Software as a service (SaaS) is a software distribution model in which applications are hosted by a vendor or service provider and made available to customers over a network, typically the Internet.

SaaS is becoming an increasingly prevalent delivery model as underlying technologies become popular that support web services and Service-Oriented Architecture (SOA) mature and new developmental approaches, such as Ajax.

 Meanwhile, broadband service has become increasingly available to support user access from more areas around the world. SaaS is closely related to the ASP (application service provider) and On Demand Computing software delivery models. Benefits of the SaaS model include:

• easier administration
• automatic updates and patch management
• compatibility: All users will have the same version of software.
• easier collaboration, for the same reason
• global accessibility

There can be seen two slightly different delivery models for SaaS:

The hosted application management (hosted AM) model is similar to ASP: a provider hosts commercially available software for customers and delivers it over the Web.

In the software on demand model, the provider gives customers network-based access to a single copy of an application created specifically for SaaS distribution.

Experts say that SaaS will make up 30 percent of the software market by 2007 and will be worth $10.7 billion by 2009.

The reason for moving away from the term ASP or application service provider is that the ASP generation was merely traditional client-server applications with HTML frontends added as an afterthought. These applications were hosted by third-parties who ordinarily did not have application development expertise, but were only managing servers. Because the applications were not written as net-native applications, performance was poor and application updates were no better than self managed applications.

By comparison, current net-native SaaS applications or independent portions are updated regularly, many daily.

This gradual shift in the terminologies also is a direct reflection of the change in the business requirements demanded by clients. The focus in SaaS is more on what the customer wants rather than what the vendor could give as was the case in an ASP.