What Is Software as a Service (SaaS)? A Plain Definition

Every “what is SaaS” definition I’ve come across is a one-liner: software you access over the internet by subscription. That’s about half right. Two things it misses matter enough to write down if you’re either buying the thing or trying to reason about it.

First, “over the internet” is doing too much work. SaaS covers software accessed through a desktop client, a mobile app, or an API too - the browser is only one of several. Second, “subscription” is typical of the business model, not a defining property; some SaaS is billed by usage, some by transaction, some is even ad-supported. Neither of those changes what the buyer is doing, which is renting an operated application from a vendor.

So here’s a definition that survives both, followed by the edge cases people actually get stuck on - is Vercel SaaS? Slack? WordPress? - and the four costs that show up months after signing and quietly move the number.

The definition

Software as a Service (SaaS) is software that a vendor hosts, operates and updates, which customers access over a network without managing the underlying infrastructure or deployment. You log in rather than run it yourself. The vendor owns the servers, the deployments and the uptime.

Two clarifications that most definitions get wrong, and that matter if you are writing a contract:

Access is not browser-only. NIST’s formal definition says SaaS applications are “accessible from various client devices through either a thin client interface, such as a web browser (e.g., web-based email), or a program interface”. Slack, Microsoft 365 and Dropbox all ship desktop and mobile clients and are unambiguously SaaS.

Subscription is typical, not definitional. What makes something SaaS is who operates the application and how you reach it, not how it is billed. SaaS is sold by subscription, by usage, per transaction, freemium, and occasionally supported by advertising.

What generally is true is that paid functionality depends on a live commercial relationship, which is the real difference from the licence model that came before it.

SaaS, PaaS and IaaS

These three are frequently confused, and the difference is simply how much of the stack somebody else operates. NIST defines them as separate cloud service models.

	SaaS	PaaS	IaaS
You manage	Your data, users and configuration	Your application and data	Operating system, runtime and applications
Provider manages	Application, platform and infrastructure	Platform and infrastructure	Infrastructure only
Typical user	End users and business teams	Developers	Infrastructure and platform teams
Example	HubSpot, Slack, Xero	Vercel, Heroku	AWS EC2, Hetzner

The practical test: if you are writing code that runs on it, it is not SaaS. If you are configuring an application somebody else wrote and operates, it is.

Is it SaaS? Some specific cases

Definitions earn their keep on edge cases, so here are the ones people actually ask about.

Gmail and Google Workspace. Yes. Google operates the application and you configure users and settings. NIST uses web-based email as its own worked example.

Salesforce. Yes, and it is the canonical example: a finished application, multi-tenant, operated entirely by the vendor.

Slack. Yes, despite the desktop and mobile apps. A local client is not a counter-example, because you are not deploying or operating the service itself.

WordPress. It depends which one, and this is the clearest illustration of the boundary. WordPress.com is hosted and operated by Automattic, so it behaves as SaaS. Self-hosted WordPress from wordpress.org is software you install and run yourself, which is not SaaS regardless of whether the server happens to sit in a cloud.

Vercel. No, this is PaaS. You deploy your own application to it and Vercel operates the platform underneath. Compare Vercel with a finished application such as Notion.

AWS. Not a SaaS application. AWS is a provider offering IaaS, PaaS and a range of managed services, some of which are individually SaaS-like.

Netflix. It shares the cloud-subscription mechanics but is normally classified as a consumer streaming service rather than business software. The label adds nothing useful here.

Obsidian. No. Obsidian runs locally on files you own. Its optional Sync service is SaaS; the editor is not. A product can be both, in parts.

What changed, concretely

	Traditional licensed software	SaaS
Payment	One-off licence, optional support	Usually recurring subscription or usage
Deployment	You install and run it	Vendor runs it; you may still install a client
Access	Local application	Browser, desktop or mobile client, or API
Updates	You choose when, or never	Vendor decides, usually continuous
Infrastructure cost	Yours	Vendor’s, included in the fee
If you stop paying	Software keeps working	Paid features generally stop, or the account downgrades
Data location	Your premises	Vendor’s cloud, region depending on the contract
Customisation	Deep, sometimes unlimited	Bounded by what the vendor exposes

Why vendors prefer it

Predictable recurring revenue is easier to forecast, finance and value than lumpy licence sales. It also means one codebase in one environment rather than supporting nine versions across customer hardware, which drastically lowers the cost of shipping changes. Those two facts explain nearly all of the industry’s shift, and neither of them is about customer benefit.

Why customers accepted it

Three real advantages, none of them small:

• No upfront capital. A team can start using a $20/month tool this afternoon without procurement.
• No maintenance burden. No servers, no patching, no upgrade projects.
• Access from anywhere. Which turned out to matter more than anyone predicted in 2019.

The four costs that appear later

Across 500+ tools I’ve bought over the past decade and change, these are the four that show up after signing rather than before, in roughly this order:

1. Price rises at renewal. Subscriptions are repriced; licences are not.
2. Per-seat drift. Costs grow with headcount whether or not usage grows with it.
3. Sprawl. Mid-sized companies routinely discover they’re paying for dozens of overlapping tools nobody owns.
4. Switching cost. Your data exports; your workflows, integrations and institutional habits do not.

Where SaaS is the wrong model

It is not universal, and the exceptions are consistent:

• Strict data residency or air-gapped environments. Some regulated and defence contexts cannot send data to a third party at all.
• Very long-lived, unchanging tools. If the software will not need to change for a decade, you are renting something you could have bought.
• Extreme customisation. When you need to modify behaviour the vendor has not exposed, you need code you control.
• Predictable heavy compute. Above a certain scale, running it yourself is cheaper - which is why some companies move off managed platforms as they grow.

The questions worth asking before you subscribe

Not the feature list. These:

• What does this cost at three times our current size?
• Does the price count users, records, contacts or usage - and which of those grows fastest for us?
• Can we export everything, including configuration, in a format another tool can read?
• What is the notice period, and does the contract auto-renew?
• Who at our company owns this subscription, and what happens when they leave?

If you want the longer version of that list, see our guide to when a free trial is the right way to evaluate SaaS.