Business Trends

What is Software as a Service? IaaS, PaaS and SaaS Unwrapped

A comprehensive guide to IaaS, PaaS and SaaS, and their benefits to business.

What is Software as a Service? IaaS, PaaS and SaaS Unwrapped
9 minute
What is Software as a Service? IaaS, PaaS and SaaS Unwrapped

Introduction to IaaS, PaaS, SaaS

SaaS, or Software as a Service, and its related acronyms (PaaS, or Platform as a Service, IaaS, Infrastructure as a Service) are already an essential aspect to almost all businesses in operation today. These services fall under the category of cloud-based computing solutions, which have seen an astronomical rise in recent years. They allow companies to access and outsource specialised IT services through the internet, to enhance their productivity, streamline workflows, provide storage and data, open communication channels among a whole host of other purposes.

But what exactly is SaaS? What are the pros and cons of such services, and how can they help your business? First, let’s take an overview of how cloud computing rose to dominate the market, and become an integral asset in running a business.

What is Cloud Computing?

The outsourcing of complex IT tasks is hardly a new concept; the recent move towards cloud-based services is only continuing in the tradition of ASP (‘application service provider’) computer models, a term that was coined in the 90s to denote the specialised service provided by computer engineers to businesses. With the expansion and fragmentation of the internet and the ecosystem that surrounds it, service provision has grown to cater to almost every business need.

A surprise jumpstart for the rise in XaaS (or ‘anything’ as a Service) was the 2008 financial crash. With an uncertain financial future ahead, services rather than products became a more attractive option for businesses, while pay-as-you-go subscriptions allowed for a more flexible way of accessing a service without committing to the vast upfront costs of the infrastructure. 

The technology only grew more sophisticated, as high-end devices such as laptops and smartphones with ever-faster network connectivity became household items, while the customer likewise became more sophisticated in their interaction with and application of such devices. The services associated with these products (think broadband and network packages) accelerated the move towards servitisation, with emphasis shifting to vendor-customer relationships, personalised deals and rolling contracts, specialised applications and democratised software development. 

Another more recent boost to cloud computing has been the worldwide pandemic that has seen millions start working from home, a trend that has produced a new hybrid work culture where employees move flexibly (and ideally, seamlessly) between the home and the office. In this scenario, the benefits of internet-based services and remote business networks, accessible from anywhere, are self-evident. 

And the figures speak for themselves. The SaaS market alone is growing some 18% a year, and that growth is actually slowing compared to its DaaS and IaaS counterparts, which are looking to double in the next few years. The projected market for cloud computing is expected to reach $947.3 billion by 2026, according to Gartner, with public cloud spending to exceed 45% of all enterprise spend (up from 17% in 2021). It is safe to assume that a considerable portion of that will be wasted tech spend: with so much money spent on cloud computing, and such a wide market for services, it is important to be clued up on the facts of XaaS, to optimise cloud computing for your business, and beware the pitfalls that come with subscription-based services. Read on to explore the variety of cloud computing services currently available.

What is SaaS, PaaS and IaaS? 

XaaS (X-as-a-Service)

In its most general sense, XaaS is the outsourcing of IT services to third-party vendors, which are accessible to users over the internet. This initially referred mainly to core engineering and sales purposes, but since has broadened to include a vast array of applications. These services are sold on a subscription basis and operated through the cloud. This means that the service is run by the third party, who implement updates and developments on a continual basis.

SaaS (Software-as-a-Service)

SaaS, as a type of XaaS, refers to any software accessed over the internet, provided as part of a subscription package. This can range from communications to business apps to equipment software. 

SaaS is still currently the largest of the cloud service subcategories, taking the biggest share of the XaaS market, though – as mentioned – its growth is slowing. The strength of SaaS comes from its range of applications, which can be further divided into horizontal and vertical categories. Horizontal SaaS has broad demographic appeal – for instance, communications applications like Slack or Skype, or commercial apps like Salesforce, are used by a range of industries for similar purposes. Vertical SaaS, on the other hand, are developed in response to specific industry needs; often found in the fields of healthcare, insurance or trade, they’ll have a niche market with low customer churn.

