For high-end software applications, obviously paid subscriptions is the route to go with. But not every software service has to be an ERP or CRM or SalesForce.com. Is it possible to offer SAAS through paying ads?
In a way, search engines are actually using SAAS model. The software to crawl the web and index the pages and display the search results is all hosted by companies like Google and Yahoo. For whatever reason, even before SAAS emerged as an acronym, the various search engines have gone through the model of offering it as a free service by making money in various other ways, including listing the results based on who pays more to using sophisticated algorithms like PageRank but displaying contextual ads. History could have very well gone through the course of charging the end users a nominal monthly fee to do the search and not display all those sponsored ads.
Given the above example, you can’t rule out the possibility of a business model where the software is offered as a service, for free, but the revenue is generated through the ads. But how do you know if you can go with that route? Let’s do some calculations here.
Typical contextual ad CTR (click through rate) is about 2%. The CPC (cost per click) could be anywhere from $0.05 to $1.00 or more. Say, we use $0.25 as an average. Now, if you are considering offering your software as a service with a subscription fee of $5.00/month, then all it takes is about 1000 page views by the user per month (Amount/CPC = no of clicks required = 5/0.25 = 20 clicks. page views = # of clicks/CTR = 20/(2/100) = 1000 pages). This translates to about 33 page views per day and if you exclude weekends, it’s about 50 page views. For the niche market your software caters to, you can plug in different numbers for the above metrics and play with it. But you get the basic idea, on how to do this.
A hybrid SAAS model will offer the service through reduced subscription fee subsidized through ad revenue. This is again, the model of Google Apps For Your Domain (GAFYD) where you can pay for the service and not have ads, or don’t pay (or just register the domain) and get free service but keep viewing the ads. Ofcourse, GAFYD is perhaps not as effective because while Google knows the context through your email conversation, since email itself is a generic application, your likelihood of paying attention to the ads may be lesser. However, if your application is a very specific application, the audience visiting the application are already within a specific context and hence your CTR and/or CPC are higher than generic websites.
Try to plugin both types of revenues and play with the numbers to identify the right combination (too much subscription fee, fewer users which results in fewer ad revenue and vice versa). Good luck with your next enterprenual idea and preparing a viable business plan for it.