Why new SaaS providers should swallow their own medicine

The demand for SaaS is growing due to its associated scalability, flexibility and cost saving benefits. To remain relevant to their customers, the move is not a choice but a necessity – yet the benefit of such a model sits almost entirely with the end-user.

For ISVs, pay-as-you-go user license payments can mean squeezed margin and shifting user numbers, which creates difficulty in revenue forecasting and measuring success.

To further add to the complexity, an increasingly competitive software market means that ISVs cannot afford to get their pricing point wrong; too low and they will not be profitable, too high and they will lose market share. 

As ISVs become SaaS providers they need to ensure the transition is technically smooth and importantly creates a viable business model that will help them turn a profit. To do this, they should consider swallowing their own medicine – using a SaaS cloud hosting service provider to receive the same benefits they offer their customers. 

Gartner has predicted that SaaS-based delivery will experience healthy growth through 2015 when worldwide revenue is projected to reach $22.1 billion. Customers are seeking a flexible software model that can be scaled according to their needs.

Gone are the days of on-premise solutions that are capital intensive and costly to run and support over long licensing periods. SaaS allows customers to hand over the responsibility for keeping the application running and only pay for the users they need to, when they need to, lowering the total cost of ownership.

Simplified deployment, lower customer acquisition costs, centralised management and simplified upgrades also play a part in driving SaaS uptake. Most importantly, the ability to rapidly scale, combined with shorter sales cycles, set the stage for increased revenue.

Fulfilling the demand for a SaaS model will take its toll on ISVs if they do not deal with both the technical and commercial considerations of the transition.

From a commercial perspective, ISVs need to transition to a SaaS model that can stay competitive in a saturated market.

For these companies, used to receiving regular and predictable revenue streams, the challenges associated with a pay-as-you-go revenue model make it difficult to accurately forecast and measure their success.

It’s difficult to plan fixed costs when monthly revenue shifts. For example, these companies often support a burdensome IT infrastructure for the platform at a heavy fixed cost that the business is not guaranteed to recover from incoming revenue. 

Like their own customers, they themselves will need to overcome technology challenges including meeting enterprise requirements for security; control, performance; and ease of integration – and perhaps the biggest challenge – cost-effectively scaling IT operations to enable and keep up with a global customer base.

>See also: Controlling the skies: The rise and role of the cloud service broker

They will also need to consider the design of the application architecture – how can they design their application to be more suited to a SaaS based model? SaaS is a purely web-based offering and differs greatly from days of working with customers to install an application that is run in a data centre. An application that runs across the Internet will need redesigning and re-architecting.

So how do independent software vendors (ISVs) keep costs low so that they can generate enough profit margins to keep the business alive while offering their customers a price point per user that will keep them competitive? How do they ensure that they can create cost savings and efficiency by only using the right IT infrastructure as and when they need it?

They should reap the benefits of “as-a-services” solutions, such as infrastructure-as-a-service, by working with a cloud hosting provider. This will lower total cost of ownership, ensure rapid scalability, and ultimately help them align infrastructure spend with customer usage. 

This means the ISV cuts unnecessary cost and can scale up or down according to need. So if the company is about to enter a busy period (a known cyclical event for example) then they can simply build more infrastructure to cater for this increased demand. Once the busy period has gone then they can remove this extra capacity and return to normal load.

ISVs should look for the provider with the best price point and the best flexible contractual terms to align with their own price points and terms for their customers to help solve their commercial challenge.

Yet a SaaS provider is only as good as the platform that it delivers the software on. As ISVs transition to being a SaaS provider and pick their cloud host, they must choose carefully and according to technical ability. Looking for industry experience, the ability to scale services quickly (and globally) and strong SLAs, are key to finding the right one. 

To remain competitive, ISV SaaS providers need to align their solutions with their customer’s needs; flexibility and cost efficiency. They should look for the same from their own SaaS cloud-hosting partner.

To measure how well the partner fits, there are three important key areas of consideration: industry expertise, a global footprint, and strong SLAs, the combination of which often means the partner will offer the best price point and best flexible contractual terms.  

In turn, these will help the business to overcome both the commercial and technical aspects of transitioning to SaaS.


Sourced from Andy Lancaster, UK cloud director, Dimension Data

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Ben Rossi

Ben was Vitesse Media's editorial director, leading content creation and editorial strategy across all Vitesse products, including its market-leading B2B and consumer magazines, websites, research and...

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