Steve Slezak’s, Eric Norlin’s and most recently Phil Wainewright’s discussion shows SaaS adoption in a different light. Indeed a non-SaaS enabled company faces a difficult choice on whether to adopt the new paradigm.
To recap, first and foremost the company has to invest resources to modify or recreate the existing product, and based on Fred Chong’s recent post, it is no small feat.
How long can the development process take? That depends on the product and the capabilities of the development team (and the company has to also decide whether to hire a new development team or split up the existing one), but super-optimistically, to assume 1 year – this still may be too long for client (& the market) to wait.
As suggested by Greg Gianforte, current customers are the first to suffer because the company may not have the time/resources left to keep improving the existing product (or perhaps it may not want to in order to get more buy-in for the new product). They may also become unwilling guinea pigs for the new product- after all one has to start somewhere. Ironically as far as the new "bells and whistles" go, some of the customizations developed for the clients may be lost when building a brand new multi-tenant application.
Some of the other issues are uncertainty as to whether the SaaS-enabled product has better value in a Web-enabled format (depending on specific application or if it is used in areas with poor Internet connectivity).
Having to move away from large upfront revenue receipts, to a more predictable but lower, monthly, recurring revenue streams may also be painful. Companies who still depend on venture feedings may risk securing continued investement completely. I recently discussed SaaS-model with a venture capital firm whose representative questioned its value given that "subscriptions come and go, while licensing fees are for good" – once the company invests enough into licensing, "it may be more willing to stay the course." Alternatively, if the company is public, its shareholders might not welcome possible revenue reduction during the the transition period.
Finally, low risk tolerance may make getting out of the comfort zone difficult. If the current product functions and sells well - why "break" something that works? And, what if "It is still possible all the hype about SaaS will come and go…"
Newcomers are generally unencumbered with these concerns and may have an easier start. And, in many cases, because they will be looking to lay their claim on the marketplace from successful off-line companies, success will not come automatically - they will have to work hard to get it.
- The new customizations will have to work in the context of all the other tenants – meaning architecture would have to be scalable and expandable and support possible changes in functionality.
- Newcomers are more dependent on subscription revenue than "enterprisers" are, so they would work with clients much closer, trying to cater more to their needs and in the process improve their apps for other clients. Newcomers may also have to operate on the much lower margin for some time.. until they build up their customer base to start enjoying economies of scale.
- What's good is that their clients will increasingly get used to faster response times, more customizations, continued development – fueled by these, other clients will come to expect it from vendors. They may start to deliberately delve into SaaS relationships with more different vendors.
So if newcomers stay the course – in the end, they may be looking at a bigger piece of the pie. And Wall Street will follow the lead.
What I see happening more is traditionally "off-line" companies partnering with SaaS platform powerhouses to SaaS-enable their solutions.. I will cover more on the growing number of SaaS-enabling partnerships in the upcoming posts.
