Today, increasingly software providers are increasing the focus of selling information technology products as services. Thus there has been a spurt of adoption of SAAS (Software as a service) delivery models. However, switching to a SAAS delivery model requires the adoption of newer strategies, to maintain competitive advantage and sustained growth.
So what should be the major focus of entrepreneurial ventures offering technology services as SAAS?
A major success pointer for SAAS business model is pricing their services. Normally a company, which uses SAAS to provide any service should have a 2 tier pricing strategy, a part based on usage, and a fixed (normally initial setup costs). The focus of a SAAS provider should be to provide the benefits of economies of scale at both ends of potential stake-holders. So for a SAAS e-commerce provider, pricing is of key importance. A major successful pricing strategy would be one based on the value of the technology to the user, i.e. value based pricing strategies.
Next another major issue is reaching out to potential customers and then keeping them. Technology firms keep entry barriers through technology platforms, and so an e-commerce portal may continue using a company’s tech, even if it is higher priced, because costs of switching may be too high. The associated platform or hardware licensing issues may arise in cases of switching. Thus customers, once acquired, often are acquired for life, unless major customer dissatisfaction creates contingent situations.
Another major challenge for entrepreneurial ventures is moving forward in the PLC curve. While innovation is a must for information goods, there is a cost associated with development. However, once converted customers, are less likely to accept newer pricing strategies easily. Thus, conveying additive value of the new innovations to the customers becomes another challenge. Thus entrepreneurial ventures often start very successfully, but yet, flicker and die out, while attempting to move up the PLC curve.
Another major concern for entrepreneurial ventures arises from slow evolution of the multi-tenant architecture, which most SAAS providers use as a basic platform to deliver their service. Horizontal scaling strategies create a barrier to develop and adopt newer technologies and platforms that will provide increased operational benefits both for the client and service providers. Virtualization, while lowers cost, is essentially a barrier towards innovation, and thus the question whether multi-tenancy is necessary for SAAS delivery models is a major topic of controversy. This becomes even a bigger factor for entrepreneurial ventures with less deeper pockets.
Finally, another challenge for new service developers becomes protecting IPRs. Since the SAAS model ensures that there to a great extent of customization at the end of each client, the scope for differentiating and maintain the differentiation, is somewhat diluted by the intangible nature of services. Thus new innovations are often plagiarized by competitors and this really hits hard to new ventures. While developing IPRs increases cost (which often is a very sensitive issues in entrepreneurial ventures) , it should be understood it also protects the firm’s services from being plagiarized.
Do let us know if you feel there are more serious areas of concern for SAAS providers, in their focus to develop sustainable business strategies.