Tuesday, February 15, 2011

What's your biggest challenge in making online Business Solutions (SaaS) successful?

Transforming an idea into an online product and offering it at 20$ might sound radical & disruptive for most vendors, but it doesn't do much for customers. From most of my interactions, customers are beginning to absorb the concept of Software as a Service (which is great ...) as a new way of delivering Business solutions and some have even started perceiving that it only takes very little efforts for a vendor to do so...(ouch...)

From a vendor perspective, when they build using traditional software development methodology, they are investing/building for every customer and have better control on their cost and better visibility on per sales return. Even though the capital deployed and initial cost goes high, the return factor makes the whole ROI justification sound more practical.

Well, this case hits the wall only when the customers are more than one, or in other words *number = 110 and cost per customer drops low as compared to production/transactional cost. The vendor makes more per customer and accumulated appreciation to sales cost ratio goes down the drain. Precisely why online business solutions or SaaS models makes a point for customers.

You develop once and service 100 and factor the cost of production to sales ratio at a point where the customer makes money (higher TCO) from day one and you make money by adding lots of customers. Safe to assume if higher number of people put little money on the table, the vendor would make some for sure.

This underlying principle forms the biggest challenge from a build/development perspective for all online software solutions (new or old, selling for upmarket or downstream segments). Not only does it put pressure on faster customer acquisition and higher retention strategies, but it also makes a subtle point that you ought to build for scale and at the far end - align all cost (production & delivery) on a variable model. While easier said than done, the newly released WOLF Platform pricing resembles a closer mental match for vendors who are looking for a development partner for their SaaS .

WOLF has literally removed the per user charge, it made sense for most online business solutions, but not for application infrastructure and system service vendors such as us. More so since online solutions are more personal and people dependent. On the other end, application infrastructure is more dependent upon data, bandwidth and usage. Well, one can try and draw a parallel to users n’ computation cycles – but there are other innovative ways to cover that. Does lowering of the development cost solve the SaaS success challenge entirely?

No, higher numbers of customers, better marketing and higher retention, faster self service and cheaper prices demand a whole new approach towards online business and I will add some more thoughts as we go on. For now, you might want to read this lovely piece 'SaaS Startup Strategy | Three SaaS Sales Models' from Joel York & look for partners that can align their cost to your existing business and not otherwise.

Remember: If enough people can put in some value together, a lot more people will appreciate your collective value (underlying principle of a good SaaS)...

Sunny Ghosh
Director & CEO, WOLF Frameworks

NOTE: The views expressed above are purely personal and for informational purposes only. WOLF FRAMEWORKS INDIA PVT. LTD MAKES NO WARRANTIES, EXPRESS OR IMPLIED, IN THIS SUMMARY. The names of actual companies and products mentioned herein may be the trademarks of their respective owners.

1 comment:

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