What Comes After SaaS?
hackernoon.com
hackernoon.com
Nitpicking, how SaaS stocks could plunge?
I think the good point is: "The monthly contract value is often far less than the customer acquisition costs (mostly sales and integration)"
You do not price your SaaS based on hosting costs, if yes then those SaaS solutions will simply run out of money. You cannot run growing SaaS on 1/10 slashed price, you have to fix bugs, add new features and evolve. I can build clone of some SaaS and run it on Linode with 1/10 of costs but I am not sales person, and not marketing guy. I would not have money to evolve and it is not fire and forget running on cheap hardware.
So article is not worth reading, nothing exciting.
In the same way, it may trigger thoughts/ideas for others, regardless of whether the agree with it or not. I'm glad I read it, as well as the comments.
*edit - missed a word.
A bag of coffee beans from the grocery might cost you 10c a cup. That's a Product.
A cup of coffee at a greasy spoon diner might cost you $1. That's a Service.
A latte at a fancy cafe might cost you $4. That's because you are paying for the whole Experience of the fancy cafe.
So, what comes after SAS? SAE.
Also-- aren't video games already an example of Software as an Experience?
Espresso made with poor quality coffee (bad roast, crappy beans, roasted too long ago, incorrect grind, etc) is going to be just as gross as diner drip.
Another thing to consider is: you can make drip manually, whereby you control the drip rate, total quantity, and water temperature. Not all drip is automatic.
Acidity is a big bugaboo for me and I tend to take my coffee as either mocha or with two cream, one sugar.
There is a very slight product difference in any luxury experience. It adds to the experience after all. However this is meaningless in the overall comparison. You don't drink drip coffee anymore because you love the other experience. It's obviously not "gross" because you were drinking it just fine before you were exposed to espresso. Maybe at some point you'll become disillusioned in being a coffee snob and then go back to drip. It happens.
This isn't unique to you or coffee. You could say pretty much exactly the same thing about whatever brands/hobbies I'm into and I'd feel exactly like you do: that my preference was justified by more than pure emotional connection. In reality, our choices as consumers are 90% emotional, which is why advertising works so well after all.
Sometimes one just doesn't realize how crappy the previous version was until one tries the new one.
Beware over-training your ability to discern differences. Such subtlety might give you an advantage in some fields... or it might remove your ability to enjoy basic food and drink.
Espresso is as different to filter coffee as icecream is to milk. They're different products, made with different material mix and different processes, different roasts, different grind size, different bean choice. They're two different things.
An espresso can't be better than filter coffee any more than an apple can be better than an orange.
All of which is irrelevant to the question of whether it's just snobbery or not, which was what I was discussing.
They were non-union and in a rural area where wages were lower. The price was lower than buying everything individually and the Big 3 saved lots of money on their very high labor costs.
What's to stop people from doing a roll up, buying a bunch of litle SaaS companies and offering a package that is a complete solution? It would be discounted of course like MS Office back in the day which killed off the category leaders like Lotus 123, dBase and WordPerfect.
That is a far more plausible scenario than what this guy proposes.
Also this, obviously: https://www.forbes.com/sites/stevedenning/2011/11/18/clayton...
At some point it makes economic sense to roll out your own data center. At some point it makes economic sense to design and make your own server and networking equipment. The question would be where that breaking point is for SaaS.
If anything, with the growth of self serve products like AWS and the growing popularity of OSS, we're still in the process of moving away from your "experience-based" service to regular SaaS.
Consumers and businesses are very different as customers. Every consumer product/service is fundamentally an experience; even the design of Apple's packaging is carefully engineered so that you feel a certain way as you open the box. That's because consumers are buying your product (or sitting through your advertisements, or giving you their personal data) because you gratify some emotional need they have; why else would they use it?
Businesses have only two fundamental needs: save money or make money (where time=money, if you can point to a wage rate). Every B2B business model is based around those. Many failed entrepreneurs have looked at the sucky user-experience of most enterprise software, said "I can do better than that", promptly done better than that...and found out that they didn't make any money, because the person doing the purchasing didn't give a damn what the "experience" is like, the whole reason they pay their employees is so that they'll sit through tasks that they hate. If you can't frame your B2B company's value propositions as "This will save $X" or "This will make $X", you won't sell.
But these days the employees who work in HR, finance, accounts receivable spend their downtime locked into very sophisticated, mobile-friendly apps with user interfaces we could only dream of in past - even while slumped in front of the TV.
They know what good software looks like.
Yes, sometimes the suits making the decisions will just go from form and mandate SAP.
But I can assure you that much of the time, turning up to demo your product will go badly for you if it looks like a drab table-based web site from the 90s.
Conversely a single magnificent d3 animation will move you straight to the short list.
I've seen multi-million dollar software deals where the "make or break" feature is themeing it to corporate colors. I've also seen some terrible software bought because the sales team takes the manager out to a nice lunch.
I don't think I've ever seen software sold on a purely cost/savings basis.
