SaaS Company vs Software Company: What’s the Difference?

A SaaS company is generally a type of software company — one that delivers its product as an ongoing, hosted service, typically accessed online through a subscription or usage-based fee. “Software company” is a much broader term that also includes businesses selling perpetual licenses, installed software, custom development, enterprise software, and embedded software. In short: a SaaS company is usually a software company, but not every software company is a SaaS company.

This article compares the two directly — how they deliver their products, who manages hosting and updates, how they price and generate revenue, and how the customer relationship differs — so you can understand exactly where SaaS fits within the broader software industry.

SaaS Company vs Software Company: Quick Answer

• Software company — a broad category covering any business that develops or sells software, regardless of how it’s delivered, licensed, or priced.
• SaaS company — a software company that specifically delivers its product as a hosted, ongoing service, generally accessed online and paid for through recurring or usage-based fees.

The practical distinction usually comes down to a handful of factors: delivery, hosting, access, pricing, maintenance, updates, customer relationship, and revenue model. The sections below walk through each of these in detail.

What Is a SaaS Company?

A SaaS company is a business whose core product is software delivered as an ongoing service rather than a one-time purchase. Typical characteristics include:

• Software is the core product being sold
• Customers access it as an ongoing service, generally online
• The software is usually hosted and managed by the provider
• Updates and maintenance are typically handled by the provider
• Customers usually pay through subscriptions, usage-based pricing, or another ongoing commercial arrangement

This article focuses specifically on how SaaS compares to the broader software industry. For a full definition, see our dedicated guide: what SaaS is.

What Is a Software Company?

A software company is any business whose core activity involves developing, selling, or licensing software — a category far broader than SaaS. A software company may:

• Develop applications for desktop or mobile use
• Sell software under a perpetual license
• License enterprise software to large organizations
• Offer SaaS products
• Develop custom software for individual clients
• Build operating systems
• Create developer tools or programming frameworks
• Provide software products built for specific industries

A software company does not necessarily use the SaaS model. Many software companies still sell installed, licensed, or custom-built products with no ongoing hosted service component at all.

SaaS Company vs Software Company: Key Differences

These are general tendencies, not absolute rules — real companies vary, and many of the rows above reflect what’s typical rather than universal.

SaaS vs Traditional Software: How Delivery Works

The customer experience differs noticeably between the two models.

Traditional Software typically follows this process: Buy license → Install software → Configure → Use → Update manually

SaaS typically follows this process: Sign up → Log in → Use hosted software → Receive updates → Renew/continue access

In practice, modern software can blur this distinction — some traditional software now includes automatic update mechanisms, and some SaaS products still require significant local configuration or on-premises components for enterprise deployments.

SaaS vs Traditional Software: Ownership and Access

There’s a meaningful difference between owning or licensing software and accessing software as a service.

With traditional software, a customer often purchases a license granting the right to install and use a specific version of the software, sometimes indefinitely. With SaaS, customers generally purchase the right to access and use the service for as long as they continue paying, rather than receiving a standalone copy of the underlying software.

It’s worth being precise here: SaaS customers don’t necessarily “own nothing” — the specific rights, data ownership, and terms of use depend entirely on each provider’s licensing and terms of service agreement, which can vary considerably.

SaaS vs Traditional Software: Hosting and Infrastructure

SaaS The provider generally manages:

• Servers and cloud infrastructure
• The application environment
• Databases
• Updates
• Backups
• Availability
• Security controls

Traditional software Depending on the product, the customer may be responsible for:

• Installation
• Hardware
• Servers
• Upgrades
• Backups
• General maintenance

It’s worth noting that enterprise software often uses hybrid deployment models — some components hosted by the vendor, others deployed on the customer’s own infrastructure — so this isn’t always a clean split.

SaaS vs Traditional Software: Pricing and Revenue

SaaS pricing commonly includes:

• Monthly subscription
• Annual subscription
• Per-user pricing
• Usage-based pricing
• Tiered plans
• Hybrid pricing

Traditional software pricing commonly includes:

• Perpetual license
• One-time purchase
• Maintenance fees
• Paid upgrades
• Subscription licenses
• Enterprise contracts

It’s important not to oversimplify this comparison: traditional software companies can and do use subscription pricing too. The real distinction isn’t payment frequency — it’s whether the software is hosted and delivered as an ongoing service, or licensed/installed for the customer to manage independently.

SaaS vs Traditional Software: Updates

SaaS Providers usually deploy updates centrally, and customers generally access the latest available version automatically through the service, without any manual installation step.

Traditional software Customers may need to download updates, install patches, upgrade to new versions, and maintain compatibility with their existing systems.

