Is SaaS really the best model for delivering software?
That was the topic of a discussion I had today, with a friend of mine, who is a CEO of a SaaS company. Ironically, he runs a SaaS company that serves other SaaS companies.
SaaS was all the rage 4-5 years ago and now with a few years of experience behind them. Many of the freshman batch of SaaS companies, we both knew,are still going through the growing pains (business model, scale, cost benefits). So it was worth a ponder, on our part, to see SaaS was all it was cut out to be.
We discussed a lot of different things about SaaS, discussing specific challenges that specific companies we both knew were going through. Here are my thoughts on SaaS (come to think of it they have been the same from 4-5 years ago)
- I think SaaS is the best model to deliver (enterprise) software. Software delivery and management is a specialized function and is best done by the specialists (i.e, those who designed and developed it). Assuming that IT teams in companies would somehow be able to perform the care-and-feeding of a enterprise application through it’s lifecycle is just not realistic. Companies have been living a lie all these years.
- On the business front, SaaS really levels the playing field in terms of risk assumption. The vendor now has as much at stake (if not more) as the customer who takes a chance on it. Customers having regained some of the (risk) leverage on vendors are not going to let go of it easily again.
- As for the challenges SaaS companies are facing around costs, profitability on each customer, I think it is still early days. We are merely in the second innings of a 9 innings game. Even the most successful SaaS company Salesforce.com has not quite figured out the exact magic to profitability. As the model matures, (think Utilities like Water, Electricity Grid), newer license models that are more advanced than the prevailing (predominantly) per-user license model evolve, the business model will become more manageable. So will the reliability and scalability.
- SaaS companies have so far focused on acquiring more customers and now that they have had those customers for a while, they will start focusing on adding more value to their customer’s business. That will result in substantial increase in the Customer Lifetime Value (CLTV) and reduction of churn. That will also lead to quicker amortization of the costs and quicker road to profitability.
Been a while since my last SaaS post. So feels good to be back writing about SaaS.