Monday, June 01, 2009

The challenge of "build for the web" to SaaS economic models

Build for the web is a strong meme. Most of the time people focus on the technical elements of this and the end user elements. What I haven't seen people talk about much is the impact that this has on the current financial models from SaaS vendors. SaaS can give great benefits for companies by enabling an OpEx rather than CapEx model but the solutions today do assume that a person is using them. Working on the system I'm looking at right now its clear that this model is okay in most cases in 2009 but won't be the case for long.

Think about a world where you are looking to combine a SaaS CRM provider (user based licensing) with a Logistics solution (shipment based) and an analytics solution (user based) and create a new unified sales/marketing and shipping solution.

All fine. But now lets say you get clever and you realise that from the CRM solution what you are really interested is tracking every interaction you have with customers. Your internal people aren't interested in the various options the CRM solution has, they just want to be logging what is going on but using the analytics to provide them with visibility of what they should be upselling and what are the current globally successful products.

Looking forwards as SaaS vendors shift towards different utility models which address their financial demands (e.g. what is a "user" if a remote service or other SaaS solution is accessing it?) the complexity of information sharing is liable to increase, both in terms of licensing ("you shall not cache or store information from XaaS outside of the system except for your own individual use, it shall not be loaded into another application where users other than yourself can access it") and in terms of efficient financial management.

The transactional model, shipments, however remains valid and is very difficult to get around. Sure you can be more efficient on the bundling but you are always going to pay for the actual transaction. This presents both a challenge and opportunity for user based licensing solutions, they can move away from it towards a more transactional based approach, e.g. accounts/prospects/campaigns/etc for CRM, and start providing a business with a more direct measure of the actual value they get from an IT system.

The SaaS revolution has a long way to run and its economic shift is only just starting.

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