June 19, 2008
Posted by Paul Chen, President, Managed Services
I ended my last post by discussing how at Fortiva, understanding our cost to serve helped us to improve our product and even introduce a new product offering. This leads me to my third and final lesson on the difference between SaaS and traditional software – business model flexibility.
The business model for traditional software is typically fairly straightforward – you create and develop it, produce it (on some type of media), and sell it to the customer either directly, or through a channel. From there, you typically have very little communication with the customer, with the possible exception of customer service.
SaaS businesses, on the other hand, have far more flexibility to adopt different business models, even taking advantage of more than one business model at the same time. This flexibility provides significantly more opportunities than traditional software to continually innovate and find new ways to leverage a product in different ways to improve revenues.
Let me give you an example. Google’s founders started out with a business model based on licensing their search technology to key portal vendors, such as Yahoo. Little did they know that just a few years later, they would introduce a keyword advertising program that would ultimately form the basis of Google AdWords, which today makes up the majority of their revenue. If they had stopped with the licensing business model, Google as we know it would not exist today.
Here’s another example – this time, a hypothetical one. At Fortiva, we charge a per-user licensing fee as well as a fee for blocks of storage to access our email archiving solution – essentially a pay-for-use model. But what if we decided to offer email archiving for free? It may sound crazy, but it could be a valid business model. Consider this – a large portion of businesses archive their email to meet requirements in the case of future litigation, and those businesses often have little need to access archived data before that time. Hypothetically, we could simply charge those customers to search and access their archives when litigation arises. This would give us the chance to target companies that don’t feel they can justify the cost of a pro-active approach to legal risk (by implementing an archive), while still benefiting in the long run from the inevitable.
I’m not suggesting that this is something we’re going to do, but it gives you an idea of the type of innovative thinking that can open up new business opportunities in the SaaS world.
At the end of the day, business model innovation can be a key competitive advantage for any company. SaaS opens the door to far greater flexibility in this area, and businesses embarking on this delivery model should not lose sight of that.