I just read a post on the business of software about how to make a million and one suggestion was to get 1000 customers at $100 and a reply was, getting 1000 customers each month is difficult and that’s why SAAS is good.
That’s what prompted me to write this. Yes, SAAS makes the customer pay each month like any other utility bill. That doesn’t mean every software should be offered as a SAAS model. Actually, it can be offered, but not everyone will be ready to shell out money month after for it.
If farmers were to plant their crop once, put the water and just don’t have to bother any more, but if they charge you for their produce every week, just because you have to eat, would you like it?
What I mean to say is, if your application doesn’t require operational cost, then the customer is only ready to pay for the license. Large enterprise applications such as those offered by SalesForce.com are less than 25% development and 75% operations. They need to make sure to have the database running all the time, do the necessary performance tuning, monitor and ensure the web servers, app servers, email servers and any other technology components are smoothly running. While SAAS enablement itself adds unnecessary complexity which the end users don’t care about, overall the cost is amortized and with good execution, the economy of the scale can be achieved in the operational cost. That’s where the compelling proposition for someone to consider SAAS model. Not because your software is just offered as SAAS for you to bill each month, but because they realize that there is more cost associated with maintenance of the application.
Sure you can offer your software as a web application and claim that you are taking care of the operational aspects. But, unless what you are doing is complex enough, customers won’t buy into it. For example, if you use an open source database and other software components and build your SAAS solution on top if, what prevents the customer to not consider doing the same and hence ask for licensing and not as a SAAS solution? Sure, the customers are running their business and not a software firm. But, there is a price point at which, all these would start mattering. If a company has more than 200 users and they have to pay $50 a month, that’s $10,000 a month and $120K a year. But if the operational cost, including a dedicated IT resource is lesser than that, then your customers will start wondering which route to go and you better have a solid answer why your software should be available only as a service!