SaaS is an efficient software application delivery model where a software vendor develops a web enabled application and hosts and/or operates the application for use by its customers over the Internet. In this model customers pay for using the software and do not own the software of the equipment that runs the software. In the industry there are different levels of service offerings. In the world of SaaS there are different levels of service such as Web Services, Representational State Transfer or real SaaS services with different levels of maturity. In the industry terms such as Application Service Provider, On-Demand computing, Utility computing are being replaces by SaaS.

The semantic usage of SaaS dates back 2000/2001 and first used by Citrix Systems. However, the concept or the usage type of SaaS was first introduced in a SDForum conference in 2005. In simplest sense SaaS is generally associated with business software and is typically considered a low cost way for businesses to obtain the same benefits of commercially licensed and internally deployed and operated software. Obviously in the world of SaaS the cost and the complexity of owning and operating an enterprise class software does not exist.

Early adapters of SaaS business model can be found in several categories such as Customer Relationship Management, Supplier Relationship Management, Human Resources, Expense Management and Accounting. The difference between an SaaS application and other types of software application is the method of delivery. SaaS applications are only available over the web and they can only be used using web browsers. The concept of two tier Client/Server does not exist in the world of SaaS.

Key characteristics of software delivered by SaaS

According to IDC the key characteristics of SaaS applications are:

• network-based access to, and management of, commercially available software
• activities that are managed from central locations rather than at each customer's site, enabling customers to access applications remotely using the Internet
• application delivery that typically is closer to one-to-many model (single instance, multi-tenant architecture) than to one-to-one model, including architecture, pricing, partnering, and management characteristics.
• centralized feature updating, which obviates the need for downloadable patches and upgrades

• Priced per user basis
• There may be additional fees for extra bandwidth and storage
• SaaS revenue streams to the vendor therefore it is lower than traditional license fees
• The SaaS application service fee is recurring, in that sense it is much like maintenance fees for licensed software