That said, automatic updating isn’t exclusive to SaaS — many modern non-SaaS applications, including some desktop and mobile software, also support automatic background updates. The presence of automatic updates alone doesn’t confirm a product is SaaS.

SaaS vs Traditional Software: Customer Relationship

SaaS companies typically invest heavily in an ongoing customer relationship, including:

• Onboarding
• Activation
• Customer support
• Customer success
• Retention
• Renewal
• Churn management
• Expansion revenue

Traditional software businesses may have a more transaction-focused relationship, particularly for simpler, one-time-purchase products. However, this isn’t universal — enterprise software vendors, even non-SaaS ones, often maintain extensive long-term support relationships, implementation services, and account management for large customers.

SaaS vs Traditional Software: Revenue Model

Recurring SaaS revenue Customers continue paying for ongoing access, which is why SaaS companies closely track metrics like MRR (Monthly Recurring Revenue), ARR (Annual Recurring Revenue), churn, retention, and expansion revenue. The health of the business depends on keeping customers subscribed over time, not just closing new sales.

Traditional software revenue Revenue may come from a mix of sources, including:

• License fees
• Version upgrades
• Maintenance contracts
• Implementation
• Support contracts
• Professional services

Many software companies combine several of these revenue streams at once, and the line between “SaaS revenue” and “traditional software revenue” isn’t always sharp — some traditional vendors now report meaningful recurring revenue from subscription licenses and maintenance contracts.

SaaS vs Traditional Software: Scalability

SaaS businesses can often distribute one centrally maintained application to a large number of customers, supported by:

• Centralized infrastructure
• A shared codebase across customers
• Automated, self-service onboarding
• Cloud infrastructure that can expand with demand
• Centralized updates rolled out to everyone at once

That said, SaaS does not automatically mean unlimited or free scalability. Growth still creates real costs and challenges, including infrastructure spend, increased support demand, expanding security requirements, and ongoing engineering work to keep the platform performing well as usage increases.

Is a SaaS Company a Software Company?

Yes. SaaS companies are generally a subset of the broader software industry. A simple hierarchy illustrates this:

Technology Companies → Software Companies → SaaS Companies

Software companies as a category also include:

• Traditional software vendors selling licensed products
• Custom software development companies
• Desktop software providers
• Embedded software businesses
• Enterprise software vendors using non-SaaS deployment models

SaaS sits inside the software company category as one specific delivery and business model — it doesn’t stand apart from “software companies” as an entirely separate industry.

Can a Software Company Become a SaaS Company?

Yes, and this transition happens fairly often as software businesses evolve. A company might move from traditional licensing toward a hosted SaaS model, which typically involves changes to:

• Hosting infrastructure
• Pricing (shifting toward subscriptions or usage-based fees)
• Update processes (moving toward centralized, continuous delivery)
• Infrastructure management responsibilities
• Customer support structures
• Billing systems
• Product architecture (often re-engineering for multi-tenant or cloud-native use)
• Customer success functions
• Revenue recognition practices

This is a significant undertaking, and not every software product can easily be converted to SaaS — some software, particularly specialized, offline, or highly customized enterprise systems, may not be well suited to a hosted service model without substantial re-architecture.

Can a Company Be Both SaaS and Traditional Software?

Yes. Many software companies operate multiple product lines or delivery models simultaneously. A single business might offer:

• One or more SaaS products
• Desktop applications
• Enterprise licenses
• APIs for developers
• Professional services
• Implementation and consulting services

Fictional example: imagine a company that sells a cloud-hosted accounting platform on a monthly subscription (SaaS) while also licensing a separate, on-premises payroll system to large enterprises that require local data storage for regulatory reasons (traditional software). Both products belong to the same company, but they represent different business models.

This is why business classification depends on evaluating the specific product or offering in question, rather than applying a single label to an entire company based on its general marketing or industry positioning.

Examples of SaaS vs Traditional Software

SaaS Company vs Software Company vs Software Development Company

This distinction matters because “software company” is often used loosely to describe all three of these business types, even though they differ significantly in what they actually sell and how they generate revenue.

Advantages and Disadvantages of the SaaS Model

Advantages

• Lower upfront costs for customers compared to large licensing purchases
• Centralized updates that keep the product current without manual installation
• Easier remote access from any location with an internet connection
• Ongoing product improvements delivered automatically
• Recurring revenue potential for the provider
• Centralized maintenance that reduces the customer’s technical burden
• Scalable distribution from a single, centrally maintained product

Potential Challenges

• The need for continuous customer acquisition to sustain and grow revenue
• Churn, which directly erodes recurring revenue
• Ongoing infrastructure costs that scale with usage
• Cybersecurity responsibilities tied to hosting customer data
• The need for ongoing customer support, not just a one-time sale
• Subscription fatigue among some customers facing many recurring charges
• Data protection and privacy obligations tied to hosting customer information
• Dependence on retention, since revenue is not guaranteed beyond each billing cycle

Which Model Is Better: SaaS or Traditional Software?

