What is a SaaS Subscription?

A SaaS subscription is a software licensing model where cloud-based applications may be leased on a recurring basis and accessed over the internet.

Software as a service (SaaS) has reached widespread popularity throughout nearly every industry. This is because SaaS allows businesses to become more agile; by moving on-premises software solutions into the cloud, businesses can eliminate the expenses and responsibilities associated with managing and maintaining costly in-house servers. At the same time, they can more easily keep updated on new patches and features, increase the speed of their own software deployments and configurations, reduce their dependance on additional IT staff, and free up in-house professionals to focus their efforts on more strategic concerns (rather than having to devote their time to managing the software in question).

In this software model, subscription pricing is a natural choice. Rather than selling perpetual licenses—where users pay a one-time fee for ongoing access to a software solution—SaaS vendors can sell limited-duration subscriptions. These vendors retain full ownership of the software in question, selling permission to access the software, rather than selling the software itself. In return, these vendors generally agree to provide continuous maintenance, repairs, support, and updates, all included in the price of subscription. The vendor also retains the right to make changes to the software and user access at any time, the details of which should be clearly defined in the end user license agreement (EULA).

Modern SaaS companies can trace their origins to the 1950s and 1960s with the development of technology time-sharing. At that time, processor machines were massive and outrageously expensive, making them cost-prohibitive for most companies. To help offset costs, some companies would rent out their technology using time slots to make early, innovative tech usage more affordable for everyone involved. As time went on, technology became increasingly affordable and easier to keep internal. But by the mid-90s and early 2000s, as the internet became more publicly accessible, people and organizations began to rely more and more on online connectivity. Early CRM platforms proved the viability of off-premises software solutions, and today, SaaS is one of the most ubiquitous approaches to software licensing in the world.

Within the umbrella of SaaS subscriptions, there are often different pricing options available. These may include the following:

Annual contracts

Perhaps the most-common form of SaaS subscription model, annual contracts lock users into a specific service for one year. Clients pay a single payment upfront, with the option to renew after 12 months. Although some businesses may prefer this method in that it allows them to operate without having to worry about making monthly or quarterly payments, it may also exacerbate commitment fears among company leaders who have budgets to keep to.

Short-term contracts

Short-term SaaS subscriptions allow organizations to purchase licensing permissions on a quarterly, monthly, or otherwise limited-duration basis. Short-term contracts help eliminate the danger of lock in, instead allowing users to reevaluate and possibly replace underperforming service providers. Additionally, the risk of customer churn forces vendors to continually improve their products. At the same time, vendors can often charge more for their services overall than they would under an annual contract.

Pay per use

Although often considered the foil to standard SaaS subscription models, pay per use may instead be thought of as a subset. In a pay-per-use pricing model, clients are changed based on the amount of data or other resources they use, or on the number of users on a specific account. This allows businesses to scale down without having to worry about paying for services they aren’t using. Vendors may also benefit from this model, as it allows them to match incoming revenue more accurately to expenses.

Micropayments

An extension of the pay-per-use model, micropayments in SaaS subscriptions generally involve very small sums of money in exchange for itemized access to software services. While each individual transaction may amount to less than a dollar (or possibly less than a cent), microtransactions make up for these low amounts through high volume. Spread thin across a large user base, microtransaction may generate significant revenue for the vendor, while the low costs associated with each transaction help keep customers from becoming dissatisfied with the price. However, there is a cost barrier vendors must consider, as many credit cards (and non-credit card transactions) may be incapable of handling such small amounts as individual purchases.

The SaaS subscription model provides several advantages. Here, we outline key benefits worth considering:

Simplified expenses

Subscription SaaS models have a much lower cost outlay than traditional pricing options. Rather than having to budget and account for a large, one-time purchase, costs can be spread out into smaller, expected charges, making it easier to budget for, and much simpler to account for in yearly taxes.

Cost transparency

Because SaaS subscription expenses are recurring and itemized, organizations can easily predict with a high degree of accuracy exactly what their SaaS expenses are going to be for a given time period. Likewise, companies can plan for growth by forecasting future expenses based on current pricing.

Reliable support

For subscription SaaS providers, there is always a very-real threat that a client organization may choose to cut ties and shift over to another vendor. To prevent this from happening, vendors must be capable and willing to provide the best possible support. This also extends to the service itself; if it is not user friendly, intuitive, and powerful, users will simply end their subscription and move on. This means that there is a great deal of competition among subscription SaaS providers to produce a satisfying customer experience.

Unrestricted scalability

When businesses grow or shrink to meet demand, their IT resources need to expand or contract accordingly. Subscription SaaS provides the flexibility to do just that; organizations can easily make changes to their subscription agreements to account for increased or decreased data needs. This ensures that businesses have the optimal amount of software resources available when they need them.

State of the art security

Cyberthreats are active, evolving dangers. To protect themselves, businesses need software security that is just as dynamic. Subscription SaaS vendors’ livelihood depends on their ability to remain a step ahead of the various threat vectors that target their clients. This means not only issuing patches and solutions to any newly discovered weaknesses, but also proactively and tirelessly searching for any undiscovered holes so that they may be blocked off before they can be exploited. In most cases, these updates are deployed automatically, without any interruption of service.

User freedom

In today’s business world, organizations need to be able to pivot quickly to take advantage of new opportunities or respond to emergent situations. Subscription SaaS makes this possible, by giving them the freedom to try new approaches, implement new services, or even trial other vendors to find the solutions best suited to specific needs. And should these trials fail to yield positive results, organizations can simply go back to their previous subscriptions when the current subscription expires. This freedom from vendor and tool lock in is a major advantage that helps set subscription SaaS apart from traditional perpetual licensing.

As SaaS becomes ever more practical and available, organizations are discovering that managing their various subscription and non-subscription licenses is becoming a difficult prospect. ServiceNow, the leader in IT management, provides the solution: SaaS License Management.

Available with ServiceNow Software Asset Management (SAM), SaaS License Management provides businesses of all sizes with the control and visibility they need to detect and optimize their SaaS resources from a single cloud management platform. Identify and eliminate underused or outdated licenses. Apply usage analysis to right size license types. Find and remove SaaS redundances by comparing same-capability software across more than 1500 categories. And through it all, take full control of SaaS spend. ServiceNow makes it all possible.

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