Why Software-as-a-Service (SaaS) model matters for both customers as well as vendors

When times are hard, winning a business or selling smart is important for both customers and vendors who are competing head-to-head which can be cut throat especially when markets are flat or growing slowly.

These days the idea of IT  installing and maintaining software onPremise at customer sites is completely winding down. Customers are looking to transition more to make their IT as a service. Meanwhile, software vendors are  offering  increasing amount of software via direct download or as a cloud hosted service known as Software as a Service (SaaS). The SaaS model is growing popular for personal, business and mobile applications and the market is only expected to get bigger in the coming years. This is why the Software-as-a-Service (SaaS) matters as a very scalable and an economical model for both a software vendor as well as for the customer, who are looking for a easy and a cost effective way to address their immediate software needs.

Take a look at how a SaaS model can address the functional areas for both a vendor and a customer:

Functional Areas

SaaS Vendor

SaaS 

Customer

Market Problems The vendor understands the market problems and has a close working relationship with its existing customers and knows what the future potential customers wants. This helps vendors to bring in rapid innovations to market thereby mapping a solid innovation strategy to creating a new market space for their products and solutions Customers look for a solution with minimal initial investment but with a greater return and value that is easy to onboard, solves their problem and can be accessed from anywhere.
Technology Vendors provides, maintains and manages the hardware and software components of their product and/or solution. The vendor has more control over which hardware/software configurations to support.Vendors need to address scalability and multi tenancy requirements at the software level to allow multiple customers to share hardware and software services.On a long term this becomes a very cost-effective model to support infinite scalability. Customers don’t care much about the back-end system as long as it works when they want it, fast, securely, and reliably.Each customer will have specific requirements around performance, scalability, and security requirements that vendors to meet  so their personal data and information is secure and do not get breached at any point in time.
Product/Solution Support Quality issues might impact everyone in customer base at same time. Hence greater attention will have to be taken by the vendor to provide and maintain controlled quality of serviceNew releases of the product or solution, application of patches and service packs can be released more timely and quickly to the customers, but requires more rigorous quality control. Customer have a greater need for the Service level agreements(SLAs) to be met by the Vendor specifically around production requirements for system performance and capacity for multiple tenants will have to be addressed.Customers often have higher usability expectations as well.Customers experience a painless software upgrades.
Initial & Operational Cost The initial cost to set up the service (hardware and services) are incurred by the vendor. Also, all the ongoing operational costs of running the service are incurred by the vendor, not the customer. Customers have overall reduced operations costs and Zero infrastructure cost.
Product Performance Customers will have to monitor and analyze how well the product is performing including product profitability, actual to planned revenue, customer satisfaction, and market share.Areas to focus to monitor performance are:

  • internal measurements to determine the product value to the customers.
  • impact of product profitability which includes product lifecycle, quality, technical support, marketing programs, and sales support.
Customers as buyers want proof of uptime and performance level.Customers want predictability and efficiency with more automation of services.
Revenue & Pricing Revenue is recurring for the vendor but is recognized as the service is rendered, not in a lump sum up front like on-premise product/solution. Pricing for the customer is typically subscription-based with a  “pay as you go” model based on the value received for the vendor’s services. This provides better cash flow for the customer.Up-front implementation services cost might be charged to the customer.
Sales Process Sales cycles are typically shorter. Customers will have greater flexibility to shift to competitive product if they do not see value with an existing vendor offering and services.
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Posted on May 6, 2013, in Blog, Cloud. Bookmark the permalink. Leave a comment.

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