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Why are so many B2B SaaS application vendors struggling?

For the last five years or so, the conventional wisdom has held that software as a service holds great promise for enterprise business applications. There has been a spectrum of observers from zealots to skeptics, but no one has been able to deny the successes of and WebEx. In addition, a number of other vendors, such as Taleo, NetSuite, and SuccessFactors appear to be hitting their stride. Nonetheless, most SaaS vendors are still struggling to acquire customers and reach profitability. Why?

Clearly, the requisite larger investment in a vertically integrated hardware/software SaaS infrastructure combined with lower up-front subscription revenue entails an inherently longer ramp up to profitability than traditional enterprise software. But, my belief is that profitability issues run deeper than simple break-even timing, because vendors do not always recognize and rigorously adhere to the fundamental commodity, mass market economics of the space. In plain English, old enterprise habits die hard and it is easy to overspend on customer acquisition and product differentiation by targeting undersized market segments, chasing unprofitable customers, ignoring inefficient sales, marketing and engineering processes, and investing in functionality over quality, reliability, scalability and security.

This post is the first in a series under the heading “B2B SaaS Applications – Flies in the Ointment” that will analyze some of the common day-to-day issues encountered by these vendors, and whenever possible offer potential solutions to their ills. Some of the issues addressed in this series include the following:

  • I don’t have enough leads
  • My customers want to customize my application
  • Getting new customers up and running is too long and hard
  • My prospects aren’t Internet savvy
  • My sales cycle is too slow and takes too much effort
  • My prospects always seems to want that one thing we don’t have
  • My prospects don’t have enough time or interest to talk to my sales staff

Also, any suggestions of interest are welcome.

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