Cloud Computing Versus Software as a Service

By David H. Ringstrom, CPA

As our world becomes more and more connected, the terms used to describe online services blur into abstraction. In this article, I'll clarify the terms “cloud computing” versus “software as a service,” often referred to as SaaS. In some ways, it's like describing two sides of the same coin. However, there are some clear distinctions, along with risks and rewards to keep in mind.

The Internet is increasingly being referred to as the cloud. One of the earliest mentions of cloud computing is in the paper The Self-governing Internet: Coordination by Design published by MIT Professors Sharon Eisner Gillett and Mitchell Kapor in 1996. Readers of a certain age will remember one of Kapor's other ideas, a product called Lotus 1-2-3 . Regardless, historically the central computers that run the nation's telephone network were often diagrammed on flowcharts as a cloud. The intricacies of networked computers that comprise the Internet are so complex that the term has been co-opted for use in our modern society.

In the early days of computers, users rented time on a mainframe computer. A few decades later, we all became accustomed to having our own personal computers on our desk, upon which we installed shrink-wrapped software. We became responsible for upgrading our computers, software, and backing up our data. As often happens in life, though, things are going full circle where we're returning to the days of renting time on someone else's computer. Instead of a single mainframe computer though, today we may utilize a bank of computers residing in a data center in an undisclosed location. Instead of being relegated to working only at our desk, today we often use mobile devices to carry out tasks unimaginable just a few years ago.

In general, cloud computing can be thought of as any instance where you're using a computer that resides outside of your physical location. Most users encounter cloud computing in the form of software as a service. You might pay a fee for the service, such as QuickBooks Online ,, or Microsoft's Office 365 , or you may pay in a nonmonetary fashion through an advertising-supported and/or information-gathering models, such as Gmail, Mint, or Facebook.

With all of these applications, you're relying on software installed and maintained on remote computers. Most often SaaS is delivered via your web browser, so long as you have a connection to the Internet, you're able to carry out tasks that may be business or personal in nature.  With this background in mind, I can provide some distinctions between cloud computing and software as a service:

  • Cloud computing gives you access to an environment that you can customize or build out to suit your needs. With SaaS, you're limited to the features and capabilities written into the software, but cloud computing offers the ability to increase server capacity or storage space on demand.
  • Cloud computing offers elasticity, meaning your resources and costs can increase or decrease with your demands. SaaS typically involves a set fee per user, per month, so costs and the functionality offered tend to be fixed.
  • In short, cloud computing is highly customizable, whereas SaaS offers more of one-size-fits-all approach.
Some examples of what may be considered pure cloud computing include:
  • Amazon Simple Storage Service (Amazon S3)  – This service allows you to store and retrieve an unlimited amount of data, at anytime of day, from any computer connected to the Internet.
  • Microsoft's Windows Azure  – This service provides virtual servers that can be used for application development and delivery.
  • — Similar to Windows Azure, provides servers for hire, but with a wider array of operating systems to choose from.

A primary benefit to cloud computing is that users outsource the care and maintenance of servers to firms that specialize in that capability. When demand warrants, new servers can be brought online in minutes, rather than the days required when a company maintains its own data center. Any sort of computer-based application can be hosted on cloud-based computers, from a website or shopping cart to custom programs for internal use. Thus, with cloud computing, the user is generally responsible for maintaining the applications on the server, while the hosting companies maintain the underlying physical equipment and operating system.

For SaaS, end users are removed from maintaining both the application and the server equipment. Benefits of SaaS versus desktop programs include:

  • Applications, such as QuickBooks Online, allow you to access accounting records from anywhere in the world, instead of from specific computers within your office.
  • New features appear in the software automatically, so there's no need to purchase a software upgrade to be physically installed on each of your computers.
  • Your data is backed up automatically, so a local hard drive crash won't affect your data.
Despite all of the benefits that cloud computing and SaaS provide, there are still risks to consider and manage:

  • Consider the recent situation with, where certain purported illegal actions by a subset of users caused everyone using the service to lose access to data. Think about a toddler having a certain bodily function in a public swimming pool – everyone has to suddenly get out of the water. Similarly, actions by one or more rogue users can cause unexpected and dramatic disruptions for everyone else sharing a cloud-based resource.
  • Both cloud computing and SaaS involve trust, in that you're trusting an organization to hold up its end of the bargain. Intuit, maker of QuickBooks, last year experienced a spate of outages that caused business interruptions for users of their myriad online services.
  • A service you trust and rely on could suddenly change hands, such as Facebook's recent acquisition of Instagram [9]. You may then be forced to find a new service provider if you have philosophical differences with the new owner of a tool that you've relied on or if customer service levels start to slip to unacceptable levels.
  • If you stop paying for the service, access to your data can be immediately terminated. However, many providers offer a grace period. For instance, if you cancel your QuickBooks Online account, your data is maintained for a year, should you decide to resubscribe to the service.

A previous version of this article first appeared on .

About the author:

David H. Ringstrom, CPA heads up Accounting Advisors, Inc., an Atlanta-based software and database consulting firm providing training and consulting services nationwide. Contact David at  or follow him on Twitter. David speaks at conferences about Microsoft Excel, and presents webcasts for several CPE providers, including AccountingWEB partner CPE Link