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Key differences between SaaS-based model and Licensing Software

Written By

Koustubh Athavale, Pooja Savla, Garima Mitra

Published on

July 22,
2022

Last updated on

February 7, 2025
17:27

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https://treelife.in/legal/key-differences-between-saas-based-model-and-licensing-software/

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Quick Summary

Understanding the key differences between SaaS-based models and traditional software licensing is crucial for businesses evaluating software solutions. In a SaaS (Software as a Service) model, software is hosted on the provider’s servers and accessed via the internet, typically through a subscription-based pricing structure. This model often includes maintenance, updates, hosting, and technical support as part of the service package. Conversely, traditional software licensing involves purchasing a perpetual license to use the software, which is installed on the user’s hardware. This approach usually requires a larger upfront investment and may necessitate separate arrangements for maintenance, updates, and support. Additionally, SaaS solutions offer scalability and ease of collaboration due to cloud-based access, while licensed software may provide more customization options but can be limited to specific devices. Choosing between these models depends on factors such as budget, scalability needs, and desired control over the software environment.

While both SaaS-based and License-based models deal with provision of software, there are certain key distinguishing points between them, viz:

In a SaaS-based model, the software is made available in an intangible form on a hosted platform. On the other hand, in a software license model, the software is made available in a physical form i.e. by way of CD-Roms or electronic download from a website, whereby such software is later used on a piece of hardware.
In a SaaS model, the users’ information is stored with the software company, and such a company is required to provide reasonable data protection safeguards to the users. However, in a software license model, all information is stored on the user’s hardware, and the user himself manages the security aspects.
In a SaaS model, the fees are usually paid on a recurring basis by way of a ‘subscription’ model and for a specific term. The price for such software is usually paid upfront and in full, in a software license model.
In a SaaS model, there is no separate maintenance service provided because the same is included as part of the hosted platform service package, along with the requisite hosting and technical support. In contrast, the licensing model does require maintenance services, bug fixes, and updates to be specifically addressed.
A SaaS-based model helps the software company in reducing the up-front costs since most SaaS solutions are provided on a monthly or annual subscription basis. In a software licensing model, a larger up-front investment is usually required. This is typically categorized as a capital expenditure whereas SaaS is categorized as an operating expenditure.
In a SaaS-based model, software usually includes one set of features and functionality. This means that one has the option to choose a particular solution that is specifically tailored to his industry and/ or required functionality. In a SaaS based model, one can find a solution that only has the features he wants, and not pay for extras he will never use. In a software licensing model, such software might be custom-made to meet very specific needs of a particular industry or even an individual customer. This is usually applicable to those operating in niche industries and markets or organizations that require a highly specialized product that has customizable features.
A SaaS-based model allows for easier file sharing, document collaboration, shared calendars, and sharing of data as most of the software data is hosted in the cloud. On the other hand, in a software licensing based model, a software license may only be installed on a limited number of devices and may pose a problem as far as sharing of files and documents may be concerned.

Conclusion:

As a user, opting for a SaaS-based model or a software license based model depends completely on your needs and on the mode of availability of such software. There may be certain software offerings which may be available only on the SaaS-based model and vice-versa. On the other hand, as a user you might be using a software which has features of both SaaS as well as that of a software license based model. A software company may provide its main offering online and at the same time also provide an application for users’ devices, such that the software license installed on a particular device helps the hardware communicate to the online service. However, software companies, both new and old, are jumping on the SaaS bandwagon and are moving towards a completely SaaS-based model owing to its operational flexibility and lower costs.

About the Author

Koustubh Athavale

Senior Associate | Legal | koustubh.a@treelife.in

Provides expertise in commercial contracts, dispute resolution, and data privacy. Leverages extensive experience in the startup ecosystem to deliver tailored legal solutions for diverse business needs.

Pooja Savla

Principal Associate | Transactions | pooja.s@treelife.in

Specializes in transaction advisory, including mergers and acquisitions, investment structuring, and corporate legal matters. Combines a strong background in law and finance to drive seamless transactions and business growth.

Garima Mitra

Co-founder | garima@treelife.in

Spearheads Transactions, Contracts, and Compliance verticals. Combines expertise in business law and a passion for social impact to shape the legal and financial ecosystem for startups.