The Guide to Software as a Service (SaaS): How Rented Software Runs Our Lives

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Imagine you want to watch a film. A decade or so ago, you’d have popped down to HMV or Blockbuster to buy a DVD. You’d own that physical disc forever. Today, you’re more likely to open Netflix or Disney+, pay a monthly fee, and stream whatever you fancy. You don’t own the film; you’re just paying to access it whenever you want.

In a nutshell, that’s Software as a Service (SaaS).

It’s a simple idea that has completely changed how we work, play, and live. Instead of buying software in a box and installing it on your computer, you ‘rent’ it through the internet. From the emails you send with Gmail to the documents you write in Microsoft 365 and the music you stream on Spotify, SaaS is the quiet engine powering a huge part of your digital life.

But what does it really mean? How did this shift from owning to renting software happen? And what does it mean for British businesses, from a start-up in Shoreditch to a family-run bakery in the Cotswolds?

This guide will explain everything. We’ll look at where SaaS came from, how it works, why it’s become so popular, and what the future holds. Think of it as your ultimate map to understanding one of the most important technology trends of our time.

What on Earth is SaaS, Really? A Simple Breakdown

Let’s cut through the jargon. Software as a Service (SaaS) is a way of delivering software over the internet. Instead of installing and maintaining software on your own computer or server, you simply access it through a web browser or an app on your phone.

Think of it like renting a fully furnished flat instead of buying an empty house.

• Buying a House (Traditional Software): You buy the property (the software licence). You’re responsible for everything: the plumbing (updates), the security (protecting against viruses), the decorating (customisation), and fixing the roof when it leaks (maintenance). It’s a big upfront cost and a lot of ongoing work.
• Renting a Flat (SaaS): You pay a monthly rent (a subscription fee). The landlord (the SaaS provider) takes care of everything else. The heating, the water, the security—it’s all included. If the boiler breaks, you just call them. You get to live in the house without the hassle of owning it.

With SaaS, a company builds and hosts the software on its own powerful servers. You, the user, just log in and use it. The provider handles all the tricky stuff behind the scenes: updates, security patches, backups, and making sure it all runs smoothly.

This model is sometimes called ‘on-demand software’ or ‘web-based software’, and it’s the foundation for countless tools we use every single day.

The Three Main Flavours of Cloud Computing

SaaS is part of a bigger family called cloud computing. You’ve probably heard the term ‘the cloud’—it’s just a friendly name for a global network of servers that store and manage data. There are three main types of cloud computing service, and it’s helpful to know the difference.

Imagine you want to start a pizza business. You have three options:

1. On-Premises (The DIY Approach): You build your own kitchen from scratch. You buy the oven, the fridge, the tables, and all the ingredients. You’re in complete control, but it’s expensive and you have to manage everything yourself. This is like old-school IT, where a company owned and managed all its own servers and software.
2. Infrastructure as a Service (IaaS): You rent a fully equipped kitchen space. The oven and fridge are already there, but you have to bring your own ingredients (data) and recipes (applications) and cook the pizza yourself. Companies like Amazon Web Services (AWS) provide this. They give you the basic building blocks—servers, storage, networking—and you build whatever you want on top. It’s for businesses that want control without owning the physical hardware.
3. Platform as a Service (PaaS): You get a pizza delivery service to handle everything except the final product. They provide the kitchen and the ingredients, and they deliver it. You just have to design the pizza itself—the toppings and the recipe. Google App Engine is an example. It gives developers a platform to build and run their applications without worrying about the underlying infrastructure.
4. Software as a Service (SaaS): You just order a pizza from a restaurant. You don’t worry about the kitchen, the ingredients, or the cooking. You just tell them what you want, and a ready-to-eat pizza arrives at your door. This is SaaS. The provider manages everything—the software, the platform, the infrastructure. You just use the final product. Examples include Salesforce, Slack, and Dropbox.

For most people and most businesses, SaaS is the simplest and most convenient option. You get the benefits of powerful software without any of the headaches.

From Clunky Boxes to The Cloud: A Very British History of Software

The idea of renting software didn’t just appear overnight. It’s the result of decades of technological evolution, with some key moments happening right here in the UK.