SaaS Examples

Commonly used SaaS applications include: Skype, Slack, Microsoft Teams, Shopify, Salesforce, the Adobe Creative Suite, GitLab.

PaaS (Platform-as-a-Service)

PaaS sits at a more fundamental level than SaaS, in providing an environment for application and software development and deployment in the cloud. In providing the base framework, developers can build on top of existing code to further develop or customise applications for their enterprise. 

PaaS provides the core infrastructure – servers, storage, and networks – as well as the middleware, or software components, and operating system, in a development workflow. This helps speed up the process of creating quality applications, in any coding language, making accessible the tools that would otherwise be the reserve of highly skilled developers. Applications can then be used for a range of purposes, including (but not limited to) data mining and visualisation, business intelligence, workflow, security and scheduling. 

PaaS Examples

Salesforce’s Lightning Platform, Google App Engine and OpenShift are all examples of PaaS, though other options, such as Dokku, operate on a smaller scale for a lower price.

IaaS (Infrastructure-as-a-Service)

IaaS is projected to have the second largest growth in the XaaS market, and considering the developments in the sector, it is easy to see why. Infrastructure spend (servers, storage and networks) are some of the largest overheads businesses face, and that’s before approaching maintenance costs and the need for IT specialists to manage and upkeep this tech. 

IaaS works to migrate on-premise infrastructure to the cloud, outsourcing cumbersome and expensive (yet essential) parts of a business to specialists with expertise and storage facilities, who can perform regular security checks, backups and upgrades. The need for office space is diminished, and security concerns and maintenance costs can be offloaded to the vendor, who also provides any tech support. 

The potential for growth and improved solutions is perhaps the most exciting aspect of IaaS, as it sits at the forefront of machine learning and high tech development; Microsoft Azure, for instance, provides access to supercomputers, able to solve complex problems relating to big data that would simply not be feasible with on-site resources. The possibilities for business arising from advanced data analytics only begin at business intelligence, strategy and cost savings – the future of this technology has possibly far-reaching and profound implications.

IaaS examples

Perhaps the most well-known example of IaaS is Amazon Web Services, or AWS. Others include the (already mentioned) Microsoft Azure and Cisco Metacloud.

Diagram showing the differences between IaaS, PaaS, SaaS

What is DaaS, BPaaS, FaaS, NaaS?

While SaaS, PaaS and IaaS are the most commonly used and understood of the cloud services, the ecosystem is continually developing and expanding. Below are a few examples of other cloud services.

DaaS (Desktop-as-a-Service)

Many businesses already employ Desktop-as-a-Service, or DaaS (e.g. Windows Virtual Desktop, Citrix Workspace). It is the fastest growing cloud computing category, as the demands of working from home have accelerated the requirement of secure remote access to desktop applications and services.  

BPaaS (Business Process-as-a-Service)

Business Process-as-a-Service, or BPaaS, delivers the tools required for Business Process, outsourced to the cloud, including services provided by people (such as customer support on a website) and other back-office operations, often through automation and robotics. 

FaaS (Function-as-a-Service)

Function-as-a-Service, or FaaS, is a tool for web developers to access ‘on-event’ functions created by other developers; this code automates an event in response to user interaction, for instance, an automated email in response to a button being clicked on a website. It is similar to PaaS in the sense that it rests on the work of others for the use of developers in their own systems. 

NaaS (Network--as-a-Service)

Network-as-a-Service, or NaaS, migrates a company’s network to the cloud. It removes all the hardware and knowledge requirements of running and maintaining a secure network, outsourcing and centralising firewalls, VPNs and telecommunications (WAN) architecture. Examples of NaaS include Cisco, Aryaka and Cloudflare, to name a few.

Key Benefits of SaaS, PaaS, IaaS, XaaS

All XaaS solutions perform different functions, and each product within each category will have its own unique benefits and specifications. Overall, however, the benefits of cloud-based computing can be loosely broken down into flexibility, scalability, accessibility, data and analytics and security. These all have the potential to improve the cost effectiveness, and efficiency, of a business.

