

The SaaS segment is one of the rising stars of the Indian startup ecosystem, projected to capture 7-9 percent of the global market by 2022. A report by Bain & Company has projected that Indian SaaS market is expected to generate revenue of $18-20 billion.

India not only provides a great market for SaaS products but also provides a great avenue for entrepreneurs to create a lucrative source of revenue by creating SaaS products and Startups. Indian entrepreneurs have competitive advantages over their global peers – they have access to a wide pool of skilled talent at a relatively lower cost.

Another aspect to be considered is the fact that the pandemic has enhanced the need for softwares and tools that empower the businesses by connecting and servicing customers, amidst the physical limitations and while being located in different parts of the planet.

SaaS is actively replacing other extraneous software segments like enterprise resource planning (ERP), customer relationship management (CRM), and point-of-sale (POS) systems. Therefore the demand for SaaS products would be even higher than other enterprise needs, and India’s exploding enterprise software industry is ideally placed to capitalize on the fast-growing segment.

How is a SAAS company different from a software company

The main difference between SaaS companies and software companies is that a SaaS product is hosted on the cloud server while the software is usually sold to the customer in a pre-packaged form. This technology eliminates the need for an end user license to activate the software and any infrastructure to host the software. Instead, the SaaS company hosts their membership in the form of subscriptions. The customer is required only to log into their account and get complete access. Any software company that leases its software through a central, cloud-based system is said to be a SaaS company. Whereas, software companies have to build a complete infrastructure and require the customer to pay upfront for the ability to download the software.

The basic distinguishing factor between a mainstream software company and a SaaS based company is the method of delivery. More and more software companies are moving towards the SaaS model as it takes much lower investment to reach a viable product. The fact that it is not just selling a software, but also doing everything that is required for successfully providing services along with the software. 

SaaS Business Model and its Benefits

As we have discussed above, SaaS business model is basically a delivery model, whereby the company is not just selling software to a customer, but also is a full blown service provider. This not just includes the objective of selling the product also the objective of customer retention for a foreseeable future.

SaaS companies can follow a Business to Business (“B2B”) approach or a Business to Customer (“B2C”) approach. In the B2B approach, the SaaS company sells its products and services to other companies. Hence, this approach aims at providing software (app, extension, add-ons) to other businesses as a service. The products are functioned in a manner for businesses to operate more efficiently and effectively with highly automated technology. The main purpose is to help businesses reduce expenses. Due to this value addition, a large number of companies are using the SaaS software to optimize their sales, marketing, and customer care services in order to enhance performance and generate more revenue.

The B2C model focuses on individual customers. It provides the customer the ease of accessing the software and products online keeping in mind the exact user requirements. This model requires the company to cater to the needs of the customers. The primary difference between B2B and B2C approaches lies mainly in the marketing strategies for reaching the target audience. B2B desires lead generation with person-to-person interaction while B2C focuses on branding and building customer loyalty.

The SaaS business model comes with a lot of pros for any business along with being extremely beneficial for customers too. To name a few –

i.           Lower Costs –

For startups and small businesses, one of the biggest advantage of a SaaS business model is the cost-effectiveness. While creating a software, there are multiple things to be kept in mind such as supporting multiple operating systems and devices all of which involves cost. There is also a requirement of prompt customer support to customers for their local device issues. But with the SaaS business model, the only thing required is that the product should support different web browsers.

ii.          Recurring revenue –

Generally, most businesses are focused on attracting new customers. But with the SaaS model, instead of having customers pay a one-time fee for the software, they are required to pay a subscription amount which can be paid on regular intervals, which makes it much easier to predict the monthly and annual revenue of the SaaS service provider.

iii.        Updates and new features –

Adding new features and upgrades with on-premise software isn’t so easy. Using the SaaS business model, updates and new features can be easily added and offered to the users right away.

iv.         No risk of piracy –

As a SaaS product is not sold with a license to the software, but is delivered to the customers on a pay-per-use basis or as a subscription. The cloud becomes a platform for data that is accessible only to paying customers. It declines the risk of piracy of the software and the  usage of it without purchasing legally.

v.          Backups and Data Recovery –

In the traditional software, the process of backing up data on a regular basis can be a laborious task. SaaS solutions eradicate this painstaking task, instigating automatic backups without user intervention and thus ensuring the integrity of the customer’s data.

vi.         Greater Scalability –

The fact that SaaS products are delivered over the cloud enforces an innate requirement for these products to be elastic and to leverage the cloud benefits. SaaS products allow users to choose the delivery model and easily adapt according to their business requirements.

vii.       App integrations -

SaaS products can be integrated with other platforms and systems using Application Program Interface (APIs). This allows organizations to integrate their own systems with the SaaS provider using their APIs. There are multiple SaaS service providers, which encourages businesses to choose offerings that have better integration with other systems and leverage their existing information technology investment.

SaaS Agreement

A SaaS Agreement is an agreement between a Customer (“Customer”) and the SaaS Service Provider (“Service Provider”) wherein terms and conditions are stated for the SaaS product to be delivered. The agreement enables the Service Provider to provide access to the Customer in exchange of the consideration or subscription that will be paid on a regular basis. The Customer gets the right to access the SaaS product and software after signing the SaaS Agreement. The agreement lays down the terms and conditions, privacy policy, termination requirements, disclaimers, usage requirements etc. as per which the software shall be accessible to the Customer over the internet. As the access is licensed on a subscription basis and centrally hosted, it is often distributed on-demand over the cloud.

The agreement primarily consists of –

  • Customer’s usage rights and the restrictions and limitations upon such usage; and
  • Service Provider’s obligations to make its software and product accessible to the Customer as a service over the internet.

Distinction between a SaaS Agreement and Software License Agreement

A software license agreement is basically called an End User License Agreement (EULA) and is typically entered for the Customers to purchase and use the software or product on their device. These agreements also prohibit certain things such as making additional copies of the software. Whereas, SaaS agreements are mostly entered for a limited use of the software provided to the Customer over the internet. In this form of SaaS agreement, the Customer does not get the ownership right of the software but rather only a right to use the services provided by the Service Provider along with the software over the internet.

An EULA grants the Customer with the license of the product/software and is allowed to copy it, download it and install it. Whereas the SaaS agreement only allows the Customer access right during the term of the agreement.

Overall we can summarize that traditional software’s were sold with an EULA and SaaS products being vastly different from a product or traditional software requires the customer and Service Provider to enter into a SaaS agreement.

We shall be diving deep into the various terms and concepts of SaaS and SaaS Agreements in the next few articles. Stay Tuned!!

The content of this article is for information purpose only and does not constitute advice or a legal opinion and are personal views of the author. It is based upon relevant law and/or facts available at that point of time and prepared with due accuracy & reliability. Readers are requested to check and refer to relevant provisions of statute, latest judicial pronouncements, circulars, clarifications etc before acting on the basis of the above write up. The possibility of other views on the subject matter cannot be ruled out. By the use of the said information, you agree that the Author / Treelife Consulting is not responsible or liable in any manner for the authenticity, accuracy, completeness, errors or any kind of omissions in this piece of information for any action taken thereof.

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