The Dawn of Computing: Mainframes and Time-Sharing

In the 1960s, computers were enormous, room-sized machines called mainframes. They were incredibly expensive, and only huge corporations, universities, and governments could afford them. A single mainframe could cost millions of pounds.

To make them more cost-effective, a concept called ‘time-sharing’ was born. A British computer scientist named Christopher Strachey was a pioneer in this field. The idea was to let multiple users connect to a single mainframe computer through terminals. Each user got a small ‘slice’ of the computer’s processing power.

This was a bit like a primitive version of SaaS. Users didn’t own the computer; they just paid to access its power. It was the first hint that computing could be delivered as a utility, like electricity or water.

The 1980s and 90s: The PC Revolution and Shrink-Wrapped Software

Then came the personal computer (PC) revolution in the 1980s. Suddenly, companies like IBM, Apple, and Britain’s own Acorn Computers (famous for the BBC Micro) were putting computers on people’s desks.

This created a whole new industry: shrink-wrapped software. You’d go to a shop like PC World, buy a box containing floppy disks or a CD-ROM, take it home, and install it. This is how millions of people first used iconic programs like Microsoft Word, Adobe Photoshop, and Sage accounting software (a British success story from Newcastle).

The model was simple: you bought a licence to use the software, and you owned it forever. But it had its problems.

• It was expensive. A single copy of Microsoft Office could cost hundreds of pounds.
• Updates were a pain. You’d have to buy a new version every few years to get the latest features.
• It was inflexible. Your licence was often tied to a single computer.
• Piracy was rampant. It was easy to copy and share disks with friends.

The Dot-Com Boom and the Birth of the ASP

In the late 1990s, the internet started to take off. This led to a new idea: the Application Service Provider (ASP). ASPs would host software on their own servers and businesses would access it over the internet for a monthly fee.

Sound familiar? It was very close to the modern SaaS model. However, the technology wasn’t quite ready. Internet connections were slow and unreliable (remember the sound of a dial-up modem?), and the software wasn’t designed to be delivered this way. Many ASP companies crashed and burned in the dot-com bust of the early 2000s.

The True Pioneer: Salesforce

The company that really cracked the code was Salesforce. In 1999, its founder, Marc Benioff, had a bold vision: to make business software as easy to use as buying a book on Amazon.

Salesforce launched a Customer Relationship Management (CRM) tool that was delivered entirely over the web. They famously had a ‘No Software’ logo, a direct challenge to the old model of buying and installing it. They proved that you could build a successful, multi-billion-dollar company by delivering software as a service. They laid the groundwork for everything that came after.

From there, the floodgates opened. The rise of fast broadband, the development of secure cloud infrastructure by giants like Amazon, and the explosion of mobile devices created the perfect storm for SaaS to thrive. Today, it’s the default way we get our software.

How Does SaaS Actually Work? The Nuts and Bolts

So, what’s going on behind the scenes when you log into a SaaS application? It all comes down to a few clever bits of architecture.

The Magic of Multi-Tenancy

The key concept that makes SaaS work is called multi-tenancy. It sounds complicated, but the idea is simple.

Imagine an apartment block. All the residents live in the same building (the infrastructure) and share the same basic services like water, electricity, and security (the platform). However, each resident has their own private, secure flat (their data and configuration). They can decorate their flat however they like, but they all share the underlying structure.

This is how multi-tenancy works. A single instance of the software and its supporting infrastructure serves multiple customers (or ‘tenants’). Each tenant’s data is isolated and remains invisible to other tenants.

This is incredibly efficient. The SaaS provider only has to maintain one version of the application, not thousands of different ones. When they release an update, everyone gets it instantly and automatically. This is why your Netflix app is always up-to-date without you having to do anything.

This model is what allows SaaS companies to offer powerful software at a low monthly cost. They benefit from huge economies of scale, and they pass those savings on to the customer.

Data Security and Privacy: The Crown Jewels

Of course, if you’re trusting a third party with your data—whether it’s personal photos or sensitive business information—you need to know it’s safe. Security is the number one concern for anyone considering a SaaS product.

SaaS providers invest enormous amounts of money and expertise into security, often far more than a typical small or medium-sized British business could afford. They employ teams of security experts and use state-of-the-art technology to protect their systems.