1. CAPEX to OPEX: Reduce Overhead Costs

The benefits listed above, and explored below, signal the move from a CAPEX to an OPEX business model: money once spent on capital – in-house infrastructure, hardware, equipment – is shifted to operational expenditure, or the day-to-day costs of running a business, including those of essential services and tech spend. By opting for SaaS, PaaS and IaaS solutions, these operations are outsourced to third parties with specialist knowledge and resources and the capacity to develop and expand, and paid for on a contractual or pay-as-you-go basis. 

This suits the needs of companies throughout times of economic uncertainty, and provides fertile ground for startups and SMBs that otherwise couldn’t afford the infrastructural overheads. But all businesses, from startup to enterprise level, can benefit from cost-cutting, streamlining, improving efficiency and productivity that cloud-based services allow.

2. Flexibility

SaaS solutions and cloud computing offer unparalleled flexibility in technology spend and deployment for businesses. 

Rather than committing to a particular product and buying outright, a company can trial various solutions, find a package tailored to their needs, and pay a lower, ongoing cost. Most XaaS vendors offer a range of prices for their product, with varying levels of access to features, storage or availability. 

Since the market is young and expansive – and developing quickly – this flexibility is paramount in finding the most appropriate service and best deal. This is where horizontal and vertical SaaS come in: switching providers is more feasible should a product emerge with industry-specific benefits and solutions, which cater to niche demands. 

Many XaaS vendors offer a highly personalised service, particularly those in the early stages of development, while engaging in active dialogue with bosses and industry leaders to evolve and improve their product. And of course, it is much simpler to cancel a subscription than it is to upgrade or replace obsolescent tech. 

3. Accessibility

The flexibility of SaaS and other cloud services is key to its next benefit: accessibility. 

As previously mentioned, the easing of the initial financial strain of starting a business lends more accessibility to smaller companies or startups with less money to spend on specialist equipment and knowledge. 

However, beyond just the financial accessibility that cloud-based computing brings, the simple matter of space is likewise made flexible and accessible. With a decentralised network, and data and storage facilities outsourced, hybrid working across multiple regions becomes straightforward and secure, and offers employees flexibility in where they decide to work. Even the need for office space is diminished, some businesses choosing to forego it altogether. Vendors provide IT support and maintenance, allowing their customers to focus resources on strategy and operations, while minimising capital expenditure required for on-premise services. 

From a technical point of view, XaaS can be used on any device with an internet connection, regardless of brand or operating system. In the instance of PaaS, in providing the building blocks for application development (regardless of coding language) the process is democratised, and made accessible to developers of varying levels of technical capability. 

This accessibility also opens the doors for inclusivity: without the barriers of geography and technology, employers can be more adventurous with where and how they recruit staff.  

4. Scalability

Another key benefit of XaaS is its scalability. 

Cloud-based infrastructure can support fluctuating demands and workloads, instantly scaling as needed. This automatic scaling is efficient and cost effective, since businesses neither spend money on idle capabilities nor suffer the backlogs and slowdowns of a stretched system. 

It is also possible to apply this scalability to the growth of a business. The flexible billing methods of most cloud providers allow the upgrading of packages and features to meet new requirements as companies grow and evolve. Likewise, service providers can scale their products, introducing new features and functionality or expanding capacity that users can access instantly, or else upgrade to. 

The contract between vendor and customer can thus be seen as an investment whose return includes improved products and services, which at the very least automatically update with bug fixes and tighter security measures. 

5. Security

And this brings us to the next benefit: security. 

One of the biggest risks any company faces is the compromisation of sensitive data. Outsourcing this kind of information to third parties can seem even more risky, however most XaaS providers (particularly IaaS) have specialised security capabilities and adhere to rigorous compliance checks, with sophisticated data protection proficiencies that far outcompete most SMBs and enterprises. 

There is always the option to take a hybrid approach to company data security, such as choosing to migrate some information to the cloud while keeping that which is more sensitive on-premises. For most businesses, however, cloud data security is an attractive feature of as-a-Service options.

6. Data and Analytics

The opportunities afforded by the capture of data for analytics that cloud services can provide is the last benefit discussed in this article. 

XaaS (and in particular, PaaS) can be used for the mining of data on anything – user tracking, interaction or spending – and then present the analysis of this data, in reports, descriptive analytics and data visualisation. 

