While much of the cloud services available replace the need to purchase expensive hardware, Software as a Service (SaaS) supplants the need to physically purchase, install, and deploy application software throughout an organization. In theory, SaaS transfers the costs associated with initial purchase, regular maintenance, and security management to a third-party vendor, which allows the client to expend resources on other, possibly more productive, endeavors.

Put simply, Software-as-a-Service is a licensing model in which access to an application is provided to the customer or client on a subscription basis. A third-party vendor controls access and takes responsibility for security, maintenance, and feature upgrades. The software is located on external servers rather than on servers located in-house and is generally accessed with a web browser over the internet.

While the source code for the SaaS applications is owned and maintained by the vendor, the data going into, and being generated by SaaS applications, is generally the responsibility of the customer or client. The data may be stored locally, in the cloud, or in some combination of both.