Customer-centric Growth by Lincoln Murphy

Pureplay Enterprise SaaS and Vendor Sustainability – Overview and Part 4

Originally published on March 9, 2007

This series is to help Enterprise SaaS vendors with two potentially business-stopping problems; scalability and sustainability. I am attempting to address both the real-life objections seen in Fortune 1000 enterprises when selling a SaaS solution and some ways to work around them.

This series is also meant to get SaaS vendors to really look at their delivery model and make sure they are not taking on more of the support costs than they actually need to. By knowing your target customers, you can save yourself (and your investors) a lot of money and improve your margins; you could even save your company in the long run.

This series is my opinion and is based on my experience. Your experience may differ, and this is not meant to be the definitive text on the subject. I just thought I would share it. Below are links to all three parts of the series, abstracts of each part, and a fourth part addressing Economies of Scale and SaaS.

Part 1
Who needs Pureplay SaaS? Why do you want to be a Pureplay SaaS vendor if you are not targeting those market segments? 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? With SaaS delivered software, who supports it? More than likely it is the SaaS vendor handling all support, from first level up. Can you as the SaaS vendor really handle these support costs long-term?

Part 2
Starting a software company from scratch, On-Premises or SaaS, is no small task. There are five major objections witnessed when a start-up is selling SaaS solutions to Fortune 1000-sized companies: existence, reliability, support, and scalability. These are objections faced by almost every start-up in one form or another whether they sell software or not. The list of “legacy controls” are objections witnessed that are specific to selling Pureplay SaaS in a Fortune 1000 Enterprise: Internet access blocking, locked down PCs (no ActiveX controls or Flash animations), disk space quotas, etc.

Part 3
The SaaS industry obviously agrees that SaaS is the future of software delivery, but while they still have a substantial amount of value in their existing systems left on the books, the Pureplay version of SaaS may not be needed in Fortune 1000-sized Enterprises.

SaaS is often a combination of an On-Demand delivery mechanism (SaaS), and an On-Demand licensing model (Utility). First, don’t be a Pureplay SaaS vendor if your market will not accept it. Be a solution provider first, a software company second and a SaaS company third. Mention solutions to their problems. Do not get stuck on a technical solution that doesn’t fit with your customers needs. Meet the immediate needs of your customer by building in Utility Pricing to your application and/or architecting a Hybrid SaaS system.

The Elusive Part 4 – Economies of Scale and SaaS

A big selling point for SaaS is the economies of scale the hosted solution provides. This is true, especially at the data center level. I seem to have missed the boat on the economies of scale argument, or so I have been told. However, when working with Enterprise customers who do not need their software vendors taking over their infrastructure support costs, why would the SaaS vendor take on this burden? Perhaps you would be happy with 35% margins when handling all of the support costs. Your investors would throw the Economies of Scale book at you when they find out you could have been working with 60% margins by not taking on the additional support burden.

– Lincoln

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