The flexibility of cloud services allows these services to be tailored for specific business needs. The benefits of data accumulation and analysis are well established, and have proven to help everything from productivity and reducing costs to branding and user engagement, by providing insights into business intelligence and operations. In centralising and streamlining this information, what once took entire teams of specialists to decode can now be captured automatically and made accessible to anyone with the right tools.

Disadvantages of SaaS, PaaS, IaaS

While the benefits of SaaS and other cloud services are certainly numerous, there are downsides to migrating operations to the cloud. Bear these in mind when shopping for cloud services, and always plan for the worst-case scenario.

1. Reliance on Internet

Simply, yet crucially, the use of XaaS and all cloud services relies completely on an internet connection. While the technology for broadband and network speeds continues to improve, this can still prove to be a liability, particularly if hybrid working means employees are using domestic wifi rather than an enterprise network, or if your region has low connectivity. Even enterprise networks, under high usage, can suffer lags and outages.

The same risks apply on the vendor side: should a connectivity error occur from the provider, it is entirely out of your control to manage and fix. 

As such, it is important to have backup systems in place, and to prepare for network reboots, outages and downtime.

2. Security and Control

Inherent with any cloud service is the outsourcing not only of operations and functionality, but also of control, to third parties. 

The most critical risk concerns sensitive data. GDPR laws maintain that the data controller (or whoever controls where and how data is processed) is responsible for the security and management of company and employee data; should that security be breached, and sensitive information leaked, the data controller remains responsible, even if the processing, storage and protection of that data is managed by a third party.

Cloud services are often more secure and stringently regulated than on-premise data management, with regular security checks and updates. However, this is a risk to consider if you are outsourcing sensitive information and it is always worth doing thorough research before committing to any one cloud solution.

The risks of outsourcing control also apply to the general maintenance and functionality of an application. Be aware that updates, fee increases and feature changes are controlled by the service provider. Here, your power lies in your contract. Read it through carefully, and don’t hesitate to query or suggest changes to the small print.

3. Lack of Coding Transparency

This point may not apply to all companies, but for those in which a strong team of developers rely on PaaS and other functionality services, the lack of transparency around the code on top of which they build could be a disadvantage. 

There is the potential to unknowingly build in limitations to software frameworks customised for a business, only to discover the limitations further down the line. This can be costly for time and money, especially if much of the framework has been developed before its limitations are uncovered.

4. Shadow IT

Unregulated, unmonitored and unaccounted for IT subscriptions, services and hardware within an institution is known as ‘shadow IT’. 

As a business grows and fragments, it becomes more difficult for an IT or finance department to oversee all transactions and contracts with cloud services, owing to their accessibility and the ease with which employees are able to sign themselves and other colleagues up to these services. Without this formal oversight – particularly for SaaS subscriptions – underutilised, obsolescent or duplicate software can quickly build, and their costs add up.

This can not only cost a business financially, but it can also expose the company to security risks and the potential loss of data. Unregulated and poorly managed software can be a gateway for hackers and cybercriminals.

Therefore, it is of high importance to be rigorous and strategic with your oversight and implementation of cloud services. Ensure there are tight protocols and checks on contracts to vendors, particularly if access to a company credit card is required.

Getting Started with SaaS, PaaS and IaaS

By 2025, the subscription economy is expected to more than double from 2021 levels to reach $1.5 trillion. Cloud services are a large part of this economy, becoming ever more integral to business, but navigating this expansive market can be a challenge. To reap the full advantages – and dodge the pitfalls – of cloud-based computing, it is important to approach the implementation and deployment of such services strategically. And of course, remember to communicate and collaborate with IT staff and engineers on any cloud migration strategy.

1. Analyse Your Business Needs

The first stage in implementing cloud service strategy for your business is to first assess the needs of your company, whether that be the move towards a hybrid work environment, consolidating your finances, subscription management, developing new software or cutting down on capital expenditure. 

Establish the utility and value of each goal versus the estimated cost to introduce such measures. Check for overlapping functions and features between speculative services, and investigate any potential package options that include and streamline the solutions you’re after (for instance, through Microsoft Azure or G Suite). 

