It has taken almost a decade for the software industry to absorb all the ramifications of moving from perpetual license pricing to SaaS subscription pricing. The longer payback period for investors, the headaches of high acquisition costs, and the upfront pre-revenue investments in infrastructure being just a few of the issues with which SaaS entrepreneurs and VCs have had to wrestle.
So, why go out on a limb looking for new revenue and higher margins by experimenting with even more unconventional monetization models? Won’t this just make a bad situation worse?
To temporarily borrow a well known trademark, the reason is simple: it’s the network. If there is a common theme emerging from this short list of dos and donâ€™ts then this is it. It’s the network. It’s the Web. SaaS is not software. New business value arises from the characteristic that your software-as-a-service offering, unlike licensed software, can become a network hub that can connect any business entity, user or system it touches to any other: your prospects, your customers, your partners, your customersâ€™ customers, your customersâ€™ vendors, your customersâ€™ partnersâ€™ customers, and so on all the way out to the edges of the Web. Given that value is created by the network, it follows that new network-based monetization opportunities are also created. Here is a quick (and very incomplete) list of new monetization opportunities open to software-as-a-service businesses.
- Syndication (content/applications/data)
- Benchmarking and market intelligence
- Cloud services
Revenue models beyond subscriptions
- Referral fees
- Transaction fees
- Consumption-based pricing
- Performance-based pricing
- Reseller margin
- Revenue sharing
The monetization opportunities open to you will depend on many factors, including the nature of your business, the attitudes of your customers and the sophistication of your product. But most importantly, it will depend on your own creativity.
In the first post in this series, I presented a somewhat trick question in the hope that anyone who digested the entire series would have no difficulty coming up with the right answer.
Quiz: What is the most successful enterprise SaaS application to date?
Hint: Itâ€™s not Salesforce.com
For those of you who have read all 5 posts in this series, thank you for your patience. And, if you haven’t guessed it already, the answer is…
Answer: Google Adwords