SaaS vs Subscription: Why “Subscription Software” Isn’t Always SaaS

TL;DR

Not all subscription software follows the true SaaS definition. While SaaS (Software as a Service) is always delivered via the cloud and accessed through a browser or API, subscription software refers to the payment model; pay monthly or annually instead of a one-time license. Many applications use subscription pricing but still require local installation, manual updates, and on-premise hosting. Understanding this distinction is critical for IT teams managing software inventory, governance, and cost allocation.

Introduction

The terms "SaaS" and "subscription software" are often used interchangeably in procurement meetings, vendor pitches, and IT strategy documents. But here's the problem: they're not the same thing.

While every accurate SaaS application uses a subscription model, not every subscription software qualifies as SaaS. This confusion has real consequences; IT teams end up managing "SaaS" tools that still require on-premise servers, manual updates, and complex infrastructure. Finance teams struggle with cost allocation when subscription software doesn't behave like cloud-native SaaS. And procurement departments negotiate contracts without understanding what they're actually buying.

According to a 2023 Gartner report, enterprises now spend over 30% of their IT budgets on software subscriptions. Yet, many still lack clear visibility into whether these tools are truly cloud-based or just subscription-licensed legacy applications.

This article clears up the confusion. We'll define both terms precisely, explain the critical differences, show real-world examples, and help you identify what's actually SaaS in your software portfolio.

Understanding the SaaS Definition: More Than Just a Payment Model

Let's start with what SaaS actually means. SaaS; Software as a Service; is a software delivery model, not just a pricing structure. According to the National Institute of Standards and Technology (NIST), true SaaS must meet these criteria:

• Cloud-hosted infrastructure: The application runs entirely on the vendor's cloud servers, not on your local machines or data centers
• Centralized updates: The vendor manages all updates, patches, and maintenance without requiring action from your IT team
• Multi-tenant architecture: Multiple customers share the same infrastructure and codebase (with data isolation)
• Accessible via the internet: Users access the application through a web browser, a mobile app, or an API; no local installation required.
• Subscription billing: Payment is typically monthly or annual, based on usage or seats

The keyword here is "service." You're not buying software to install and manage; you're buying access to a service the vendor operates and maintains.

For a deeper dive into how SaaS impacts spending and governance, check out our guide on SaaS spend management.

What is Subscription Software? The Payment Model Explained

Subscription software, on the other hand, describes how you pay for software; through recurring payments rather than a one-time perpetual license.

Here's what defines subscription software:

• Recurring payment model: Monthly, quarterly, or annual fees instead of upfront perpetual licenses
• No ownership: You're licensing the right to use the software, not buying it outright
• Ongoing vendor relationship: Continuous payments mean continuous vendor engagement
• Potential for cancellation: Unlike perpetual licenses, you can stop paying and lose access

But here's the critical point: subscription software says nothing about how it's delivered, hosted, or maintained.

You could have:

• Subscription software installed on local machines
• Subscription software running on your own servers
• Subscription software requiring manual updates from your IT team
• Subscription software delivered entirely through the cloud (this would also be SaaS)

The subscription model became popular in the 2010s as vendors shifted from perpetual licensing to recurring revenue models. Microsoft, Adobe, Autodesk, and countless others made this transition, but not all of them made the whole shift to cloud-hosted, authentic SaaS architecture.

The Critical Difference: Delivery Method vs Payment Method

The confusion between SaaS and subscription software stems from conflating two distinct concepts: delivery method and payment method.

Payment Method:

• Perpetual license (pay once, own forever)
• Subscription (pay monthly/annually for continued access)
• Usage-based (pay per transaction, API call, or consumption)

Delivery Method:

• On-premise (installed and run on your infrastructure)
• Cloud-hosted (runs on vendor's cloud infrastructure)
• Hybrid (some components on-prem, some in the cloud)

True SaaS combines a specific delivery method (cloud-hosted) with a specific payment method (subscription). But subscription software only defines the payment method.

