SaaS presents ground-breaking opportunities for software vendors
The market for software is changing from a licensed, downloadable model to software delivered as a service (SaaS) over the Internet. According to Forrester Research, the percentage of software revenue spent on SaaS will grow from 7 percent in 2010 to 17 percent in 2013.
As the market changes, you need to understand how this different delivery method can create competition and opportunity. The most important thing to keep in mind is that SaaS requires more than simply a change to your core product offering, also may require changes to all supporting infrastructure, such as online customer service, data center up-time and your e-commerce system.
In “Software Vendors: The Shift to SaaS,” a recent study from cleverbridge AG, conducted by Forrester Consulting, 31 percent of all companies are moderate to heavy users of SaaS software. The days when SaaS was doubted as a viable option are over, and there is still plenty of opportunity in the marketplace – 69 percent of the companies surveyed use few to no SaaS software.
The main driver of SaaS adoption is the total cost of ownership (TCO). Companies are seeking to lower their TCO even though conversely, the revenue earned per customer is higher for the vendor. How is this possible? Let’s take a look at a real world example to explain.
Small office, home office businesses (SOHO) likely use an accounting product, such as Intuit’s Quickbooks to manage their finances. In the glory days before SaaS, customers downloaded and maintained the products on their desktop. While this offers fast access to information and local data backup, the constant progression of computer hardware and operating systems resulted in constant attention to the Quickbooks software, including installing updates, ensuring data back up file completeness and syncing data sets between multiple users. All of these steps are fairly standard, but somewhat frustrating if your IT team is overworked or non-existent. All of this comes at a price of about $200 per copy.
The advent of SaaS alleviated many of these issues and more:
- No requirement for the customer to install anything locally, so when a computer is upgraded, there’s no impact on the SaaS product
- Updates are maintained by Intuit and performed during overnight hours to minimize data inaccessibility
- Additional users are easily added through online interface and all data is automatically synced to prevent data conflicts
- Backups are maintained by software experts so customers never have to think about off-line backup
The SaaS version of Quickbooks costs between $13 and $40 a month. In most cases, within one and a half years, the customer will have spent more out-of-pocket than the $200 downloadable version, but factoring in those additional IT costs and hidden downtime costs results in a much lower TCO for the online version. Why would you ever use downloadable software if you had a choice?
Well, not all product categories are created equally, for one. Whether it’s operating systems, business intelligence or IT management, some products are either so core to a system working that they will never be moved or the need for data security prevents companies from feeling safe with the move to SaaS. Furthermore, there are industries, like government, healthcare and military that likely will never move to SaaS because of data security issues. So don’t run blindly into migrating your product to SaaS – to succeed you need to think about SaaS strategically.
Your product will have to go through a transformation process in order to move to a SaaS delivery model. But don’t forget to consider the other aspects around management and maintenance, such as hosting, support and e-commerce.
B2C SaaS products typically rely on a subscription billing model, a model your products may have never had before. You need to ensure that your subscription billing platform, now suddenly strategic, offers all the benefits that your existing e-commerce platform has:
- Global payment methods
- Local language customer-facing order processes
- Friendly currency-specific pricing capabilities
- Flexible up-sell and cross-sell offerings
- Multi-variate product and price testing
- Detailed and deep business reporting
B2B products require even more advanced capabilities because 33 percent of buyers want to buy either direct from your B2B website, through a VAR or within an ERP system, all of which are enabled or integrated with your e-commerce platform. Don’t underestimate this part of the project!
If you’d like to learn more about how to successfully transition to SaaS, download the free study mentioned earlier.
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