Customer-centric Growth by Lincoln Murphy

Pureplay Enterprise SaaS and Vendor Sustainability – Part 1

Originally published on March 6, 2007

The definition of Pureplay SaaS is where the SaaS vendor offers a completely hosted system with the customer needing nothing more than a standard PC with normal input devices to take full advantage of the offering.

If you live in the blogosphere, you might think that SaaS is ubiquitous in the Enterprise by now and that on-premises software is a thing of the past. In fact, SaaS is so ubiquitous and it is almost old news, and you are seeing more of the XaaS variants rearing their ugly heads. That is simply not true. While SaaS is certainly growing, it is not the norm yet as many pundits would have you believe.

This series is to help Enterprise SaaS vendors with two potentially business-stopping problems; scalability and sustainability. I’m not sure many people are looking at these problems when planning their SaaS offerings. By examining who actually needs SaaS versus who might just want it, a bad scenario for the Enterprise SaaS vendor may be avoided.

Who needs Pureplay SaaS? If you look at the major benefit that SaaS brings it makes sense that the low-hanging fruit will be in the consumer and lower-end SME markets. I’m not going to address the consumer market because it is not one that I understand well. I understand business, so I tend to only play in that arena.

The market that I do understand are the SMEs. Rarely do SMEs have a well-defined technology infrastructure (and even more rarely do they want one), so a SaaS offering in the CRM, Supply Chain Management, or vertical-specific space makes sense for them. They can offload the support costs onto the SaaS vendor and allow them to focus on their core competency and just use the software. This is the way it should be.

Why do you want to be a Pureplay SaaS vendor if you are not targeting those market segments? Perhaps you are caught up in the hype. If that is the reason, you need to examine a couple of things that you might not have thought of. One of the biggest “selling points” of SaaS as a software delivery model is reduced support costs for the user.

This is great, but if you are selling to a company that already has the infrastructure to support on-premises enterprise software, why would you take on those support costs yourself? The fact is, as you add customers and users to your system, your support costs go up. Whether it is storage or bandwidth, you will end up paying for your success.

Aside from the hard support costs of taking on all of the burden yourself, you also take on all of the tech support issues. It is the norm that on-premises software will be supported in house as much as possible. If the problem cannot be resolved internally, someone on the technical team of the organization will call the vendor and work through the problem.

The technical team has a vested interest in making sure that the problem is resolved in a timely manner since they “own” it. With SaaS delivered software, who supports it? More than likely it is the SaaS vendor handling all support, from first level up. Even if you have worked out an agreement with the customer’s technical team, how do they actually support the product, even first level? Can you as the SaaS vendor really handle these support costs long-term? What is more, large-scale on-premises software is almost always accompanied by a support contract. It is much more difficult, though not impossible, to sell one of those when you have a Pureplay SaaS product?

While it may be a long-term company killer to take on all of the support costs yourself, it may in fact be a company starter-killer. In some large enterprises you may find being a Pureplay SaaS vendor to actually hinder the adoption of your product. That will be addressed in Part 2.

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