Software-as-a-Service, or SaaS for short, is a cloud-based method of providing software to users. SaaS users subscribe to an application rather than purchasing it once and installing it. Users can log into and use a SaaS application from any compatible device over the Internet. The actual application runs in cloud servers that may be far removed from a user's location.
A SaaS application may be accessed through a browser or through an app. Online email applications that users access through a browser, such as Gmail and Office 365, are common examples of SaaS applications.
The difference between SaaS and a software installation on a user's computer is somewhat like the difference between streaming a TV show online and buying all the seasons of the TV show on DVD.
Someone who buys a TV show on DVD only needs to pay for it once; however, they will need to store and maintain the DVDs, and if they change their hardware – for instance, if they replace their DVD player with a Blu-ray player – then they will need to purchase the physical media again. Streaming the show instead means a third party handles all the storage and upgrades, and all a user needs to do is press play. However, streaming is dependent on an Internet connection, and users typically need to pay a recurring monthly fee to maintain their access.
What does 'as a service' mean?
Consider the difference between valet parking and renting a parking spot. Valet parking is a service, while a parking spot is a product, even though both provide the same benefit to the customer: a place to leave their car.
Traditionally, software vendors sold their software to users as a product. However, in the SaaS model they actively provide and maintain the software for their users, via the cloud. They host and maintain the databases and code necessary for the application to run, and they run the application on their servers. Thus, SaaS is more like a service than a product.
What is the cloud?
"The cloud" refers to remote web servers in various data centers that host databases and run application code. Cloud providers deliver their services to customers or end users via the Internet.