How Has SaaS Grown Through the Years: A Timeline

Geri Mileva on SaaS Marketing


We have a multitude of clients with varying business requirements and purpose. Despite the disparities, they all share a common objective: growth.

In pursuit of growth, our clients are in search of innovative business tools. One that stands out and has been garnering popularity is Software-as-a-Service or SaaS.

In this article, we’ll discuss the history of SaaS and how you can use this knowledge in growing your own business.

How Did the term come about?

SaaS is becoming more vital by the day as more people and organizations utilize the model. You’re probably not aware that the applications you use are examples of SaaS.

If you’re using Microsoft Office 365, Google Apps, Amazon Web Services, Dropbox, or Concur, then you’ve benefitted from the SaaS model.

SaaS is also referred to as cloud computing or cloud software.

The term Software-as-a-Service was coined by the Software and Information Industry Association (SIIA) in 2000. It first appeared in an internal document entitled “Software as a Service: Strategic Backgrounder.”

1960: The Beginning of SaaS

Although the term was coined only in 2000, the model has actually existed since the 1960s. Back then, SaaS was referred to as a time-sharing system.

The birth of the time-sharing system, the earliest version of SaaS, was due to necessity.

During the 1960s, computers were enormous and so expensive that only a few businesses had the resources to afford one. Organizations thought of sharing a system as a solution.

As a result, companies, universities, and government entities leased time-sharing services from third-party providers.

How Did the Time-Sharing System Work?

The time-sharing system involved multiple terminals (monitors and keyboards without CPUs) that were linked to a powerful central computer. The mainframe stored all applications and data.

In using the system, the user input data through the terminal keyboard. Then, the mainframe or the central computer sent the output to the appropriate terminal monitor.

The system constituted an early form of interconnecting computers, where the modern Internet owes its existence.

Small and medium-sized businesses profited from the cost-effective system. Government entities and educational institutions also relied on the model for their operations.

1970 to 1980: Text-Based Data and Interface

Throughout this period, the time-sharing system was continuously employed by different organizations. Computer size and costs were decreasing, but SaaS was still more cost-effective than investing in computers.

The SaaS system was used primarily for accounting services, payroll, and customer relationship management. The application interface was simple and text-based, and the data being transmitted was small data like text.

During this time, SaaS providers relied on a phone line and modem to make the system work.

1980 to 1990: The Information Technology Shift

Eventually, the cost and size of computers shrank to a point that organizations no longer needed time-sharing systems. Computers became affordable, and each employee could now have a computer at their desk.

You might think that the decline of the time-sharing system must have led to the disappearance of SaaS. But it didn’t.

Instead, developers tweaked the SaaS model for it to adapt to the changing times.

What changes were made to the SaaS model?

The principles found in the time-sharing systems were the same principles that governed the SaaS model of the 1980s and 1990s. The only difference was the place where they were applied.

During this period, the earlier version of SaaS was replaced by Local Area Networks (LANs).

What is LAN and How Does it Work?

A Local Area Network is a network of personal computers and peripheral devices that are linked by cable and have the capacity to share resources.

With LAN, in-house systems host the application and a central server stores the data. Users can access the applications and data by connecting to the LAN.

The development of LAN led to the information technology (IT) era. Organizations began to hire specialists who were knowledgeable about managing the operations of these networks.

These network managers were tasked to control the LAN and assign and restrict user privileges. They were also responsible for backing up business data, maintaining company hardware, and keeping up to date with emerging hardware.

Hence, dedicated IT departments were established in larger companies, resulting in additional costs for the business.

2000: The Formalization of SaaS

With the rise of the Internet and fast broadband connections, companies realized that they could reduce IT costs by storing business data off-site and accessing it via the Internet. This required third-party providers who would store their business data.

The SaaS industry, as we know it today, was born.

Some companies quickly switched to SaaS. Others, however, were more cautious, uncomfortable with the idea that a third party would handle their business’ critical and confidential information.

Users were mainly concerned about security risks and long-term stability. There was a lot of confusion around SaaS during this period. 

What was the Contribution of SIIA?  

Earlier, we mentioned the article published by SIIA entitled “Software as a Service: Strategic Backgrounder.” It was a fundamental document that greatly contributed to a better understanding of SaaS and facilitated its further development.

In that article, SIIA wanted to measure the state of the SaaS market and discuss the impact of the change that the SaaS model was effecting.

SIIA assessed that the model had the capacity to provide a notable transformation in the software industry. The association, through the document, helped dispel confusion surrounding SaaS and give insight into its potential.

What was the Reason for the Popularity of SaaS?

Bloatware also contributed to the popularity of SaaS.

Bloatware is a computer program that has many features taking up a lot of memory and impairing computer performance.

People were growing tired of the extra applications that came when they installed a new program or operating system. These excess applications, though they would seem harmless at first, would eventually fill up the hard drive. And it didn’t help that upgrading a hard drive was expensive.

As a result, companies looked for alternatives where they could have more hard drive space without hurting their budget.

The solution they found was employing SaaS in their business. Many never looked back and successfully integrated their systems using SaaS. 

2010: Cloud Migration

The last decade saw another major shift as developers and entrepreneurs competed to transfer their systems online. This wave was comprised of previous doubters of SaaS, who had opted to wait and see if the technology was a mere fad.

The continuous growth of the cloud environment proves that SaaS is here to stay.

The risk-takers who made the shift as early as the 2000s are now paving the way as industry leaders. But the rest are catching up, trying to undo the effects of their late migration.

Present SaaS Trends

Today, application delivery and data management are at their peak. Thanks to the consistent development of SaaS, you can now access data anywhere you are and across all your devices.

This power makes SaaS attractive, especially for entrepreneurs. Recent data equates employing SaaS models with earning revenues.

A Cisco survey revealed that 83% of the best-performing US businesses utilized a SaaS strategy and collaborated with cloud providers in 2017.

Meanwhile, a 2017 Zendesk study reported that the increased functionality in cloud systems boosted customer satisfaction by almost 28%.

Earl Sasser from Harvard Business School also supported the idea of investing in SaaS systems. This was after he observed that a 5% growth in customer retention rates may lead to as much as 95% revenue increase.

How can SaaS Contribute Growth to my Business?

Based on recent trends, it seems that the market for SaaS products will only continue to grow. And businesses that fail to adopt these tools will suffer as competition will be stiffer than ever.

You can take advantage of SaaS by incorporating it into your marketing strategies.

Bear in mind that more than 60% of the world’s population are active smartphone users. Use SaaS to improve your customers’ mobile experience and engage them with your brand.