I have been working with SaaS companies for almost a decade now and I continue to be surprised by the “rules” and “laws” that constrain them. I recently posted about Installed-Software-as-a-Service (ISaaS) and then entered into a great debate on the LinkedIn SaaS group on the topic. I have strong views on SaaS. Here is one of them:
Maxwell’s Law for SaaS
When it comes down to it, what is software as a service? I believe there is merely one law that should dictate SaaS, compared to many freedoms that it offers and that companies should take advantage of: Software as a service must be packaged and sold as a service with service-level agreements (SLAs).
In essence, a SaaS vendor is selling service levels in addition to the current and future functionality of the product. This is in contrast to selling a file of software.
The issue is quite simple if you think about snow removal (being from California and currently living in Boston, this is something that I unfortunately need to worry about). I could buy a snow removal product like a snow blower that comes with certain warranties and service associated with the product (spare parts, places to get the product fixed, etc.), or I could contract with a service provider to take care of it.
If I contract with the service, all I care about is when they come to remove the snow and how clean my driveway and walks are when they are done. I also care about the price. I don’t care about the products they use, how much labor they are using, or anything else. Just the price and the SLA. It is exactly the same with SaaS!
The Many Freedoms SaaS Offers
I also believe there are many freedoms associated with SaaS:
- You can put your SaaS stack wherever you determine is best for your customer. This includes running the software in your own data center(s), putting it on one or more private, virtual private, or public clouds, running it on bare metal, any operating system, or any cloud infrastructure.
- You can architect your product however you determine is best for your customer. This could include single-tenant, multi-tenant, or any other architectural approach that will serve your customer well.
- You can include installed software, an appliance, or anything else that is valuable to your customers as part of your offering.
- Your software can be consumed by users any way that is best for them. This includes using thin clients, thick clients, or any other client, and your software can be consumed by other software via an API or any other interface that works well for your customer.
- You can build any whole product by surrounding your core product with any level of “people” services that will be best for your customers. This includes strategic services, customization services, installation and configuration services, training, customer service, or any other service that address your customers’ needs.
- You can price and bill for your software however you want, so long as it works for you and your customers. This includes subscription pricing, one-time pricing, or any other pricing. This includes one-time billing, annual billing, quarterly billing, monthly billing, or any other billing.
- You can sell your product and services any way that you want. This includes direct from your website, use of inside sales, use of field sales, and/or selling through indirect sales partners, or bundling your product with other products that are sold through another vendor.
- You can set any growth strategy for your company that you believe will make you successful. This could include building a capital-efficient company and growing/managing based on CAC ratios and magic numbers, an all out “own the market at any cost” winner-take-all strategy, or anything in between.
- You can do anything else that you want to do that will add value to your customers and/or help you build a great business.
Yes, I would like to see you minimize complexity, minimize labor, and have a great economic model, but most importantly, I would like to see you have a great competitive advantage and build a great company. And, of course, you need the freedom to figure out what that means for your specific situation!
The reason I wanted to approach this topic is that after working with SaaS companies for almost 10 years, there is still a lot of FUD in the markets about SaaS. Many people restrict their freedoms and that can really have an impact on your ability to build a unique and valuable whole product for your customers and build a great company.
Note: I write this post using the term SaaS because it is a popular term. I actually believe the the right term is XaaS (“Zass”) standing for “Anything-as-a-Service,” so that it includes anything that the vendor wants to string together and offer as a service with SLAs (not just software).