Why is SaaS the preferred model? Does anybody have experience with other business models?

Discussions
#1

I have been evaluating a few markets recently, but have realised I have a SaaS bias that is affecting my research. Most of the bootstrappers I’ve been reading have built SaaS businesses.

There are a few markets I’ve researched that favour a commission-based model, such as freelance websites. The major problem I can see with this is that the community itself provides the value - and so building value would entail building a high-quality community… which I imagine would be a monumental task compared to building a service.

Another common model I’ve seen is informational products.

Though SaaS is the holy grail for me, I’d be interested to hear other people’s opinions on other business models.

#2

You’re talking about three radically different (and somewhat incomparable) business models.

It’s kinda like comparing “book writing” to software development. Or “Doctor” to " chef".

Questions

  1. What are your skills?
  2. What is your domain expertise?
  3. Are you willing to spend time and $ developing additional Skills and Domain Expertise?

I would let the above guide you. Then see which type of business fits your skills.

I agree that building a community is a LOT of work AND calendar time.

-Clay

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#3

I would say they are comparable in that they all have the same intention - to generate revenue.

In terms of your questions, I am a freelancer programmer turned full-time developer, and I have some (outdated) marketing experience, and I am 100% willing to spend the next 10 years of my life (and beyond) developing whatever additional skills and expertise I need. I don’t have any serious commitments (wife, children, mortgage), and I’m 29 - so this is one of the last opportunities I’ll have before a family sprouts. In fact, this will all be for my future family.

I kinda see what you’re getting at, though. I should be thinking about what business fits my skills, experience and values, instead of attempting to mould myself to a particular model.

Having said that, I am interested in other people’s experiences with other business models.

Thanks for the feedback!

#4

We’re doing a pay-once desktop software. I think SaaS subscription is preferred because it’s easier in terms of revenue stream. Apps need a constant supply of new customers to stay alive (i.e. lots of marketing efforts).

#5

I’m still in the early stages, so I don’t have experience with any models, but I think there is a lot of searchable literature (reading, podcasts, etc.) on why SaaS is preferred. Mainly it comes down to predictability and sustainability of revenue. Once you get to a point of having a significant customer base who have shown some consistent and repeatable behaviour (e.g. steady signup and churn rates), it gives some sense of security to project forward that next month’s income will be close to X, and so on. That said, it would seem to imply that a business doing one-time sales doesn’t have that security and that the bottom could fall out at any moment, and I don’t know if I believe that.

This has been discussed before, but I agree with the notion that subscriptions are the way to go only if it makes sense for your product. If you software provides continuing and increasing value to your customer as they use it, then why shouldn’t they pay for it on an on-going basis? If your product provides most of its value to your customer with the initial purchase and then less-so after that, why should/would they pay for it as its value to them diminishes? So while many will argue that SaaS is the way to go, it implies that you are now building something that will give your customers sustained long-term value, which eliminates some product ideas from what you can choose.

#6

We went from pay-once, to saas, to mostly-on-premise-saas, to pay-once-but-a-lot+kind-of-saas-for-support, to partners-selling-saas, to completely-custom-software. All on the same core technology. Whatever works. Still use all these models.

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#7

Yes, and this is the vulnerable point of SaaS - to get to the base that covers your costs may take longer than the founder can afford. Spending countless hours a week for an entity that only brings $500/mo - takes a belief and dedication not everyone has.

@Damien

I believe you mix two things - recurring revenue and SaaS.

SaaS is just a deployment option. Recurring revenue is the sweet spot.

SaaS access can be sold on one-off payment basis. Patio11 was selling his Bingo Card Creator this way at some point.

Desktop software can be sold with recurring payments (I believe we’ve seen an example of … mmm… keyword research tool? As long as new data are downloaded each month, the user has an incentive to pay). Antiviruses are sold on annual basis - i.e. via recurring payments.

So when people say they prefer SaaS, they mean they prefer recurring revenue.

At the same time, SaaS has a number of negative factors:

  • “Slow ramp of death” where the revenue is too small to support the founder, but the expenses are already high
  • Cost of hardware is on the founder, and not the consumers
  • Shared data demand more attention to security and the potential impact of a breach is higher
  • Any downtime is impacting everyone at once, making it a nightmare to support
  • Any breaking change is impacting everyone at once, too

So I’d say SaaS is not a Holy Grail. Holy Grail is on-premise application that is still charged for on a recurring basis.

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#8

This is the big issue with SaaS. If you are charging $30 a month and get 100 clients that is good, but $3000 a month is probably not enough to live on. If you charged $600 up front, equivalent to 20 months, you would have $60k in the bank, enough to really launch from.

But of course, if they pay up front you need that continual supply of new customers, you can’t ever really rest.

#9

Thanks for the distinction! I’m still refining my vocabulary.

Appreciate the insight from the rest of your reply. Will take into account.

#10

I would go something down this line. Charging $300/Annual.