The mistake those people make is focusing on the user and end result for the enterprise using it. The customer isn't either of these -- it's the exec.
Businesses make lots of emotional decisions... the continued, although diminished, existence of IBM is proof of that. It's just harder to divine whose emotions matter and what moves them. You also need the capital to survive that learning experience.
More and more SaaS products offer Facebook groups, Meetups, Slack channels, conferences, and more for their users.
Community is a way for SaaS co's to create network effect, and it may lead to consolidation.
You can order coffee at a cheap restaurant in the US for $1!?
You guys seriously don't know how good you have it.
According to this 2015 article, the cheapest macdonalds coffee here was $2.60 USD. And no, we don't get paid more.
SaE is when, instead of buying online with a credit card, you are courted by attractive sales people and consultants, get wined and dined, receive beautiful reports to show your boss, get a nice pen and a bottle of wine perhaps, and participate in workshops facilitated by said attractive consultants. This makes you feel like an important person in charge of an important project.
Hardware spec wise, the price of a Macbook is probably double that of a regular laptop with equivalent specs (CPU, Memory, GPU, Disk, etc). But people buy those Macs for the experience; not just the specs.
There are a whole slew of SaaS products for business applications that have nothing to do with what the author is talking about (think SalesForce, Workday, ServiceNow, etc) that totally eclipse the Segment, mParticle, etc's of the world, in terms of size, complexity and
The "what comes next in SaaS" is predicated on what become before SaaS, which was license software that businesses had to maintain. The next evolution of SaaS, IMHO, is one which requires zero consulting/integration/implementation. I dare say "AI" will change that, but this is the biggest friction to new software production adoption.
At any rate, I think the article rings true for many of the SaaS players in the "long tail".
SaaS isn't a type of software or solution, it's a delivery model. You don't use "SaaS" for sales, you use a CRM that is accessed to you through a SaaS delivery model. So it's "low-code application development platform" is still delivered to you via a SaaS model.
I don't agree with his v3 vision as I think that AI is a better lever than trying to build an integration platform. The latter is hard, usually involves open source, and has slow adoption.
I'm not sure I agree with the listed reasons. From what I understood, the author tries to prove that "SaaS is eating SaaS" and SaaS abundance/switching costs are prohibitive to new SaaS ventures. This doesn't seem like a very good argument for "SaaS is dying." May be, it's better suited for "it's becoming more difficult to enter the SaaS game."
Think AWS vs Digital Ocean as an extreme example.
SAAS services are typically wildly, crazily cheaper than hiring people to either do the services or to support an internally setup and managed application to do the same.
> Companies that focus too much on technology without putting it in context of a customer problem will be caught between a rock and a hard place — or as I like to say, “between open source and a cloud place.”
I'm in the second year of a SaaS selling to entreprises. We are doing ok but all of our customers are nearly identical (it's in the public sector). We would love to have lots of different types of customers but we seem to be stuck. Our customers are probably buying our knowledge as much as our product.
I would say unless your tech is groundbreaking and not easy to copy, domain knowledge will likely be your differentiator. But that's harder to scale.
At the end of the day, a small business has much larger fish to fry than trying to figure out how to plug product A into product B, though it is a massive problem for every small business. This isn't solved by hiring programmers, but by downloading data and inserting into macro-enabled Excel sheets. You can hire 5 Excel gurus for the same price as you can a Jr Developer (a typical SMB isn't able to figure out if said dev is worth anything).
The fact is, the end-user really doesn't give a care about "who" but "does it work?" Integrating all the pieces and parts is a very complicated and time-consuming thing for small businesses to deal with.
What comes post-SAAS? A fully integrated suite of products that does what the end-user wants. SMBs would be super stoked to have a product that does inventory, label-printing, CRM, market analysis, sales channels, etc, and pay that to one company. I think that there ought to be an in-between layer. If a some companies could offer a solution that integrate all of the SAAS products needed to run a business, packaged in one place, entire industries would end up toppling. The price differential wouldn't even have to be that high. The company would save the end-user months of research and time-wasting presentations.
One of the things that we encountered was a vice between "can you add this filter" and "but I don't need this, only that filter."
In a more general sense, my research suggests that "IT in a box for SMB" is a deadly place to operate. They make sense on many levels, but they don't sell.
I believe that SMBs favor point solutions because they are pain-avoiders. If they've been phished, they want a remedy. Firewall? Content filter" Maybe later...
SMB looks at potential post-event loss vs cost of buying a preventive security solution (Reducing losses). Most security solutions are not priced as insurance premium are determined. The ROI of security solutions is not compelling for SMBs. That is why security solutions targeting SMBs don't succeed.
There shouldn't be an vice between option A and option B. You are selling security, not options. They are paying you money for your expertise, which includes both your programming an your knowledge, which mainly means they have to get things done and don't have the time the learn about this stuff, which is why they are paying you.
That repeats my initial point. The end-user really doesn't care at all about the product, who you integrate with, what you use, etc. They feel like they are paying experts to make these decisions. Asking them is friction, which is nothing but wasting their time.
