Software as a Service (SaaS) is a business model for software delivery and deployment that has been becoming more and more popular over the last few years.
In the SaaS model, software is offered over the Internet as a web service to customers. This means customers no longer need to install and manage the application in their own environment - they can rely on an outsourced hosting provider (typically a SaaS vendor, but it could also be the ISV themselves), in principle simplifying their IT infrastructure and minimizing up-front license fee commitments.
For the vendor, SaaS can offer the benefit of ongoing revenue, and potentially a broader base of customers. However, the upfront revenue is typically lower.
The most common SaaS applications have been in customer relationship management, IT service management, email, conferencing, and HR. But there are examples of SaaS models in many other areas, even those historically considered mission critical such as ERP.
The SaaS trend is being driven by the broader movement toward service-orientation and outsourcing of IT, as enterprise companies try to become as flexible and agile as possible in a global competitive marketplace.
However, there are clearly applications where SaaS adoption will be limited. If the customer data associated with that application is considered particularly sensitive, or if significant customization is needed, these are situations where the customer may be less willing to go this route.
For more detail on Software as a Service definition, click here to see the Wikipedia article.