HomeMy beef with 'Saas' - Part 2
Part 1: Saas overview
Part 2: Saas in the aas
In Part 1 I mentioned that Venture Capitalists quickly got on the Saas bandwagon.
Generally speaking, smaller business investors pay attention to what VCs are doing.
And, generally speaking, business owners pay attention to what investors are paying attention to (if they want to exit (sell), or get money from investors for other reasons).
In the late 2000s and 2010s there were a lot of software companies with existing desktop application products who didn't have a cloud based product, but who desperately wanted to be a Saas company.
For some it made sense to port or build a product for browser delivery. But it didn't make sense for many others. There are many, many reasons why this is so, it's beyond scope here to discuss them.
So that sucked for those businesses.
Well, not really.
They quickly realized that they could have their cake and eat it too. Browser-based offerings are not the only apps that can use internet connectivity to facilitate a subscription model. Any desktop program can connect to the internet. Developers quickly learned how to allow the basic Saas (and cloud) things to happen. Monthly billing cycles. Instant updates. Server based credentialling. Usage logging. Performance analysis. Payment mediation.
Hooray! Now any software can be Saas.
But does that mean all software should be Saas?
Let's look at the benefits of Saas offers vendors again. How does it compare with the buy-to-own model.
Predictable revenue
Getting a small amount of cash from customers periodically is nice. And it's predictable. Until it isn't, like when you screw up, or the competition eats your lunch. Then your "predictable" revenue starts to look a little sad as customer start canceling their subscriptions. Too bad if that happens before you've recouped your acquisition costs 😳.
There are definitely situations where getting payment-in-full up front (à la buy-to-own) is preferable. Predictably recurring revenue is achievable with a well managed paid upgrade cycle and a reasonable service plan.
Customer retention
Customers are more likely to stay with a business that offers a convenient and reliable service at a predictable cost. That is true. It is also what customers get with modern implementations of the buy-to-own model.
Upselling opportunities
Yep. Upselling, cross selling, and multiple service tiers are all completely do-able with the buy-to-own model. Packages can be upgraded, downgraded, relicensed etc using an online connection.
Reduced customer acquisition costs
This one is a bit non-sensical to me. Whether your product is Saas or buy-to-own, you are always going to lose customers, and you are always going to have to recruit new ones. In both cases you need to focus on retaining customers - for Saas it's to get them to renew their subscription, for buy-to-own it's to get them to upgrade and keep paying support fees.
Improved customer engagement
There is nothing about customer engagement that is specific to Saas. With any product there are well known ways to create opportunities to engage with customers, understand their needs, and provide better service.
Improved product development
Yeah. More of the same. As already discussed, the buy-to-own can and should provide ongoing revenues for product improvement. Believe it or not, companies were able to do this successfully prior to the internet...
Ok, what about from the customer perspective.
Lower upfront costs
Hard to argue with. Except that not all customers want lower upfront costs. Business customer who needs to expense the entire amount into this tax year? Customer who needs to finance the full amount of the purchase, or bundle it with some other related purchase? Customer who wants the simplicity of paying once and then not having to think about it again? Customer who is tired of hard-to-drop services that constantly debit money from their account?
Scalability
If you are a business with fluctuating usage needs then a Saas based solution does seem like the better option. But you can also achieve much of this using a buy-to-own product with flexible seat based licensing and attractive terms for additional seats and site-wide licensing.
Accessibility
Cloud based software definitely has the advantage when it comes to accessibility. But is it really that much harder to quickly download an installer and enter a license key?
Automatic updates
Meh. Same same. A buy-to-own package can also take advantage of automatic or manual updates.
Improved collaboration
Again. Sure. Or not. Both buy-to-own packages and Saas package can do this well, or poorly.
Lower IT costs
Yes, a poorly implemented buy-to-own package can require lots of IT help. But so can a Saas package. Six of one...
Alright. If you ponder a bit you realize that the old buy-to-own method of selling software achieves a lot (or all) of the same goals as Saas. In many ways they are really just two different sides of the same coin.
Ultimately both Saas and buy-to-own models can work for vendors and customers. In some situations one will likely be more appropriate than the other. The point is. You have to understand the market, the product, and the implementation before picking a winner.
So what is my beef?
[To clarify, I am talking as a shareholder/owner of a software development company, not as a customer].
Succinctly put, my beef with Saas is that it still retains its Venture Capitalist baggage. Owners and managers (at least, the ones I deal with) are too liable to start out with the mindset "Our software should be Saas" without first building an argument for why it should be Saas.
If they cannot come up with rational and considered reasons relating to customers, profitability, or operating/technical concerns, then there is only one option left. They are thinking about an exit, and they think Saas will be more attractive to a buyer than buy-to-own.
It is easy to forget that 20 years ago the VCs weren't only interested in Saas. It was the combination with Cloud and a market ripe for disruption that mattered.
Twenty years is a depressingly short time. There are still markets where this combination can disrupt. But they are niche, and the ability to retrofit "cloud like" capabilities to all modern software has substantially complicated the equation. The competition has not stood still. There are probably a diminishing number investors who still drink the Saas kool-aid.
The VCs who cashed in on Saas last decade have long since moved on.
My favorite reason to choose Saas
If you've discussed Saas with anyone in the past decade you've heard this one.
{{Your business partner who wants to swap to Saas approaches}}
"Think about it {{taps temple with forefinger knowingly}}."
"I have three or four subscription services at home."
"Each month the service bills me. I don't even know it happens."
"Half of them I don't actually use anymore."
"It's easier to keep paying than to figure out how to turn them off."
"What a brilliant business model!"
My imagined response (I am never quick enough on my feet to actually give this answer).
"Ok. Firstly, thanks for the novel take. You're such an original thinker!"
"Using anecdotes that equate your recreational discretionary spending habits to the business expense management practices of our customers makes it all so obvious."
"Like them, you probably look over your personal P&L statement with the accountant once a quarter. So they'll likely never see our charges, even though they are at least an order of magnitude greater than your Disney+ charge."
"Even if they do spot it, probably they won't miss a few thousand dollars each year. At least not enough to pick up the phone and call us."
"And all those times we've talked about maintaining strict ethical standards in the business, and only charging for the actual value we create for a customer, I'm confident that doesn't apply here."
"Oh. By the way, you do manage our accounts a little more tightly than your home finances ...Right?"
In closing
Saas is not a stunning business Wunderwaffe.
It is one approach to selling software.
In many situations it is an excellent solution.
In other situations it isn't.
Build your case.
Talk to your customers, your distributors, and your partners. Is Saas what they want?
Cost the dev and admin loads associated with converting to, and maintaining, Saas.
Does it all add up?
Or is that all still irrelevant. Do you still think Saas is going to get you a jackpot exit?
Well. Ok. Just make sure Saas doesn't screw all your customers right in the aas. Fleeing customers is never a good look.
Alternatively, let's talk about that buyer you are imagining you will reel in with a Saas product. Could it be that he/she looks at your boringly profitable old buy-to-own model and thinks "Shit, all I need to do is buy these fools, convert the product to Saas, and I'll be rolling in it!"
There's a buyer who will gladly deliver your desired exit.
Edit 2024-06-15 See also: 'Spreadsheet Assassins - A short history of “software as a service”'