Hosted services, on-demand software, application service provisioning and many other similar terms have been used over the years to describe the same general concept of providing customers with software applications as a service. Therefore from a theoretical point of view the Software as a Service (SaaS) model is nothing new.

In practice the breakthrough of the SaaS model during the recent years has especially and significantly changed the business software and startup landscape. Today it is more rare to hear about a new business software product launched as a standalone application than about a new service that is directly available from the cloud.

For startups the SaaS model offers significant benefits but it also includes its own unique set of challenges. For instance small software vendors can potentially expand rapidly outside their local markets or reach bigger clients than they could if they would develop and sell ordinary deployable software products.

Often a new SaaS solution is not, at least in the beginning, actually sold to companies, but just to a group of users. These users simply find the service useful, register and give out their credit card details. Suddenly the SaaS service might have gained significant foothold inside a bigger corporation without the company's IT department's involvement or prior knowledge.
Similarly the new SaaS service might get users all over the world. Instead of focusing on a single geographic area in the beginning, a startup can aim to reach a certain niche of users globally. After conquering that niche, it is time to expand the operations to cover the next potential user segment.

On the other hand easy sales also bring new kinds of problems. For example today it is much harder to get customers to pay for product development efforts than it was before. Customers also change solutions and vendors more often than before as they are no longer tied to a specific vendor with large upfront investments.

In general it can be said that customers have become more price-sensitive and knowledgeable about different options available for them. This has made it more difficult to “collect the cream” – in other words to charge more money from customers who could be willing or at least capable of paying more.

From a technical perspective a new key challenge is the ability to implement a true multi-tenant architecture where all customers use the same version of the software application. If a company has been developing its software product already for a long-time, multi-tenancy has not been a relevant issue earlier and later on it often is difficult and / or very costly to add support for multi-tenancy on top of the existing software.
Still, efforts put into development of multi-tenancy support are usually justified both by technical and commercial reasons. Foremost, the amount of technical administrative work and service management costs are lower as there is no need to maintain one software installation for each customer.

Also, it is easier to add new features to a multi-tenant service as there is no need to worry about downward or upward compatibility issues and different software versions in use by different customers. Product enhancements and fixes can be pushed out frequently. Reasons like this make it easier to achieve the true spirit of the SaaS model - the focus should be on the service, not on the software.