I’m currently changing one time fees and in my experience, (not much) charging once, or once a year 300$ to a small business is easier than charging 30/Month.

Business usually run away from fixed costs, even if it’s 0.1% of they cost structure. Online business, saas, consultants, etc., they are used to recurring payments. But brick and mortar businesses I don’t think that much.

#11

Thanks for this. I think it illustrates an important point. Though I may have a bias towards a certain business model, once I have something in the wild, it’s important I am able to adapt and change tack if it makes business sense.

#12

As can iOS software now.

#13

For some really out of the box thinking on pricing strategies, the guys at beeminder (https://www.beeminder.com/) have been quite innovative.

You pledge some money to do something you’re not motivated for (loose weight, go running, clean your bathroom) and if you fail… they take the pledge ! :wink:

#14

I wouldn’t call it a pricing strategy. The payment is a part of the product, a fee for failing a goal.

Their premium pricing is a regular $N/mo thing.

P.S. I’m not even sure it is legal. Users bet a sum of money that they themselves achieve some goal. That can be seen as a form of gambling, and online gambling, as I heard, is banned in USA? Sure, the users cannot win a lump sum, so it is not like a casino, but they very well can lose a lot of money, and this is the loss of money that can be socially problematic with casinos.

#15

Our desktop app is currently sold as a one time payment for a perpetual license that includes one year of free upgrades. We don’t have a free trial, instead we have a limited web-based version that requires signup.

We’re moving to a subscription model shortly with monthly and annual options. We’ll also be including a free 7-day trial – initial test will require a credit card.

We resisted the move to subscription because of the changes required to our software, plus we are making sales now. However, we think the option for a lower financial commitment (via monthly subscription) will increase our conversion rates.

Good hunting.

#16

I would make few points here.

The type of the application often dictates how it has to be delivered.

For example, I make SumatraPDF, a pdf reader for Windows. It wouldn’t work very well as a web app so it wouldn’t be a good SaaS product.

If I were, for example, write an app that combines 2 pdfs into one, web-based UI + backed running on a server would be good enough and easier for me to implement that a native Windows app.

Pricing/delivery strategy is rarely what makes or breaks the business.

Picking the best pricing strategy is an optimization for the case where you already have a product that sells. JetBrains recently switched pricing for their desktop software from one-time fee to a subscription model. It was probably a good business decision for them but they built their business for 15 years using the traditional pay-once scheme.

The hard part is building software that people want to use and pay for.

A business model usually just falls out from the kind of software it is. If it’s a web app that is continuously used, subscription is an obvious choice. If it’s a web app that is used once in a while (but for a high-value task), then charge for usage. If it’s a book, then one time fee is pretty much the only option people would accept etc.

#17

As a B2C buyer I loath and detest subscriptions, even if only $1 a month.

How do I know you won’t jack it up later? Keep jacking it up?

If not next month, the month after that? and the next month? And the month after that month and then the next month too, because I’d be paying each and every month, forever and ever and ever, until the ennnnnnd of time!

Urgh.

Point is, not all buyers consider a subscription to be a “lower financial commitment”, in fact quite the opposite. It’s an ongoing and uncertain commitment, as opposed to just buying something.

As a CRO/Copywriter i often advise clients to go for SaaS, as it makes so much sense for the seller. For the buyer it makes very little sense and I personally avoid such things like the plague…

Jus’ saying :slight_smile:

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#18

Autodesk are trying to force their perpetual customers onto SAAS. Outrage ensues at https://forums.autodesk.com/t5/moving-to-subscription/bd-p/2017

Let them pay how they want, some will rent by the month, some by the year, some want to “own” it. There is no “one size fits all”. I know plenty of AutoCAD (L)users using versions that are 10 years old. They’re happy, it still works. I stay up to date…sometimes.

Customers work it out, they get angry if they feel they are being ripped off. Rent-seeking makes enemies very quickly:
http://www.blog.cadnauseam.com/2017/03/13/autodesk-license-costs-options-summary/

AutoCAD competitors have already caught on, check out the lead copy on their web pages at https://www.bricsys.com/en_AU/bricscad/flexible-licensing/index.jsp and https://www.progecad.us/ - it’s not exactly subtle. AutoCAD is pretty-much a commodity these days, perhaps Autodesk are just squeezing the last drops of blood out of that stone. Autodesk bet heavily on the cloud and so far it hasn’t gone well but that’s another story.

Business pricing for a non-SaaS app
#19

I’d be interested to know how it goes… my current model is the same as your current model.

What size payments are these? I don’t see too many monthly B2C subscriptions… I always thought annual would be ‘better’.

Currently, for me, for self hosted downloaded applications, the subscription for updates model feels fairer than a pure time based model. That’s because you’re getting less of a “service” by downloading and hosting it and maintaining it yourself.

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#20

FYI, I started as Pay-Once desktop software and converted it to subscription. (Only took a day or two of coding to create something that links to CheddarGetter.com