Reality Check: Is SaaS Really Unstoppable?
A recent Goldman Sachs report suggests the shift to SaaS is unstoppable. The Goldman Sachs data points seem pretty darn impressive. But a recent blog entry from Justin Pirie, titled “Don’t Kid Yourself — SaaS is F***ing Hard!” provides a timely reality check. I don’t endorse Pirie’s choice of words, which cross the line of business decency. But I do believe his reality check — and recommendations on SaaS profitability optimization — provide timely guidance to readers. Here’s why.
First, let’s start with the upbeat views. The Goldman Sachs survey, according to CNet, found that 58 percent of respondents always consider a SaaS option when making an application purchase decision. At total of 39 percent prefer a SaaS option, if available, CNet also mentioned.
Our own MSPmentor 100 survey results, published Feb. 10, revealed similar SaaS and cloud momentum among MSPs. Most MSPmentor 100 survey participants now offer some form of SaaS email to customers; and a growing percentage are introducing SaaS CRM and collaboration (i.e., SharePoint) solutions.
Reality Check
Still, profiting from SaaS isn’t easy. As Pirie’s blog entry points out:
“In the old days with legacy software, the big upfront cheques solved your CAC problems. With SaaS you get paid monthly and if the customer doesn’t like it, they go away. So if you’re product doesn’t work for them, you’re in big trouble. That’s why SaaS is so F***ing hard.”
Again, I don’t condone Pirie’s language. But I do think he provides an important reality check. And he offers three ways to help SaaS companies begin to optimize their revenue streams.
Firstly- you need to get out of the building and build software that solves customers problems and they want to pay for. Then, you need to focus on Network and Ecosystem effects to truly differentiate yourself from Legacy software and create market pull, as Marc Andreessen would say.
Worth Examining
Third, Pirie offers an 89-slide presentation to help aspiring SaaS companies to more effectively monetize their services. My eyes typically glaze over when viewing most PowerPoint presentations. But I think this one is worth your time:
Great post. Just a heads up though – everyone reading this is probably an adult, and we can all make our own decisions about what kind of language is f****** acceptable.
Hi Joe
Yes sorry about the language… I don’t think people adequately understand the market side risks when entering the SaaS business- the only thing in their control is the technology.
In case you’re interested, the video of that presentation is up along with the rest from the summit- http://www.rackspace.co.uk/saas2010/content
The VC panel was particularly good.
Justin
Let’s not forgot that capitalism is at it’s best when it rewards innovation and systematically purges inefficient ideas.
I had to dig this up as it has been a while, but Roman Stanek wrote an awesome post that I feel is relevant here. http://roman.stanek.org/2009/10/01/please-dont-let-the-cloud-ruin-saas/
The fact that software vendors can’t “throw software over the wall” at customers anymore is better for the customer. This is where capitalism will reward the SaaS provider in the long run. SaaS delivered correctly moves all of the burden of support and management to the vendor, and who wouldn’t want that?
Still, SaaS is F****** hard! So it is natural that some software vendors are attempting to kick back the burden to the customer or even the VAR’s. (per Roman’s example with Amazon’s AMI, the new CD/DVD)
That’s just my humble opinion though.
@Trevoro I think Matt was being facetious regarding Justin’s blog title. One of the best yet in 2010!
Andy Myers
Fractional CIO, Consultant
andymyers.net