SaaS Architecture
Today, many traditional software companies are shifting to the Software-as-a-Service (SaaS) model. The reason behind this shift is to gain predictable recurring revenue and reduce reliance on one-time software sales. Other advantages of SaaS include the ability to scale more effectively, deliver updates faster, and reach a broader market segment. On this website, I’ll explore SaaS architecture and the key changes traditional software must undergo to make this transition. But before diving into the architecture, let’s first recap what SaaS really means.
SaaS is a business model in which software is offered on a subscription or usage basis rather than as a one-time purchase. It is also characterised by its distribution model, in which the software is hosted by a SaaS provider and made available to users over the internet, eliminating the need for installation and maintenance on individual computers or servers.
To successfully transform into a SaaS business, a traditional company must undergo significant change. There are three key capabilities that every SaaS business should develop to succeed: (1) acquiring customers, (2) monetising customers, and (3) retaining customers. Supporting this requires a fundamental mindset shift, from a project-delivery focus to a service-delivery mindset across teams.
From a technical perspective, a SaaS application is a software system where well-established best practices and architectural patterns continue to apply. However, there are additional architectural dimensions that software engineer should take into account to make sure SaaS application is aligned with the business model, such as tenant identity management, tenant onboarding, tenant isolation and so on. Failure to design the application properly across these dimensions can lead to significant business challenges, including limited scalability, constraints in implementing the desired pricing model, and cost inefficiencies. Let’s examine how the architecture of a SaaS application affects key business characteristics.
Business growth is one of the main reasons why traditional businesses transform into SaaS. However, if a business adopts a SaaS model without modernising its application, the legacy architecture can become a limiting factor, hindering growth.
Profit margin may come under the pressure for many reasons, but some of them originate from SaaS application architecture. For example, the traditional deployment model involves each user having a fully functional and sometimes very custom copy of the software. This approach proves inefficient in a multi-tenant SaaS environment.
Compliance responsibility shifts in SaaS business model. Whilst traditional software places compliance burden on the customer's IT team, SaaS providers must demonstrate compliance to multiple customers simultaneously, which is often require challenging certification processes.
Monetisation of SaaS application is characterised by its consumption- and subscription-based pricing models. However, when traditional software is transformed into a SaaS offering, legacy application architecture can complicate the implementation of desired pricing model due to limited usage tracking, inflexible metering capabilities, and monolithic design that doesn't support granular billing.
Business agility is another driver for SaaS transformation, but it doesn't happen automatically. Legacy deployment and operational models can negatively impact the ability to deliver new features quickly and erode the ability to innovate.
Service expansion enables SaaS businesses to grow by offering new features and services to existing customers rather than acquiring new ones. Properly implemented consumption analytics helps to identify which features are underutilised or overutilised, supporting informed decisions about which features to develop next and which to deprecate.
Customer satisfaction directly impacts retention. SaaS providers should monitor customer health metrics and intervene quickly when churn signals appear. Properly implemented SaaS application architecture should streamline detection and intervention processes.
Even applications that were originally designed as SaaS offerings can have significant gaps in their architectures, leading to the problems discussed above. Moreover, not all SaaS applications started out as SaaS. Legacy architectures often create capability gaps that undermine business outcomes, making it essential to align the architecture with the business model.