Software as a service is a software licensing and delivery model in which software is licensed on a subscription basis and is centrally hosted. It is sometimes referred to as “on-demand software“, and was formerly referred to as “software plus services” by Microsoft.

Software as a service (SaaS) is a software distribution model in which a third-party provider hosts applications and makes them  available to customers over the Internet. SaaS is one of three main categories of cloud computing, alongside infrastructure as a service (IaaS) and platform as a service (PaaS).

The cloud (or SaaS) model has no physical need for indirect distribution because it is not distributed physically and is deployed almost instantaneously, therefore partners and middlemen of the traditional kind are not necessary.
However, as the market has grown, SaaS and managed service players have been forced to try to redefine their role.

SaaS removes the need for organizations to install and run applications on their own computers or in their own data centers. This eliminates the expense of hardware acquisition, provisioning and maintenance, as well as software licensing, installation and support. Other benefits of the SaaS model include:

Flexible payments: Rather than purchasing software to install, or additional hardware to support it, customers subscribe to a SaaS offering. Generally, they pay for this service on a monthly basis using a pay-as-you-go model. Transitioning costs to a recurring operating expense allows many businesses to exercise better and more predictable budgeting. Users can also terminate SaaS offerings at any time to stop those recurring costs.

Scalable usage: Cloud services like SaaS offer high scalability, which gives customers the option to access more, or fewer, services or features on-demand.