Consider this example:

Scenario A: You pay $50/month for a project management tool that runs entirely in the cloud, requires no IT involvement to update, and is accessible from any browser.

→ This is SaaS.

Scenario B: You pay $50/month for design software that must be downloaded and installed on each employee's laptop, requires IT to push updates, and stores files locally.

→ This is subscription software, but NOT SaaS.

Both use subscription pricing. Only one is SaaS.

This distinction matters enormously when building an enterprise SaaS management strategy, because the management, governance, and cost implications are entirely different.

Why Subscription Software Isn't Always SaaS: 4 Key Distinctions

Let's break down the four critical differences between true SaaS and non-SaaS subscription software:

1. Infrastructure Ownership and Management

True SaaS: The vendor owns, manages, and maintains all infrastructure. Your IT team never touches the application's servers, databases, or networking.

Subscription Software (Non-SaaS): Your IT team may still need to maintain servers, manage databases, configure networking, and ensure uptime, even though you're paying a subscription fee.

2. Update and Maintenance Model

True SaaS: Updates happen automatically in the background. All users get new features simultaneously without IT intervention.

Subscription Software (Non-SaaS): Updates may require manual downloads, IT testing, deployment schedules, and compatibility checks with existing systems.

3. Scalability and Provisioning

True SaaS: Adding or removing users typically takes seconds through an admin portal. Infrastructure scales automatically.

Subscription Software (Non-SaaS): Adding users may require new licenses, manual installations, hardware capacity planning, and IT support tickets.

4. Access and Availability

True SaaS: Accessible from any device with internet access. No VPN, local network, or specific hardware required.

Subscription Software (Non-SaaS): May require specific devices, VPN access to corporate networks, local installation, or on-premise connectivity.

See how CloudNuro helps distinguish and manage true SaaS vs subscription software.

Real-World Examples: Subscription Software That Isn't SaaS

Understanding the theory is one thing. Seeing real examples makes it click. Here are common scenarios where subscription software doesn't qualify as SaaS:

Example 1: Adobe Creative Cloud (Historically)

When Adobe first transitioned from perpetual licenses (CS6) to Creative Cloud subscriptions, many users assumed it was now SaaS. It wasn't. While you paid monthly, the software still:

• Required local installation on individual machines
• Stored files locally (not cloud-native)
• Needed IT to manage deployments
• Required manual updates (though automated options existed)

Adobe has since evolved parts of its offering to be more cloud-native (like Adobe Express), but core tools like Photoshop and Illustrator remain desktop applications with subscription billing.

Example 2: Microsoft Office 365 vs Microsoft 365 (The Hybrid Model)

Microsoft 365 is a fascinating hybrid:

• Office Online (Word, Excel, PowerPoint in browser) = True SaaS
• Desktop Office apps = Subscription software (installed locally)
• OneDrive, SharePoint, Teams = True SaaS

Same subscription, multiple delivery models. If your IT team only manages the desktop apps, they're dealing with subscription software, not pure SaaS.

Example 3: AutoCAD and Design Tools

Many engineering and design tools shifted to subscription models but remain locally installed:

• Still requires high-performance local hardware
• Store large project files on local or network drives
• Need IT support for installation and troubleshooting
• Only the licensing server might be cloud-based

Example 4: Virtual Desktop Infrastructure (VDI) Applications

Some vendors offer cloud-hosted virtual desktops running traditional desktop software. You access it through a browser, but:

• The underlying software isn't cloud-native SaaS
• It's traditional subscription software running in a virtualized environment
• Management and customization still require IT involvement

These nuances matter when categorizing software for governance and cost management.

Why This Distinction Matters for IT and Finance Teams

You might be thinking, "Does this semantic distinction really matter?" Absolutely; and here's why:

1. Cost Allocation and Chargeback Models

True SaaS typically involves simple per-user or per-seat pricing that's easy to allocate to departments through chargeback and showback models.