Key security measures include:

• Data Encryption: Your data is scrambled both when it’s being sent over the internet and when it’s stored on their servers, making it unreadable to anyone without the right key.
• Identity and Access Management: Strict controls to ensure that only authorised users can access your data. This often includes features like two-factor authentication (2FA), where you need a password and a code from your phone to log in.
• Regular Security Audits: Independent experts are brought in to test the systems for vulnerabilities.
• Compliance with Regulations: For businesses in the UK and Europe, this is crucial. SaaS providers must comply with the General Data Protection Regulation (GDPR), which sets strict rules on how personal data is collected, stored, and used. Reputable providers will be transparent about their GDPR compliance.

While no system is 100% unhackable, using a major SaaS provider is often more secure than trying to manage everything yourself.

The Pros and Cons of SaaS: Is It Right for You?

Like anything, the SaaS model has its upsides and downsides. Let’s break them down.

The Bright Side: Why Everyone Loves SaaS

1. Lower Upfront Costs: This is the big one, especially for start-ups and small businesses. Instead of a huge one-off payment for a software licence, you pay a predictable monthly or annual fee. This shifts the cost from a Capital Expenditure (CapEx) to an Operating Expenditure (OpEx), which is often much easier for businesses to manage.
2. Accessibility from Anywhere: As long as you have an internet connection, you can access your software and data from your office computer, your laptop at home, or your phone on a train to Manchester. This has been a game-changer for flexible and remote working.
3. Painless Updates: You are always on the latest version of the software. Updates happen automatically in the background, without you having to lift a finger. You get new features and security patches as soon as they’re released.
4. Scalability: SaaS products are designed to grow with you. If you hire new employees, you can usually add new users with just a few clicks. You only pay for what you need, when you need it.
5. Easy to Use and Implement: Most SaaS applications are designed to be user-friendly and intuitive. Because they run in a web browser, there’s often no complex installation process. You can be up and running in minutes.

The Not-So-Bright Side: What to Watch Out For

1. Requires an Internet Connection: The most obvious drawback. If your internet goes down, you can’t access your software. For critical business functions, this can be a real problem, though some apps have offline modes.
2. Less Control and Customisation: You are using a one-size-fits-many solution. While you can usually configure settings, you can’t make fundamental changes to the software’s core features. If you need a highly specialised, bespoke solution, SaaS might not be the right fit.
3. Data Security Concerns: While providers have excellent security, you are still handing your data over to a third party. It’s vital to choose a reputable provider and understand their security policies and where your data is stored (data sovereignty can be a key GDPR issue).
4. Long-Term Costs: While the upfront cost is low, the subscription fees can add up over time. Over many years, you might end up paying more than you would have for a one-off licence. You need to calculate the Total Cost of Ownership (TCO).
5. Vendor Lock-In: It can be difficult to move your data from one SaaS provider to another. Before you commit, it’s important to check their policies on data export. You don’t want your data to be held hostage.

The SaaS Revolution in the UK: Transforming British Business

The shift to SaaS has had a profound impact on the British economy and the way we work.

Powering the UK’s Start-up Scene

For the thousands of start-ups launching every year in tech hubs like London, Manchester, and Edinburgh, SaaS is the great enabler. It levels the playing field, giving small companies access to the same powerful tools that were once reserved for corporate giants.

A new business can get everything it needs to operate on a subscription basis:

• Accounting: Xero, QuickBooks, FreeAgent (a British company)
• Marketing: HubSpot, Mailchimp
• Communication: Slack, Microsoft Teams
• Project Management: Trello, Asana, Monday.com
• File Storage: Dropbox, Google Drive

This allows them to be nimble, keep costs down, and focus on growing their business instead of managing IT.

A Case Study: A Local Bakery in Cornwall

Let’s imagine a small, independent bakery in St Ives. Ten years ago, their operations would have been entirely manual. The owner would have used a paper ledger for accounts, a physical diary for orders, and a cash register at the till.

Today, that same bakery can be powered by SaaS:

• They use a Square or iZettle terminal to take card payments. This is a SaaS product that processes payments and tracks sales data in the cloud.
• Their accounting is done on Xero, which links directly to their business bank account, making bookkeeping and VAT returns much simpler.
• They use Shopify to run a simple online shop, allowing customers to order celebration cakes online.
• They manage their staff rotas using an app like Deputy.
• They use Mailchimp to send a monthly newsletter to their loyal customers.