2. Perform a Risk Assessment

The importance of carrying out a risk assessment before signing up to cloud services has already been briefly mentioned above. This is especially true to large cloud migration strategies, such as implementing a new IaaS solution for your business, which involves moving huge amounts of sensitive data to the cloud. Make sure you are aware of any risks and have options in place to reduce their likelihood and impact before committing to a particular service.

3. Negotiate SaaS Contracts

Familiarise yourself with GDPR terms and conditions before negotiating a contract with your provider. Make sure to set terms that ensure you are alerted to data leaks or security breaches within an agreed time period from such breaches being discovered. This is something some providers will try to avoid getting locked into, but is essential to the role of data controller to enforce.

Remember the strength in your position as the customer. SaaS companies fear customer churn, and are likely to compromise to win your business. Talk directly with the vendor’s sales representative to get the full breakdown of assets, features and limitations of a prospective product. See how far you can tailor a contract to suit your specific business needs, and determine the flexibility of your contract. 

Beware of vendor lock-in: since cloud services are a quickly developing market, you don’t want to limit yourself by locking into a 5-year contract when a better product may emerge in the next two. 

SaaS, PaaS and IaaS Pricing Models

The next point to consider is pricing. Below we will examine the various pricing options for SaaS, PaaS, IaaS and XaaS solutions.

1. Per User Pricing

This is the most common pricing for SaaS, whereby the cost of your subscription scales according to the number of users within an organisation signed up to the service, usually billed every month. This is a straightforward method of pricing, easy to forecast and likely aligns with what you can afford as a business. However – especially for large organisations – this may not necessarily be the best value option.

Adobe and Salesforce are two SaaS examples that use a ‘per user’ pricing model.

2. Flat Rate Pricing

Flat rate subscriptions charge by a simple flat rate that doesn’t alter each month, regardless of usage. These deals tend to be targeted at SMBs and startups, since this increases the value for money of the product, as opposed to a large enterprise paying the same fee for much greater usage.

3. Usage Based Pricing: Pay-As-You-Go

The pay-as-you-go model charges precisely for how much a service is used and consumed, on a rolling basis. This pricing option is most often used within IaaS and PaaS (such as AWS) as well as for social media tools. The flexibility of this model is particularly suitable for functions with volatile demand, though this is a double-edged sword as it likewise makes costs difficult to predict month to month.

With few upfront costs and customisable features, it is a good option for SMBs and startups, as well as for testing and developing applications.  

4. Tiered Pricing 

This is also a common option found among SaaS and other cloud services. Tiered pricing models usually offer a low, middle and high price point for different packages. This can be a great option for all businesses, as it provides the option to upgrade should your business grow, or to downscale should certain features and services become redundant to your business needs. 

It is also a straightforward model to follow, however extensive possibilities for customisation can sometimes make choosing a package confusing, and obscure costs.

5. Per Active User Pricing

Similar to the per user pricing model, per active user is yet more cost efficient in that it charges in accordance with the amount a service is actually being used. This is attractive to large businesses in particular, which can absorb the price fluctuations from month to month, and where per user pricing could be inefficient if the service isn’t used by all employees signed up. Slack is an example of a SaaS that adheres to this pricing model. 

6. Per Feature

Per feature pricing works similarly to tiered pricing, in the sense that it is possible to opt-in and out of certain functionalities, though this model is more flexible and can be tailored more specifically for the needs of a business. It is found particularly among horizontal SaaS, such as Dropbox or Evernote, since these broad stroke services must allow different organisations to curate their package according to their needs. 

This flexibility makes it an attractive pricing strategy, though if only a minimal range of features is required by a business, the full benefits of such a service may not be felt.

What to Watch For in SaaS Subscriptions

Now the main pricing models have been discussed, it is important to be aware of certain marketing strategies vendors may employ to win business.

1. Vendor Lock-In

Previously mentioned is vendor lock-in. Some contracts may offer better deals and discounts as part of a longer licence agreement, which may lock you into anything from one to five-year contract lengths. Not only are more sophisticated and cheaper options likely to appear in this time, the deals you are locked into may contain features that helped sell the product, but turn out to be largely useless to your business. Beware of bundles: check the features do not overlap or contradict each other, and look into trial options before committing to a long-term contract.

