Quick Tips - October 17, 2007

Tips from the practice masters...

Meet the customer

SaaS – Software offered as an online service rather than in the more traditional form as shrink-wrapped CDs installed on the customer’s own computers – is the fastest growing segment of the business software market. But for companies which have established themselves with the CD-based deployment model, expanding or transitioning into SaaS comes with a unique set of challenges. In a recent online talkcast, Rick Collison, Ariba’s Director of Solutions Marketing, discussed how to think about repositioning a company’s offerings using the SaaS paradigm. 

SaaS really is a different business model.

A traditional software company will still be in the same business as before SaaS, but its business model will be quite different. A Software as a Service environment is unlike either a CD-based customer installation or one hosted remotely for the customer by an outsource vendor. Those differences effect not only the product’s deployment, they also affect the vendor’s financial model, staffing requirements, technical needs, and responsibilities for managing and upgrading the IT as well as the software aspects of the product.

Give customers another option.

A major attraction of providing a SaaS-type service is that companies which don’t have the resources to buy a multimillion dollar perpetual lease on software to be installed on their own private network can often afford to rent similar software, if it’s hosted by the vendor. Companies can get the benefit sooner than if they had to install and manage it themselves and without needing the staff or technical resources which would otherwise be required. At least for the first few years, it’s less expensive for the customer, who otherwise may not be able to enter the market at all.

Know who adopts.

Most SaaS companies make the assumption at the outset that their service will appeal mostly to smaller and mid-size companies. Sometimes that’s true, but for others, including Ariba, the adoption rates of mid-size and large companies were very similar. Companies of every size have constraints on their resources and can be driven to make the same decisions. So don’t disregard larger customers in your marketing plans.

Succeed together.

Because SaaS services are normally billed on a usage basis, the vendor’s income typically grows as the customer’s use of the service grows. At the same time, the more the customer uses that service, the greater the benefit they derive from it. Encouraging more productive use of the software is a win-win strategy.

Explain tradeoffs.

Customers typically want everything, but some benefits of SaaS are not compatible with other desirable features. For the customer, low cost of ownership – which is a major benefit of SaaS – conflicts with having the flexibility to customize that software so as to manage things their own way. Costs go up with custom tailoring; low cost and high fashion are incompatible.

To bundle or not to bundle?

Some customers may want or need a higher level of custom service than is available in the standard SaaS offering, but without going to the extreme of having their own complete custom installation. Consider bundling different elements of service with the primary offering, or making them available a la carte. Consider providing a post-deployment layer of staffing to help customers work through their unique user issues.

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Read Part II in this series: How to think about SaaS Part II of II: Making a SaaS strategy work.

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