Definition
SaaS, Software as a Service, is a model where software is hosted by the vendor, accessed through a browser or app, and paid for on a recurring subscription rather than bought as a one-off licence. The vendor runs the servers, applies updates, handles security and supports every customer on the same continuously improving version. The customer gets working software in minutes and stops owning the problem of running it.
In a company, SaaS is now the default way to buy almost every tool: accounting, CRM, email, HR, support, analytics. It is also the dominant business model for building software companies, because recurring revenue is predictable and the same product serves thousands of customers at low marginal cost. The key metrics of a SaaS business are ARR (annual recurring revenue), churn, CAC (customer acquisition cost), LTV (customer lifetime value) and NRR (net revenue retention), and investors value SaaS companies as a multiple of revenue precisely because of that predictability.
In 2026 the SaaS model is being reshaped by AI. Products are moving from seat-based pricing, where you pay per user, toward usage and outcome-based pricing, because AI agents do work that used to need a human seat. The misconception that AI kills SaaS gets the direction wrong: AI makes each product more valuable, but it also lowers the cost of building software, so the moat moves from the code to distribution, data and trust.
In practice
After +10 years building and scaling SaaS and AI companies, the pattern I trust most is simple: a customer in one country signs up on a Tuesday, is live on Wednesday, and is still paying three years later because the product keeps improving without them lifting a finger. That is the whole model.
Why it matters
SaaS is both how you buy software and, if you run a tech company, how you get valued. Understanding its metrics is not optional for a CEO; ARR, churn and NRR are the language your board and your acquirers speak.
Frequently asked questions
- What is the difference between SaaS and traditional software?
- Traditional software is bought once, installed on your machines and upgraded through major releases you manage. SaaS is rented on a subscription, hosted by the vendor and updated continuously for everyone. You trade ownership and control for lower upfront cost, faster deployment and no maintenance burden.
- Why do investors value SaaS companies so highly?
- Because recurring subscription revenue is predictable, gross margins are typically high, and a satisfied customer base keeps paying and expanding with little extra cost. Investors price that predictability as a multiple of revenue. The multiple depends on growth, net revenue retention and how efficiently new customers are acquired.