SaaSPert: Software as a Service (SaaS) Insights

I would like to say upfront that I am mostly answering this question from the point of view of company/entrepreneur looking to decide whether to build their software on a SaaS architectural design and business model versus a more classic model (as opposed to addressing the question from a purchaser or software’s perspective). There are numerous debates going around from the point of view of purchasers of software, but this is not my primary interest here.

For more on that subject, here are some useful links:

• Eight Reasons why companies still say “no” to Saas
• SaaS for enterprises
• What to ask before saying “yes” to SaaS, cloud computing
• The truth about Software as a Service
• Are you running with the big dogs?
• Software as a Service Myths
• The Three Stages of Enterprise SaaS

To look into my subject for today, I’d like to start answering this question by asking “why not SaaS?” from the point of view of a business person developing a software product.

Here are some reasons to avoid SaaS as a business/software developer:

• The development of the architecture is difficult to get right. It requires very careful thought, solid upfront and ongoing planning and an experienced development team throughout the project.
• Fixing cost, scope, schedule and quality upfront is impossible. I’d recommend fixing budget and working of a list of business objectives translated into technology features. For the techies out there – you have to build SaaS using an Agile approach. Don’t even try traditional SDLC.
• Your testing and change control has to be impeccable. Once live, any errors published immediately effect all of your clients.
• Your business model relies on large volumes of clients paying you low (lower?) fees more often. Your offering thus can not be too niche – you won’t get the volumes.
• Your product must be simple enough to be self supported (or community supported) but unique enough to fulfill a real need. This is not easy to get right.
• Because your software will be accessed by the end user through a web browser, you need to support all popular web browsers and all new versions of the browsers that are released. This is far more difficult than it sounds.
• The on-demand concept is still quite foreign to many buyers of software and this may be a barrier to securing new clients. You will need to evangelise both your product and the SaaS model while selling.
• It is still contentious that SaaS is a model that makes business sense for the purchaser, as you see in the debates in the links I provided above. Recent developments lead me to believe that this perception is changing.

If there are so many reasons not to build your software business on a SaaS model, why ever would you? Well that is far easier to answer. Simply put, as a business software owner, the SaaS model, executed propertly, affords you the following opportunities:

• Reliable and growing annuity revenue streams - the goal of any sensible shareholder.
• Income streams that grow far more rapidly than the commensurate/related expenses.
• Minimal end user interactions (which means minimal support head aches).
• A growing Research and Development budget enabling you to be continuously improving your offering and looking for new related business opportunities.
• Happy clients (because they are genuinely getting a great product/service for a reasonable price)

The SaaS model, by its nature, is an absolutely fantastic business model.

It is also a superb model for your clients, when you consider that it offers:

• A minimal upfront investment risk (which translates into a low commitment requirement before deciding to trial).
• An affordable payment structure (low, capped, monthly fees).
• Flexibility to evolve and change with the clients needs (free upgrades and downgrades)
• A model that minimizes the risks for clients associated with software licensing and ownership – man hours and expertise required for support and ongoing costs of maintaining hardware infrastructure.
• A proven software solution with a continuously evolving feature-set.
• Data stored securely offsite and accessible 24/7 from any internet connection in the world.

In many ways SaaS models do for the software industry what franchising has done for other industries.

For the vendor, it allows them to create an easy and replicable model with best practices and simple procedures for 90% of the conceivable client needs (and the other 10% are probably not really “needed”).

For the buyer, it allows them to get what they want and need, more conveniently and for a lower charge and from a proven and trusted source.

All software should (will?) ultimately be on-demand. All software should (will?) ultimately be web-based.

As a last thought, read this: http://www.readwriteweb.com/archives/saas_wolf.php

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Next Week Teaser:
Next week I will continue with the “Starting Out” series and unpack the question “What business ideas suit  SaaS?” I will look at the features of business models that have historically been successful and make some forecasts about what should succeed going forward..

Full Book Chapter Plan:
The full list is available on the Upcoming Topics page.

Glossary of Terms:
Please comment if I have used any term that you are unfamiliar with or feel should be added to the Glossary page.