Loosely related to vendor lock-in are automatic rollovers from free trials. Watch out for trials that require a credit card to sign up for; should you miss the end date (you are unlikely to be warned of it), automatic charges will apply and you’ll be rolled into a subscription service. This is often how shadow IT grows within a company.

2. Penetration and Captive Pricing

Both these strategies attempt to lure customers to a product, only to increase prices further down the line. This can either happen whereby a new product aims to penetrate the market by offering a good value product, drawing in enough customers before introducing new costs; or, in the case of captive pricing, once the customer is signed up it becomes evident that the product is only valuable once additional features, with additional costs, are added to the package.

3. Look for Value Based Pricing

A vendor with pride in their product will price their service accordingly. This is something to bear in mind when shopping for XaaS services. If a product is priced very high, it may be an indication not of value, but of prestige pricing, whereby a product is priced expensively to imply quality that it might not live up to. In this vein, many of those products scale down in price further down the line, to fool buyers into thinking they’ve scored a deal on a quality product. 

If you are interested in a particular expensive product, it may be worth sitting on the decision to buy to see how its prices alter in later months.

4. Trick Pricing: Charm, High-Low and Anchoring

Cloud services are just as likely as other vendors to utilise well established pricing mechanisms to manipulate customers’ psychology. Charm pricing (why so many products end in .99) and price anchoring (drawing your attention to an expensive product, only to swing your decision with a cheaper alternative) are common tactics, particularly effective over the internet, where websites are specifically designed to focus your attention to various products in certain orders.

And finally, look out for deals on sale. If it is a large discount, it may suggest that the non-discounted product is overpriced, and the vendor is likely to offer other discounts in the future. 

Subscription Management Services

As businesses shift more operations to the cloud, the weight of investment on capital expenditure may ease, but this certainly comes at the expense of SaaS, PaaS and IaaS subscription costs. Managing software licences, contracts, subscriptions and agreements can be a logistical nightmare, especially considering the obscure world of shadow IT, and its hidden costs. 

But there’s a SaaS for that! Many software and subscription management SaaS offer solutions to streamline and manage these contracts, including features for data analytics, tracking technology spend, managing renewals and compliance checks.


SaaS, PaaS, IaaS and all other ‘as-a-Service’ iterations are part of a rapidly expanding market of cloud-based subscription services. As the world adapts to new challenges, and technology evolves to provide opportunities for growth and development, these services are increasingly integral to not only how we conduct business, but to all aspects of our lives. 

XaaS is the most general term for these types of services, referring to cloud-hosted IT services, provided by a third-party vendor on a subscription basis, accessed remotely through the internet. These services rely on an internet connection to function, and are centrally hosted by the provider. The difference between SaaS, PaaS and IaaS (which make up the majority of the XaaS market) can be loosely determined by the technical territories they occupy:

  • IaaS covers the core IT infrastructure – storage, network, servers. The benefits of the IaaS model include the outsourcing of cumbersome and expensive tech to specialist providers, who can provide a superior service, run backups and updates automatically, and allow access to high-tech capabilities such as data analysis.
  • PaaS provides, on top of the core infrastructure, the ecosystem for application development: the operating system, software components and middleware. This allows developers to build on top of existing code, speeding up the development of applications and software. It can also be applied to data mining.
  • SaaS goes beyond the development level of PaaS, to include the core infrastructure, the platform ecosystem and purpose-designed software. The uses and benefits of SaaS are as vast as the number of softwares developed, and can be incorporated into businesses to help in any part of the company workflow to save money, improve productivity and streamline services.  

In order to implement SaaS within your company, or migrate operations to a cloud-based service system, it is important to target the specific need of your business. Collaboration with IT departments and dialogue with various XaaS providers will ensure you know exactly what you are subscribing to. Remember the strength of your position as a customer, and be sure to read the small print of any contract – especially if the handling of sensitive information is involved.

The benefits of cloud computing are innumerable: being clued in on the facts, definitions and strategies of these services gives you the best chance of utilising them most effectively to support, enhance and grow your business.

What is Software as a Service? IaaS, PaaS and SaaS Unwrapped