Software as a service
In short
Software as a service (SaaS) is software you use over the internet, usually in a web browser, rather than install and run yourself. The provider runs it on its own servers and normally charges a monthly or yearly subscription.
- Also called
- SaaS, Cloud software, Subscription software
- Topic
- The AI business
- Level
- Beginner
- First described
- The widely used formal definition of SaaS was set out by Peter Mell and Timothy Grance of NIST in Special Publication 800-145, The NIST Definition of Cloud Computing, in September 20111.
The standard definition comes from the US standards body NIST. It describes SaaS as using "the provider's applications running on a cloud infrastructure", reached through a web browser or a program interface. The customer does not manage the servers, operating systems or storage underneath1.
NIST sets SaaS beside two other cloud service models. Platform as a service lets customers deploy their own applications onto the provider's platform, and infrastructure as a service rents out raw computing, storage and networks1. With SaaS the provider runs the whole stack.
The business model is subscription. Salesforce, one of the largest SaaS firms, says subscription and support revenues made up about 95 percent of its total revenues in the year to January 20262. Many SaaS products charge per user, a model often called seat-based pricing.
Most AI products reach people as SaaS: a chatbot in a browser, billed monthly. That has also made AI a perceived threat to older SaaS firms. In February 2026, after Anthropic released plug-ins letting its Claude Cowork agent handle legal, sales and data work, the S&P 500 Software and Services Index fell for eight sessions in a row and was down about 20 percent for the year, CNBC reported3. Analysts were split. Wedbush called it an "Armageddon scenario for the sector that is far from reality", while Constellation Research saw lasting pressure on what software firms can charge3.
Example
A small UK accountancy firm pays a monthly fee for each member of staff to log in to online bookkeeping software through a browser. The supplier runs the servers, installs updates and backs up the data, which is what makes it SaaS1. Installing a program from a disc on each office PC would not be.
Why it matters
SaaS is how most businesses now buy software, and how most AI tools are sold. Whether AI agents shrink the number of paid user licences is one of the biggest open questions for the software industry.
Questions people ask
What is the difference between SaaS, PaaS and IaaS?
They differ in how much the provider runs. With SaaS you just use the finished application. With platform as a service you deploy your own apps on the provider's platform. With infrastructure as a service you rent raw computing, storage and networks and manage the rest yourself1.
Is ChatGPT a SaaS product?
In the NIST sense, yes: people use an application that runs on the provider's cloud through a browser or app, without managing any of the servers behind it1.
Will AI kill SaaS?
Nobody knows. Fears that AI agents could replace paid software hit software shares hard in February 2026, but analysts disagreed. Nvidia's Jensen Huang called the idea that AI will replace software "the most illogical thing in the world", while others expect pressure on prices and profits3.