The Secret to Saas Success
A finance-centered Saas transition strategy is the best way for software vendors to meet customer needs, satisfy regulatory demands and achieve a competitive advantage.
By Robert O'Connor, Softrax Corporation
Sep. 02, 2005
Innovation is still the key to growth in the high tech business, but it has broader implications than in the past. Today some of the most important innovations are about the business model - how technology is being sold and delivered.
In fact, nearly 80 percent of software CEOs surveyed at the Enterprise 2005 conference stated that business model innovation is equal to or more important than technological innovation to business success today. Software as a service (Saas), on demand, hosted, and subscription models are all reshaping key customer relationships for high tech companies.
In the long run, these new models smooth out the revenue curve for vendors. But the transition can be tough. Many strategies - sales, marketing and development, for example - must be in place in order to execute the transition successfully.
The most important operational issues by far occur in the finance department. Billing, renewals, cash flow, and revenue management practices must change dramatically from the traditional product licensing days in order to ensure success.
The Attraction of Saas
Customers today are looking for an easier way to acquire technology. Instead of large payments up front and on delivery, customers increasingly want to mortgage the cost of the technology over a series of monthly payments. This takes a huge burden off capital budgets. It also provides a much more flexible and, in most cases, more appropriate financial arrangement for customers.
Fees can be determined not only by the technology itself but by how it is used, which is what really matters to the customer. The base monthly payment can be adjusted by usage levels so the relationship is much easier to scale up and down according to business requirements. Budgeting, paying bills, and controlling the technology are all substantially easier for the customer. In addition, because of the more attractive financing, ROI can often be achieved more quickly.
Even though these changes primarily impact business-to-business relationships, the economic gap between Saas and traditional models makes it a very powerful market force. For a good lesson on what is happening in software industry today, look no further than the telecom industry. Innovation and market share are a matter of how services are sold. Rollover minutes, off peak pricing, free weekends, family and friends plans, these offerings are all simple for customers to understand because they are based on how the service is used. Companies that make the transitions first get the biggest market share advantages.
In fact, nearly 80 percent of software CEOs surveyed at the Enterprise 2005 conference stated that business model innovation is equal to or more important than technological innovation to business success today. Software as a service (Saas), on demand, hosted, and subscription models are all reshaping key customer relationships for high tech companies.
In the long run, these new models smooth out the revenue curve for vendors. But the transition can be tough. Many strategies - sales, marketing and development, for example - must be in place in order to execute the transition successfully.
The most important operational issues by far occur in the finance department. Billing, renewals, cash flow, and revenue management practices must change dramatically from the traditional product licensing days in order to ensure success.
The Attraction of Saas
Customers today are looking for an easier way to acquire technology. Instead of large payments up front and on delivery, customers increasingly want to mortgage the cost of the technology over a series of monthly payments. This takes a huge burden off capital budgets. It also provides a much more flexible and, in most cases, more appropriate financial arrangement for customers.
Fees can be determined not only by the technology itself but by how it is used, which is what really matters to the customer. The base monthly payment can be adjusted by usage levels so the relationship is much easier to scale up and down according to business requirements. Budgeting, paying bills, and controlling the technology are all substantially easier for the customer. In addition, because of the more attractive financing, ROI can often be achieved more quickly.
Even though these changes primarily impact business-to-business relationships, the economic gap between Saas and traditional models makes it a very powerful market force. For a good lesson on what is happening in software industry today, look no further than the telecom industry. Innovation and market share are a matter of how services are sold. Rollover minutes, off peak pricing, free weekends, family and friends plans, these offerings are all simple for customers to understand because they are based on how the service is used. Companies that make the transitions first get the biggest market share advantages.
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