Non-SaaS subscription software often includes:

• Infrastructure costs (servers, storage, networking)
• IT labor for installation, updates, and support
• Hardware refresh cycles for compatible devices
• Hidden costs that don't appear in the subscription fee

2. Shadow IT Risk

True SaaS applications can be purchased with a credit card and deployed instantly; creating shadow IT challenges. But IT teams can discover these through shadow IT detection tools.

Non-SaaS subscription software also creates shadow IT when departments buy subscriptions to locally installed tools without IT approval; but these are even harder to detect because they don't show up in cloud access logs.

3. Security and Compliance Posture

True SaaS: Vendor manages security patches, compliance certifications (SOC 2, ISO 27001), and infrastructure hardening.

Subscription Software (Non-SaaS): Your IT team remains responsible for security patching, compliance, network security, and data protection; even though you're paying a subscription.

4. Total Cost of Ownership (TCO)

A $10/user/month SaaS subscription has minimal additional costs beyond the subscription fee.

A $10/user/month non-SaaS subscription might require:

• $50K in annual server costs
• 20 hours/month of IT labor for maintenance
• $15K in annual storage and backup costs
• Hardware refresh every 3-4 years.

Discover how to track total costs with CloudNuro's unified visibility accurately.

5. Vendor Management and Procurement

Authentic SaaS vendors typically offer transparent, published pricing and self-service trials.

Non-SaaS subscription software often requires complex enterprise agreements, on-premises deployment services, implementation partners, and customized pricing, which can make procurement more complex.

Common Mistakes: Treating All Subscriptions as SaaS

IT and Finance teams make these errors when they assume all subscription software is SaaS:

Mistake #1: Incomplete Software Inventory

Teams use SaaS management platforms to discover cloud applications, but miss locally installed subscription software. The result? Incomplete visibility and duplicate purchases.

Building a comprehensive SaaS inventory management process requires tracking both cloud-native SaaS and subscription-based desktop software.

Mistake #2: Wrong Governance Policies

Applying SaaS governance policies to non-SaaS subscription software creates gaps. For example:

• Cloud access policies don't cover locally installed subscription apps
• Identity and access management (IAM) tools may not integrate with desktop software
• Automated provisioning/deprovisioning workflows fail for non-SaaS tools

Mistake #3: Inaccurate Cost Forecasting

Budgeting for subscription software as if it were SaaS can lead to cost overruns when infrastructure, IT labor, and support costs aren't included.

Mistake #4: Security Blind Spots

Assuming subscription software has the same security profile as SaaS means:

• Missing security patches on locally installed apps
• Overlooking data stored on local devices
• Failing to apply endpoint security controls

Mistake #5: Renewal Chaos

Valid SaaS renewals are straightforward; continue or cancel the subscription. Non-SaaS subscription software renewals may require:

• Renegotiating infrastructure requirements
• Updating deployment architecture
• Coordinating with IT for version upgrades

How to Identify True SaaS in Your Software Portfolio

Ready to audit your software portfolio and separate true SaaS from subscription software? Follow this framework:

Step 1: Ask the Delivery Method Question

For each application, ask: "Where does this software run?"

• On the vendor's cloud infrastructure = Likely SaaS
• On our servers or employee devices = Subscription software (non-SaaS)
• Hybrid (some components cloud, some local) = Mixed model

Step 2: Evaluate the Update Model

"How do updates and new features get deployed?"

• Automatic, no IT involvement = SaaS
• Requires IT to download, test, and deploy = Non-SaaS subscription software
• Vendor pushes updates to our infrastructure = Managed subscription (non-SaaS)

Step 3: Check Access Requirements

"How do users access this application?"

• Any browser, any device, internet only = SaaS
• Requires local installation = Non-SaaS subscription software
• Requires VPN to corporate network = Likely non-SaaS

Step 4: Review Infrastructure Dependencies

"What infrastructure do we manage for this application?"

• None; vendor handles everything = SaaS
• Servers, databases, storage, networking = Non-SaaS subscription software
• Only identity provider or SSO = Likely SaaS with enterprise integration

Step 5: Analyze the Cost Structure

"What do we actually pay for?"

