SaaS Business Model Competitive Advantage Revisited

What is SaaS? We seem to need to ask this question every couple of years, because the answer is a bit of a moving target. It was simple enough when SaaS was merely software applications pushed through a Web browser, but now we have to contend with the cloud, mobile and even social. Recently, Scott Maxwell of OpenView partners sparked an interesting debate on the topic on LinkedIn that got me pondering it again. I’ve weighed in on the “What is SaaS?” question before, however, every time I encounter this debate, I can’t help feeling that it skirts the more important issue: Why SaaS?

saas business model why

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When trying to create a successful SaaS business model, being SaaS is interesting, but doing SaaS is essential. It’s far less important that your SaaS business model meet the exact definition of SaaS, than it is that your SaaS business model creates sustainable competitive advantage through SaaS. Why be SaaS in the first place? Why not just be software? At any rate, this recent debate got me to re-reading some of my old blog posts on the topic and I realized that they were very text heavy and could use an upgrade. So, in this post I revisit the topic of “Why SaaS?” with a short visual tour of SaaS business model basics.

SaaS Business Model Economics

At the risk of repeating myself, I will repeat myself. The only difference between software and software-as-a-service is that SaaS is delivered over a standards-based network called the Internet. Therefore, all new economic value and competitive advantage must flow from this difference.

The SaaS business model creates competitive advantage in two Internet enabled flavors:

  1. Lower costs from…
    • Network automation of labor-intensive services and business processes
  2. Economies-of-scale from aggregating customers via the network onto a uniform infrastructure
  3. Differentiation from…
    • Reengineering business processes and service delivery through network automation
    • Network effects enabled by customer-customer interaction

Yes, it’s a mouthful. So let’s look at some pictures.

saas business model competitive advantage

Competitive advantage in the SaaS business model comes from leveraging the customer-vendor network connection to reengineer business processes and service delivery, while building a large customer base to create economies-of-scale and network effects.

Network Automation in the SaaS Business Model

SaaS begins and ends with the Internet. The first impact the Internet has in SaaS is to connect the customer to the SaaS business through the product. Let’s think about that for a minute. How many products do we use everyday that can make this claim? Continue reading "SaaS Business Model Competitive Advantage Revisited"