All of this is available for a few hundred pounds a month. The owner can check her sales figures on her phone while walking the dog on the beach. That’s the transformative power of SaaS for small British businesses.

The Rise of the British SaaS Industry

The UK isn’t just a consumer of SaaS; it’s a major creator. The UK has a thriving tech scene that has produced many world-class SaaS companies. You might be surprised how many of the tools you use were born in Britain.

• Sage: A FTSE 100 company from Newcastle, it has successfully transitioned from selling accounting software in a box to a major cloud SaaS provider.
• GoCardless: A London-based FinTech company that makes it easy for businesses to collect recurring payments.
• Revolut: While known as a digital bank, its ‘Revolut Business’ offering is a powerful SaaS platform for managing company finances.
• Graphcore: A Bristol-based company building hardware for artificial intelligence, whose platform is accessed by developers as a service.

The UK government has actively supported this ecosystem through initiatives like the Seed Enterprise Investment Scheme (SEIS), which encourages investment in early-stage companies.

The Future of SaaS: What’s Next?

The world of SaaS is constantly evolving. Here are some of the key trends that will shape its future.

1. The Rise of Artificial Intelligence (AI)

AI is being baked into almost every SaaS product. This isn’t about robots taking over; it’s about making software smarter and more helpful.

• Your CRM will automatically analyse sales data and predict which deals are most likely to close.
• Your project management tool will suggest how to allocate resources more efficiently.
• Your marketing software will write email subject lines that are more likely to get opened.

Companies like OpenAI (creators of ChatGPT) and Google are providing AI capabilities as a platform, allowing SaaS developers to easily add incredible intelligence to their applications.

2. Vertical SaaS: Niche Solutions for Specific Industries

So far, most successful SaaS companies have been horizontal—they provide a tool that can be used by any type of business (like Slack or Dropbox).

The next big wave is vertical SaaS. These are tools designed for the specific needs of a single industry. For example:

• Procore: A SaaS platform for the construction industry.
• Toast: A platform for restaurants that combines payments, online ordering, and staff management.
• Veeva: A cloud platform specifically for the pharmaceutical and life sciences industry.

These platforms can solve the unique challenges of an industry in a way that a generic tool can’t. We will see more and more of these highly specialised solutions for every sector, from British farming to law.

3. Low-Code and No-Code Platforms

These platforms allow people with no programming skills to build and customise their own applications using simple drag-and-drop interfaces. Companies like Airtable and Zapier are empowering ‘citizen developers’ to create their own workflows and connect different SaaS apps together.

This means a small business owner in Leeds could build a custom app to manage her inventory without hiring an expensive developer. It’s putting the power of software creation into the hands of more people.

Conclusion: The Invisible Infrastructure of Modern Life

Software as a Service is more than just a business model; it’s a fundamental shift in our relationship with technology. We’ve moved from being owners of clunky, static products to subscribers of dynamic, ever-improving services.

This shift has democratised technology, giving the smallest British businesses the same firepower as the largest corporations. It has enabled new ways of working, allowing for flexibility and collaboration that would have been unimaginable a generation ago. And it has become the invisible, indispensable plumbing that underpins our digital lives.

The next time you check your email, stream a song, or collaborate on a document with a colleague, take a moment to appreciate the quiet revolution that made it possible. You’re not just using software; you’re tapping into a service—a powerful, global infrastructure that’s always on, always up-to-date, and always there when you need it. And that, in a nutshell, is the simple, world-changing magic of SaaS.

Further Reading

For those who wish to delve deeper, these resources offer authoritative information on SaaS and cloud computing:

• TechCrunch: A leading voice for technology news, with excellent coverage of the SaaS industry.
• Saastr: A community and resource hub for SaaS founders and executives, with a wealth of knowledge.
• National Cyber Security Centre (NCSC): The UK government’s authority on cyber security, offering essential guidance on choosing secure cloud services.
• Information Commissioner’s Office (ICO): The UK’s data protection regulator, providing definitive information on GDPR compliance.