SaaS, explained

Q

What are “SaaS” companies?

— D.K., Fort Myers, Florida

A

The letters stand for “software as a service,” and SaaS companies are those that offer cloud-based software, often to businesses, via subscriptions. So instead of buying and downloading a software package, a customer will pay on an ongoing basis for on-demand access to it. This makes updating easy, and leaves vendors with the responsibility of storing customer data and keeping it safe.

Tax-prep software is an example of SaaS used by many consumers; while it used to be sold in a box, nowadays many people simply access it via a website. Office productivity software is another: Even Microsoft has shifted its dominant Office suite (featuring Word, Excel, Outlook and more) to a subscription model.

Another example is Axon Enterprise: It invites police departments to subscribe to its Evidence.com service, which collects and analyzes footage from body cameras. Veeva Systems, meanwhile, offers a range of cloud-based services to the pharmaceutical industry, such as clinical trial management and customer relationship management.

SaaS companies have a business model attractive to investors, as customers tend to get locked in to regular subscription payments, and it can be a costly hassle for them to switch to an alternate vendor.

Q What do “bulls” and “bears” refer to in the financial world?

— H.R., Sacramento

A They refer to the optimists and pessimists among investors. A “bull” is someone who is “bullish” on an investment, expecting it to perform well, while bears see falling values ahead.

No one really knows how the market (or individual stocks) will perform over the short term, but over the long term, the stock market has always gone up. So we at The Motley Fool are long-term bulls.