Software-as-a-Service (SaaS) refers to a method companies use to deliver software to their customers. SaaS vendors typically provide software to their users in the form of a subscription as opposed to a software product they take home. The software is typically hosted on the vendor's servers rather than the user's own servers or computer.

Software License Versus SaaS

Software use is controlled by a legal agreement, usually in the form of a license. Both Free and open-source software (FOSS) and commercial software use licenses. An example would be the cloud version of QuickBooks, which is a Software-as-a-Service. You must obtain and pay for a license that sets forth specific criteria, like how many people can access QuickBooks and how much data can be loaded.

A license can be on-premise or standalone. These usually have similar formats and are for licenses at the customer location. They can be sold by the server, user, cases, process, CPU-core, etc. You can purchase a license that allows you to run a company's software on your server at your business location. You are still bound by license terms, like users, data limits, or whatever other terms it specifies.

The main difference between SaaS and a software license involves possession and location. SaaS is run by the company who sells it and remains in their possession. You won't have it installed at your business. Instead, you access it through a web browser. If you had the software onsite, you would be managing it on your own server, behind a firewall. SaaS refers to the means of delivery, and a license exists no matter what the method of delivery is.

Choosing Between SaaS and License

SaaS is not ideal for everyone, so you should figure out what is right for your specific business. You should take into consideration criteria like your financial situation. Larger size businesses often choose a license purchase because they have the capital to justify the upfront costs.

Research the upfront costs, which may require hardware platform purchases, as they can be expensive. That kind of capital is something small businesses may not be able to afford. SaaS options also help keep IT department expenditures down, and you don't need staff members to manage any tech support questions.

If your company has an existing IT department and the necessary infrastructure and staff, an on-site software package may prove to be the better option. Factor in the IT department's workload and how a new software might affect them. Will your new program be a top priority, or are they supporting too many other applications and programs to take on something new?

Where is your business located? If your business is in an area that is prone to natural disasters, using a SaaS option that protects your data may be a better option. SaaS systems offer the ability to log into your system from anywhere and at any time of the day. All you need is an internet connection, which makes it more enticing especially for people who travel and work remotely.

Another benefit of a SaaS agreement to consider is flexibility and the ability to change vendors easily. Business managers using SaaS have more control over the relationship with the vendor since they pay monthly fees and can switch services if the current provider doesn't meet contractual obligations. Be sure to include sections in the Service Level Agreement (SLA) that address guaranteed performance levels and response times by the vendor. There should also be a stipulation that the provider will credit monthly fees if service levels are not at those specified in the contract.

When deciding between potential software providers, understand the amount of ongoing support that is standard with your purchase. Some questions to ask:

  • What levels of data monitoring and security are included?
  • How well does the operations team know the product?
  • Is the technical team at the data center familiar with your respective business industry?
  • How long has the vendor they been in business?
  • How frequently are upgrades released?
  • How well does this software integrate into different IT environments?

Service is a key element of a SaaS. Your provider acts as your external IT department and can assist in managing the software and the overall application experience. This can include managing license deployments and security offerings. As software vendors continue to enhance their products, the service department will be the main source of expert assistance as they help manage new upgrades and experience for their customers.

If you need help with understanding software as a service, you can post your legal need on UpCounsel's marketplace. UpCounsel only accepts the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Stripe, and Twilio.