Ask Rubi

Rubi Says…

Dear Tony:

Let’s step back to SaaS 1.0 for a moment. The big challenge for vendors is that customers have been sold on SaaS as a way of reducing deployment costs and appealing to smaller customers via a lower cost of entry. The problem is that irregardless of the cost of actually delivering the application as a service, vendors have not found a way to reduce the cost of sales, so they spend a lot to capture a relatively small revenue stream. On top of this, customers get to pay in small installments rather than all up front so the smaller total revenue is spread out over several years. All this puts a big squeeze on vendors’ ability to actually earn a profit.

Now if we consider the so-called SaaS 2.0, how does this all change? SaaS 2.0 promises to focus on business results rather than cost of deployment. At a minimum this provides an opening for vendors to better tie the application to various types of business value beyond deployment cost. SaaS 2.0 also promises to allow interactions between various parties and applications which creates another opportunity to deliver value. Both of these aim value at the top line. Top line value is good in that it is theoretically unbounded, although it is also conceptual, so it is more expensive to communicate as you need better sales and marketing.

Is there anything about SaaS 2.0 which makes it cheaper to acquire a new customer? If not, SaaS 2.0 vendors are going to find themselves in the same pinch as SaaS 1.0 vendors unless they charge more for SaaS 2.0 applications. SaaS 2.0 promises greater top line value, so it is really up to marketing to communicate this additional value and sales to capture it during the sales process. Of course, you also need smart competitors that want to be around for a while so they don’t teach the market that all this value comes at no cost.

Sincerely,
Rubi