SaaS Economics

Contrasting the SaaS Model and Enterprise Software Business Models

In many ways, marketing a software-as-a-service (SaaS) application is more like marketing packaged software, computer hardware or consumer electronics than enterprise software.  Failure to make this paradigm shift has meant the death of many a SaaS startup.  The reasons are simple.  First and foremost, enterprise software is usually delivered in an unfinished state.  The so-called product is delivered and then configured, customized, integrated and QA-ed onsite to deliver a unique solution–a product of one.  This is more akin to the artisan products of a cottage industry than to manufactured commodities.

The fact that SaaS is a commodity delivered via the Web entails a shift in business model that affects everything from product design to organization design.  Below is a summary of characteristics that contrast the traditional enterprise software business model to the new SaaS business model.

Enterprise Software vs Software-as-a-Service

In the world of SaaS multi-tenant architectures and bargain basement prices, the entire business model hinges on having a single commodity sold at high volumes.  Moreover, SaaS is marketed and delivered primarily within a single channel, the Internet.  This creates incredibly tight coupling between the product, business strategy and operations.  In particular, there is an unusual itermingling of the product itself with the other 3P’s of marketing:  price, promotion and place.  For example, a change in pricing model will usually entail simultaneous changes to both your Web ordering code and your license management code.  And, search engine optimization (SEO) is likely to impact how your product is designed and delivered over the Web, not just your marketing website and landing pages.

Comment on Facebook!

Leave a Comment