In some places, there's a gap between open-source libraries that I can find, and services that Do One Thing.
Recently, I dived into the available options for online document signing.
I needed one thing (document signing) done well, with a few variations based on the few different integration situations I had.
Almost everyone had the same offering, which wasn't programmatic or flexible, but was drop-in (iframes). I could only do what they'd though to make possible.
On the other hand, I have trouble imaging what, say, a ruby gem for this would look like. Seems like it'd be pretty involved.
Compare this to, say, SendGrid, and other email providers. I get a lot of flexible functionality around one thing (sending emails), but the interaction is very much on my terms (via their API) rather than theirs (dropping in an iframe).
The only exception I found in the document signing world was HelloSign, which has a lot more in common with SendGrid than, say, DocuSign or RightSignature.
I don't think this is quite what he's talking about, but I do think it's indicative of the direction and forces in play.
I think with a decent amount of effort, you can out-compete (as a product) all existing solutions except HelloSign. However, I would expect to run into serious issues convincing companies to switch. You would probably want to specifically target the new company / tech-savvy startup market, which I think are very underserved by the painfully antiquated leaders (DocuSign, RightSignature), who are targeted towards people who feel more comfortable with "enterprise"-style solutions.
Our major issues were: - We needed to provide our own styling, etc, for integration on a responsive website. Existing iframe solutions used the provider's styling, and did not work well on mobile. - We expect to send out many more documents than get signed; thus, HelloSign's per-API cost would be to expensive for us.
It also means I skip reporting the "traditional" SaaS metrics like MRR and churn, but I don't talk to VCs much anyway.
If you paid $10-$100/month for every component just for simplicity, a lot of things would never get off the ground. One of the big differences is Amazon has also unbundled support from their pricing.
A lot of startups could run on a single $20 virtual server for their first few years if they so desired.
I co-founded and sold a company that did SaaS/outsourced natural gas and electricity billing for energy retailers in deregulated markets, and cost consistency was a major reason why corporations signed fixed price energy contracts. Even though they might pay more than simply taking the spot market price, having known costs was preferable.
If I offer a service for a flat fee, I should keep my price higher than if you were to accept a variable budget item. If you start going over the flat fee, I'm eventually going to be taking a loss on the electricity/hardware. So naturally I might have to raise the price more quickly since I'm not likely to be a massive electricity/natural gas company. The price for SaaS/Cloud would not be as sticky as gas/electric and so the contracts would be for a shorter length.
Where-as, had you done some napkin math for cloud costs and tried your best to overestimate, you can add some additional overhead and see if you run over/under that year and adjust. You still treat it like a flat fee, but there's just a re-adjustment if you're over/under at the end of the term.
This is a gross misrepresentation of the whole situation. It reads as if Peter was a biz guy who was having trouble selling the analytics software because of the involved "switching costs". Peter and his team, in their own admission, were trying too hard to build a product without a focus on what they were solving. Analytics space is too broad and complex to be attacked all at once. It's not wise to build a GA competitor but several analytics companies with a clear focus have succeeded in the past.
Segment wasn't trying to build a "middleware to switch between companies". The product was almost an accident of a building a small library for themselves to avoid mantaining code for multiple APIs.
That doesn't really ring true to me. That already happens, doesn't it? SaaS as a pricing model or platform strategy in and of itself won't do shit for you if you have a terrible idea, right?
Or is the author trying to argue that SaaS will eventually become a race to the bottom and that the market should shift towards value-based pricing?
http://www.laktek.com/2017/01/11/end-of-the-first-wave-of-sa...
I'm more skeptical than you guys about the Saas/cloud "plumbing" space. There's lots of open-source software out there and I think that value extraction – largely from PMs and devs – will be tough.
BTW, good call on Slack becoming a unicorn. ;)
You could have a data center, chip designer, fabricator, and software service.. all in one. Unlikely, maybe... but the question is pie in the sky anyways.
No UI is the next step, in my opinion.
Comparing a cloud to a rock, the author needs to work on their metaphors.
Workday (WDAY) and Veeva (VEEV) as great examples of just recently rallied SaaS stocks.
The true value of SaaS is just unfolding, not being stuck on old versions is just now sinking in. The above companies have customers go beyond the 5 year, sometimes 10 year mark - but they're not on some outdated version, figuring out how to patch that shit up. This is a revolution in enterprise that has not fully sunken in, there are still a lot of companies out there only dipping their toes into going SaaS.
Vertical clouds such as Veeva, as in going deep into one specific target industry, are a pretty good model to follow. Customer acquisition costs are super low, there is data out there to confirm this. All a reference sell, as CIOs talk to each other in a specific industry. Build a positive reputation, the sale follows. Product leads the way, not marketing.
The moat here being super deep industry expertise and data accumulation that gets harder and harder to compete with.
There will be something after SaaS, but it will take a while and it is utterly unclear what it will be.
Mainframes - Client/Server - SaaS - ??