Software as a service (or SaaS) vs. cloud stocks

SaaS companies are now viewed by many analysts as cloud-computing stocks. However, the two technologies evolved separately.

• SaaS came first. SaaS pioneer Salesforce (CRM) was started in 1999. Amazon (AMZN)-owned cloud software pioneer Amazon Web Services, founded in 2006, didn't hit $1 billion in sales until 2012.
• The customers of SaaS companies purchase renewable subscriptions, rather than one-time software licenses. Customers receive automatic software updates via the web.
• Cloud customers pay as they go, leasing computing resources by the minute or hour via the web. That's not a subscription model. But SaaS also is an on-demand service, making it cloudlike.
• SaaS is one of three main categories of cloud computing, alongside infrastructure as a service (IaaS) and platform as a service (PaaS).
• SaaS “sits in the cloud.” So cloud computing offers additional services other than just SaaS, while SaaS is only that: software delivered to an end user from a cloud environment.
• SaaS companies post the best revenue growth. In addition, SaaS stocks engage in the most mergers and acquisitions. As a result, SaaS stocks trade at the highest multiples.