SaaS vs PaaS vs IaaS: What Each Layer Does, Who Pays for It, and Where the Money Is
The three cloud service models divide one question — how much of the stack do you want to manage yourself? — into three answers with very different customers, margins and businesses attached.
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SaaS, PaaS and IaaS are three answers to a single question: how much of the computing stack do you want to run yourself? Software as a Service hands you a finished application. Platform as a Service hands you a managed place to build and run your own application. Infrastructure as a Service hands you raw computing — servers, storage, networking — and leaves everything above it to you.
The acronyms get treated as trivia, but the boundaries between them decide who the customer is, what the margins look like, and what kind of company you can build at each layer.
The division of labor
Think of the stack as nine layers, from the physical data center up to the application and its data. The three models differ in where the vendor’s responsibility stops and yours begins:
| Layer | IaaS | PaaS | SaaS |
|---|---|---|---|
| Application | You | You | Vendor |
| Data | You | You | Vendor (yours, managed by them) |
| Runtime & middleware | You | Vendor | Vendor |
| Operating system | You | Vendor | Vendor |
| Virtualization, servers, storage, network | Vendor | Vendor | Vendor |
AWS EC2, Google Compute Engine, Azure VMs: you rent the machines and own everything you put on them.
Heroku, Vercel, Google App Engine, managed databases: you bring code, the platform handles deployment, scaling and patching.
Salesforce, Zoom, Dropbox, and nearly every company in the GetLatka dataset: you bring nothing but users and data.
Who the customer is at each layer
The buyer changes as you move up.
- IaaS sells to infrastructure and platform engineers — a technical purchase, measured in compute-hours.
- PaaS sells to developers — the ones who’d rather ship features than manage Kubernetes.
- SaaS sells to everyone else — sales teams, finance teams, designers, HR: people who will never see a terminal.
That is why SaaS is where the company count exploded: every business function became addressable by its own product, from OKR software for executives to insurance sold as a subscription.
Where the money is
The economics differ more than the acronyms suggest
IaaS is a capital business
Data centers, chips and power — enormous fixed costs, commodity pricing pressure, and gross margins structurally below software norms. It rewards the three companies big enough to play and punishes everyone else.
PaaS is a leverage business
It buys IaaS wholesale, wraps it in developer experience, and resells it with margin on top — but it lives in the squeeze between the clouds beneath it (which keep absorbing platform features) and the applications above it.
SaaS is a distribution business
Infrastructure is a rounding error next to the cost of acquiring customers, and the fight happens in ACV, churn and CAC rather than in utilization. Dropbox’s numbers show the shape at maturity — the strategic questions are all about retention and per-user value, not servers.
Where the lines blur
Plenty of modern companies refuse to sit in one box. Webflow sells to designers like SaaS but hosts its customers’ websites like a platform — its hosting line was the zero-churn half of the business as far back as 2018. Twilio and Stripe sell APIs — platform surface, SaaS motion, usage-based billing. And the AI era has added a fourth de facto layer: GPU clouds renting compute (IaaS economics), model APIs metering tokens (PaaS economics), and AI applications charging per seat (SaaS economics) — the same three-way split, one turn of the wheel later.
The practical takeaway
For buyers, the model determines what you’re responsible for when something breaks — in IaaS the 3 a.m. page is yours, in SaaS it’s the vendor’s. For founders, it determines what business you’re actually in: capital and utilization at the bottom, developer trust in the middle, distribution and retention at the top. Most of the thousands of companies whose revenue we track chose the top layer — not because the software is easier, but because the business is: sell a finished outcome, own the customer relationship, and let someone else buy the servers.
Explore disclosed revenue for the SaaS layer of the stack at getlatka.com/saas-companies.
SourcesGetLatka dataset; company figures from the GetLatka posts linked in the text.