• Per-user/per-seat only = Typically SaaS
• Subscription + infrastructure costs = Non-SaaS subscription software
• Base fee + usage/consumption = Could be either (check delivery model)

Step 6: Use Automated Discovery Tools

Manual categorization is time-consuming and error-prone. Modern SaaS management platforms can automatically detect cloud-native SaaS by monitoring network traffic, SSO logs, and cloud access security brokers (CASB).

For locally installed subscription software, integrate with endpoint management tools, software asset management (SAM) platforms, and procurement systems.

CloudNuro's unified platform provides a single view of both true SaaS and subscription software.

FAQ

Q1: Can software be SaaS without using a subscription model?

No. True SaaS, by definition, uses a subscription or consumption-based pricing model because the vendor maintains ongoing infrastructure and service delivery. However, "subscription software" can exist without being SaaS; that's the key distinction this article addresses.

Q2: Is cloud-hosted software always SaaS?

Not necessarily. Some vendors host traditional desktop applications in virtualized cloud environments (VDI/DaaS models) and charge subscriptions. While cloud-hosted, these aren't true multi-tenant SaaS architectures. However, most modern cloud-native applications do qualify as SaaS.

Q3: How does this distinction affect software asset management (SAM)?

Traditional SAM tools are designed for on-premises, perpetual-licensed software. They struggle with true SaaS because there's no local installation to detect. Modern approaches require SaaS-specific management platforms that integrate with cloud access logs, SSO systems, and vendor APIs, while still tracking locally installed subscription software through endpoint agents.

Q4: Should I manage SaaS and subscription software with the same tools?

Ideally, you need a unified platform that handles both but applies different governance rules to each. True SaaS requires cloud access monitoring, SSO integration, and API-based license tracking. Non-SaaS subscription software needs endpoint monitoring, deployment management, and traditional license compliance tracking. Platforms like CloudNuro provide unified visibility across both categories.

Q5: What's the future of subscription software? Will it all become SaaS eventually?

The trend is definitely toward cloud-native SaaS, but specific categories (CAD, video editing, scientific computing) will likely remain desktop-based with subscription licensing due to performance requirements. Expect more hybrid models where core editing/processing happens locally while collaboration, storage, and licensing management happen in the cloud.

Conclusion

Understanding the difference between subscription software and true SaaS isn't just semantic; it's essential for effective IT governance, accurate cost management, and strategic software procurement.

Remember: subscription software describes how you pay for software (recurring fees), while SaaS describes how software is delivered (cloud-hosted, vendor-managed service). Every SaaS application uses subscription billing, but not every subscription uses the SaaS delivery model.

For IT and Finance leaders, this distinction impacts everything from cost allocation and security posture to vendor management and total cost of ownership. The first step is to audit your current software portfolio to identify which applications are truly SaaS and which are subscription-licensed desktop or on-premises applications.

With accurate categorization, you can apply the right governance policies, use appropriate management tools, and make informed decisions about cloud migration, vendor consolidation, and software rationalization.

How CloudNuro Can Help

CloudNuro is a leader in Enterprise SaaS Management Platforms, giving enterprises unmatched visibility, governance, and cost optimization. Recognized twice in a row by Gartner in the SaaS Management Platforms Magic Quadrant (2024, 2025) and named a Leader in the Info-Tech SoftwareReviews Data Quadrant, CloudNuro is trusted by global enterprises and government agencies to bring financial discipline to SaaS, cloud, and AI.

Trusted by enterprises such as Konica Minolta and FederalSignal, CloudNuro provides centralized SaaS inventory, license optimization, and renewal management along with advanced cost allocation and chargeback. This gives IT and Finance leaders the visibility, control, and cost-conscious culture needed to drive financial discipline.

As the only Unified FinOps SaaS Management Platform for the Enterprise, CloudNuro brings AI, SaaS, and IaaS management together in a unified view. With a 15-minute setup and measurable results in under 24 hours, CloudNuro gives IT teams a fast path to value.

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