There isn’t a universally “better” model — the right choice depends on the specific situation. Relevant factors include:

• Customer requirements — what the buyer actually needs from the software
• Industry — some industries have specific deployment norms or expectations
• Security requirements — some organizations require data to stay within their own infrastructure
• Deployment preferences — some customers prefer to manage their own systems
• Internet connectivity — SaaS generally requires a reliable connection; traditional software may not
• Pricing expectations — some buyers prefer predictable one-time costs over recurring fees, or vice versa
• Infrastructure requirements — the complexity of what’s being deployed
• Product complexity — highly specialized or heavily customized software may not suit a standardized SaaS model
• Regulatory environment — data residency and compliance rules can favor one model over the other

SaaS tends to make sense when ease of access, low upfront cost, and centralized maintenance matter most. Traditional deployment can still make sense for organizations with strict data control requirements, highly specialized needs, or environments where reliable internet access can’t be guaranteed.

Frequently Asked Questions

What is the difference between a SaaS company and a software company? A SaaS company delivers software as an ongoing hosted service, typically accessed online for a recurring fee. “Software company” is a broader term covering any business that develops or sells software, whether through SaaS, licensing, or custom development.

Is SaaS a type of software company? Yes. SaaS companies are generally considered a subset of the broader software industry — they build software, but specifically deliver it through a hosted, service-based model.

Is every software company SaaS? No. Many software companies sell installed, licensed, or custom-built software with no hosted service component, which means they don’t operate under the SaaS model.

What is SaaS vs traditional software? SaaS is hosted by the provider and accessed online on an ongoing basis, typically for a recurring fee. Traditional software is often installed locally and may be purchased through a one-time license, though pricing models for both have evolved over time.

Is subscription software always SaaS? No. Subscription pricing is common in SaaS, but traditional, installed software can also be sold on a subscription basis without being delivered as a hosted service — the delivery model, not the payment frequency, defines SaaS.

What makes a company SaaS? A company is generally considered SaaS when software is its core product, delivered and maintained as an ongoing online service, typically paid for through subscriptions or usage-based pricing. See our dedicated guide on SaaS characteristics for a full breakdown.

Can a software company become a SaaS company? Yes, though it often requires significant changes to hosting, pricing, product architecture, and support structures. Not every software product can be easily converted to a SaaS model.

Can a company offer both SaaS and traditional software? Yes. Many software companies maintain multiple product lines, some delivered as SaaS and others as traditional licensed or installed software.

Is cloud software the same as SaaS? Not exactly. Cloud software is a broader term for software that uses cloud infrastructure in some way. SaaS specifically refers to a business model where finished software is delivered as an ongoing service to end users.

What is the difference between SaaS and licensed software? Licensed software generally grants the right to install and use a specific version, often for a one-time or periodic fee. SaaS grants ongoing access to a hosted service for as long as the subscription or usage arrangement continues.

What is the difference between SaaS and software development? SaaS refers to operating a hosted software product for many customers. Software development, particularly through a development agency, typically involves building custom software for individual clients as one-off projects.

What are examples of SaaS companies? Companies offering cloud-hosted CRM, accounting, project management, or communication tools — accessed online through a subscription — generally operate SaaS products.

How do SaaS companies make money? Mainly through recurring or usage-based revenue models, including subscriptions, per-user pricing, tiered plans, and usage-based fees, tracked using metrics like MRR, ARR, and churn.

What are the main advantages of SaaS? Lower upfront costs, centralized updates, easier remote access, and scalable distribution are among the most commonly cited advantages of the SaaS model.

Is SaaS better than traditional software? Neither model is universally better — the right choice depends on factors like security requirements, deployment preferences, budget structure, and how specialized the software needs to be.

Conclusion

A SaaS company is generally a type of software company — one defined by delivering its product as an ongoing, hosted service rather than a one-time installed purchase. But “software company” remains a much broader category that includes traditional licensed software vendors, custom development firms, and enterprise software providers that may never adopt a SaaS model at all. Understanding this distinction — delivery, hosting, pricing, updates, and the nature of the customer relationship — makes it possible to accurately classify any given software business, rather than assuming every modern software company automatically operates as SaaS.

To explore SaaS in more depth, see our related guides on what a SaaS company is, SaaS characteristics, and how a SaaS company works.