SaaS Business Model Competitive Advantage Revisited


This post is by Joel York from Chaotic Flow by Joel York


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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"

Activity Based Pricing: When Is It The Right Choice for Your Startup?


This post is by Tomasz Tunguz from Tomasz Tunguz


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Pricing is taxation. A pricing plan taxes some element of a product’s use. For a startup, choosing what to tax and how to tax it can be one of the most perplexing decisions because the tradeoffs between usage and revenue aren’t always clear. Activity based pricing or usage based pricing is one of the more common pricing plans in utility computing and software these days. Need to spin up another server immediately?

Activity Based Pricing: When Is It The Right Choice for Your Startup?


This post is by Tomasz Tunguz from Tomasz Tunguz


Click here to view on the original site: Original Post




power_meter.jpg Pricing is taxation. A pricing plan taxes some element of a product’s use. For a startup, choosing what to tax and how to tax it can be one of the most perplexing decisions because the tradeoffs between usage and revenue aren’t always clear. Activity based pricing or usage based pricing is one of the more common pricing plans in utility computing and software these days. Need to spin up another server immediately? Did another user sign up to use this software? No problem - we will just add it to your bill. ABP offers a few advantages, namely easy trial/low cost of failure, aligning cost with use and transparent pricing. The low cost of failure increases product trial rates. Also, the transparent and simple pricing builds trust with the buyer. These two advantages combine to reduce the need for sales intervention to convert a customer to paid. But activity based Continue reading "Activity Based Pricing: When Is It The Right Choice for Your Startup?"

The Android-First Social Network


This post is by Tomasz Tunguz from Tomasz Tunguz


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Do social networks have a killer distribution or engagement advantage on Android that cannot be replicated on iOS because of Android’s openness? Will we see an Android-first social network of real scale in the near future? I think it’s a real possibility. Open platforms enable faster experimentation and more innovation than closed ones. New engagement models can be created, tested and refined much more easily on Android than iOS and Facebook’s newest mobile product could be that first example, despite its initial struggles.

The Android-First Social Network


This post is by Tomasz Tunguz from Tomasz Tunguz


Click here to view on the original site: Original Post




Facebook-Chat-Heads.jpg Do social networks have a killer distribution or engagement advantage on Android that cannot be replicated on iOS because of Android’s openness? Will we see an Android-first social network of real scale in the near future? I think it’s a real possibility. Open platforms enable faster experimentation and more innovation than closed ones. New engagement models can be created, tested and refined much more easily on Android than iOS and Facebook’s newest mobile product could be that first example, despite its initial struggles. Chat Heads is a persistent messaging application that’s always present. If a friend messages you while you’re reading The Atlantic on Flipboard, you can respond without leaving the magazine app. Communication is the lifeblood of social networks and a social network maximizes its value by elongating session times, retaining users over the course of years and growing the network quickly. A persistent messaging application, that exists across Continue reading "The Android-First Social Network"

Mastering Feedback Loops in Startups


This post is by Tomasz Tunguz from Tomasz Tunguz


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Feedback loops are essential components of every person’s role within a startup. The most recent and celebrated feedback loop is the viral coefficient or k-factor which Facebook applications optimize to grow their user bases. The [k-factor](http://en.wikipedia.org/wiki/K-factor_(marketing), a borrowed concept from the study of biological viruses, measures the rate at which an application spreads through the network. But feedback loops don’t solely exist within marketing. For product teams, there is consumer feedback and user engagement metrics.

Mastering Feedback Loops in Startups


This post is by Tomasz Tunguz from Tomasz Tunguz


Click here to view on the original site: Original Post




acoustic_feedback.jpg Feedback loops are essential components of every person’s role within a startup. The most recent and celebrated feedback loop is the viral coefficient or k-factor which Facebook applications optimize to grow their user bases. The [k-factor](http://en.wikipedia.org/wiki/K-factor_(marketing), a borrowed concept from the study of biological viruses, measures the rate at which an application spreads through the network. But feedback loops don’t solely exist within marketing. For product teams, there is consumer feedback and user engagement metrics. For engineering teams, there’s technical performance. For sales teams, there are quotas, lifetime customer value and productivity per rep metrics. For marketing, there’s k-factor, paid marketing payback period, net promoter score and others. When we measure startups and businesses, we’re trying to detect when a sustainable positive feedback loop has been established and then pour as much gasoline into the growth engine as possible. At some k-factor, a Facebook app can Continue reading "Mastering Feedback Loops in Startups"

The Defining Characteristics of Successful SMB SaaS Startups


This post is by Tomasz Tunguz from Tomasz Tunguz


Click here to view on the original site: Original Post




At first glance, SMB SaaS companies, those who sell Software-as-a-Service to small to medium businesses, may seem like any other software company. But they are quite a different breed. Successful SMB SaaS companies have reinvented their businesses eschewing the expensive enterprise sales model in favor of end-user centric marketing, support and product development. These businesses often look more like consumer startups than enterprise startups. It’s all because of the nature of the market.

The Defining Characteristics of Successful SMB SaaS Startups


This post is by Tomasz Tunguz from Tomasz Tunguz


Click here to view on the original site: Original Post




At first glance, SMB SaaS companies, those who sell Software-as-a-Service to small to medium businesses, may seem like any other software company. But they are quite a different breed. Successful SMB SaaS companies have reinvented their businesses eschewing the expensive enterprise sales model in favor of end-user centric marketing, support and product development. These businesses often look more like consumer startups than enterprise startups. It’s all because of the nature of the market.

Market Dynamics

SMB SaaS companies sell to a highly fragmented market. See the table below comparing the enterprise and SMB segments by number of firms, employees and payroll.
Co. Size Firms in k Employees in M Payroll in $B Employees/Firm Payroll/Firm in $M
1 to 500 5,749 56.2 2,085 10 0.36
Greater than 500 17.5 58.2 2,771 3,326 158

Source: US Census

There are about 17,500 enterprises with greater than 500 employees compared Continue reading "The Defining Characteristics of Successful SMB SaaS Startups"