Creating a Successful SaaS Product
Industry analyst, IDC, forecasts SaaS revenue to grow five times faster than traditional packaged software through 2014 and predict that by 2012, nearly 85% of net-new software firms coming to the market will be built around SaaS service delivery. Furthermore, they estimate that by 2014, 65% of new products coming from established application developers will be developed as SaaS services. With such a rapid rate of adoption for SaaS, any software made available as a services is guaranteed to succeed, right?
Just "building" a SaaS offering does not ensure success. Creating a successful SaaS product line requires planning and deliberate execution. Moving from on-premise software business into SaaS is not easy and should not be taken lightly. Introducing SaaS into your software company is disruptive for your business. From the marketing and sales departments, to accounting, finance, and even human resources, enterprise-wide changes must occur to adapt to the new business architecture.
During the planning process, to create a successful SaaS product offering, it is important to remember that "easy" and "worth doing" are two different things and for many application developers and their customers, regardless of effort, making the change to SaaS is very much worth it.
Here are some of the keys to creating a successful SaaS product line for your business.
You have to start with a product that is unique and solves a problem that is critical to an identifiable market. Your target market must see value in your product. This is not unique to SaaS.
But the focus of SaaS, unlike on-premise solutions, is not just on the product. With SaaS solutions, customers are subscribing to the promise that your company will deliver the functionality in the product today AND ADDITIONALLY will provide fast and reliable access to the application, protect sensitive data, and deliver valuable enhancements over the entire life of the subscription. Customers are investing in your company as much as in a particular product, and they want to be in a positive relationship.
On-premise companies typically spend at least a year creating, testing and distributing each new version of their products. They must ensure their new version will work on a wide variety of customer hardware. Often times, customers do not implement software updates and upgrades because they are afraid they will disrupt their operations. As a result, they are not taking advantage of the application developer's latest software features and enhancements.
SaaS eliminates the upfront software costs, and additional deployment and maintenance costs. SaaS also ensures that every customer benefits from the vendors' latest updates and upgrades.
In a SaaS scenario the nature of the development cycle needs to change; the long development cycle which culminates in a significant upgrade once a year is no longer appropriate. Focus must be on maintaining a continuous build/deploy/support cycle, geared to delivering a stream of high-value functionality on a frequent basis.
Sales and Marketing
While many of the tactics of marketing a SaaS solution are identical to those used in marketing an on-premise solution, the strategic elements - the audiences, the value proposition and the schedule - are different. You'll need to do more than simply tweak your on-premise marketing strategy to meet the unique challenges of marketing your SaaS solution.
Sales differences: With SaaS, the "elephant hunter" becomes extinct. There are no huge single sales to be had. Successful SaaS companies structure their sales departments and sales incentives based on a volume of smaller sales, not a smaller number of big sales. Like Web companies, the primary focus of a successful SaaS company is simply getting people to use the software. More users equal more monthly revenues.
Marketing differences: The SaaS cutomer's experience includes the speed of deployment, ease of configuration, access to support, and the simplicity of the purchase process. Marketing needs to tout the features and benefits of the entire "services," no just the product functionality.
SaaS demands that marketing make it extremely easy for a potential customer to become a user. SaaS companies cannot afford to make prospects jump through hoops to become customers. Marketing must focus on immediate gratification while the product focuses on immediate value. Free trials are essential, and the most successful companies make it possible for prospects to begin a trial by simply filling out a Web form. Any user who tries the SaaS application becomes a lead for the sales team, who can then work on converting the trial user to a permanent customer.
Gone are the analysts, conferences and huge advertising budgets of on-premise software marketing. Blogs, search words and infiltration marketing are the tools of the successful SaaS company. After all, SaaS lives on the Web. That's where SaaS companies should look for their customers.
It is critical that companies not fall prey to selling on price alone. Attractive monthly subscription pricing may generate the initial interest from a prospective customer, but customers value other benefits as well, including rapid deployment, reliability, easy updates, and flexibility. In fact, they may view these as even more important than price. Promote these other advantages in addition to the cost advantage.
As software companies transition from an on-premise model to SaaS, revenue and cash flow forecasting and planning change significantly. The large "lumpy" receipts of cash from on-premise deployments and the annual payement in advance of substantial maintenance charges are replaced by a more predictable lower level of receipts throughout the year. Planning for this and understanding the working capital requirements during the transition period are particularly important.
Legacy vendors also have to deal with organizational challenges that include converting to a subscription license model, retraining sales and fulfilling a new compensation, disruptions to revenue streams, and converting customers who are using the old technology.
This disruption from moving to SaaS means that many of the existing business process - from on boarding customers to billing to sales compensation-must be examined and modified to fit a SaaS business model.