Unless you’re a software developer or work in the tech industry, you probably know all about software as a service but don’t really care too much. After, the name says it all, it’s software that you use a service. What’s the big deal? It doesn’t get the same maniacal press as the impending AI apocalypse or the blockchain gold rush. Software as a service is a quiet revolution, dramatically changing the way we do things without attracting too much attention.
So what? If software as a service is having such a big impact without anybody paying it too much attention, where’s the story?
Well we need to dig a little deeper and compare the winners and the losers to find the real story. Lets break things down a bit. As a software vendor, you have three options when it comes to software as a service:
You can do nothing, for now at least.
Maybe your particular market hasn’t moved to SaaS yet. If your product is innovative and delivers proven value to your customers then the choice of on-premise or on-demand is largely irrelevant. Your customer is happy to do whatever is necessary to achieve that value. Tom Seibel did pretty well with that strategy back in the early days of CRM until Salesforce came along. There are literally thousands of examples of products that once dominated a market being unseated by software as a service and we’ll talk about why in a bit. Regardless, in the short terms, this is still a viable strategy.
IaaS as SaaS
Let’s say you decide that you need a software a service offering now. Maybe your customers are buying into the whole ‘Cloud First’ approach and want to know they can use your service on-demand if they need to. The easiest thing to do, if you have an existing product, is to spin up some virtual machines in the cloud and hook your customer up to them. I call this approach ‘IaaS as SaaS’. It checks a few of the SaaS boxes and seems pretty risk free. Actually, this model is described by Gartner, Amazon and Microsoft as a first step to cloud adoption and it’s often referred to as ‘lift and shift’. It must be a decent plan if these guys are recommending it. Here’s something to bear in mind though, the audience for that guidance isn’t software vendors, it’s corporate IT professionals. It’s a great place to start but it’s a long way from a real solution.
Build a SaaS Platform
The third option is to build a software as a service platform - a set of services that will automatically make your services available to your customers. It’ll deal with user registration, provisioning, security, billing, the whole nine yards. If your market is just taking it’s first steps toward software as a service, this might seem a bit unnecessary. Building a platform takes time, it costs money and worse, it ties up resources. You spend many months building features that aren’t directly related to your core product so that a small percentage of your customers can pay you less to use your software. It doesn’t sound like a great strategy, at least from a short-term perspective.
You’re not alone
We did some research earlier this year with software vendors across a range of markets and found that 17% of companies are doing nothing – they have an on-premise product and they leave it for their customers to install their products wherever it makes most sense. This is where the ‘lift and shift’ guidance is targeted. Customers can lift and shift software packages to the cloud to reduce infrastructure costs.
We found that 60% of companies have adopted an IaaS as SaaS approach – they offer a cloud-based version of their service but there’s no on-line signup, automated provisioning, subscription-based billing etc. Essentially, these vendors spin up infrastructure as required. Unsurprisingly, all of these companies also offer an on-premise version of their product. As it happens, a common next step in the cloud adoption process, after ‘lift and shift’, is to replace with a managed alternative and it’s that desire that drives the need for quick fix IaaS as SaaS offerings.
The remaining 23% offer true software as a service. Most offer a free trial, online signup, automatic provisioning and subscription-based pricing. Of those, 75% are cloud-only businesses, that’s to say they don’t provide an on-premise version of their solutions. When you reach the point in your cloud adoption strategy that you’re considering replacing ‘lift and shift’ applications, these features will be invaluable when it comes to comparing service providers.
The secret sauce
Now here’s the interesting part – software companies offering true software as a service are growing faster than their competitors in the same market. In some cases, as much as 20x faster.
This raises the question, what is it about their approach that makes such a difference? Surely from the perspective of the user, there’s only a minor difference between IaaS as SaaS and true SaaS? Well that would be true if the only benefit of SaaS was eliminating the need to install some software but that’s far from the case.
Functionality is the key
Sometimes, when we’ve been doing things the same way for so long, we lose sight of why we’re doing them. Organizations use software because it enables them to do things that would be resource intensive, error prone or just plain impossible otherwise. They manage IT infrastructure because it enables them to run this software and they employ IT staff in order to keep the plates spinning. Moving the software to the cloud removes some of the infrastructure management workload, using software as a service transfers the workload to the service provider but at the end of the day if the software is still the same and there’s no net benefit in functionality.
Rapid Iteration is only possible with true software as a service
A true software as a service platform offers one major competitive advantage. It allows for rapid iteration. It allows you to improve your product much faster than would otherwise be possible. You can try out new features and gather immediate user feedback and you just can’t do that with traditional software. Sure, you could release a new version every day but your customers won’t use it, nobody needs the heartache of upgrading as often as that. Even if you’ve gone down the IaaS as SaaS route, you can’t practically upgrade all of your customers manually without major risks to the quality of your service.
There are two consequences of this difference: the most obvious one is that a true SaaS company will very quickly pull ahead when it comes to adding new, valuable functionality. The other consequence is more subtle. The big difference between software as a service and old-school on-premise software is who’s taking the risk. With on-premise software, the customer takes they risk – they perform their due diligence and stump up the cash for a license for whatever product checks the most boxes on their requirements. If the product doesn’t deliver the goods the customer carries the can and it’s very common to see organizations struggle with less than useful software systems because the implementation costs were so high that considering a replacement is out of the question. Anybody who’s ever used a computer knows this only too well and we’ve got used to it. We accept that things won’t always work as they should.
SaaS winners own the risk
But it doesn’t have to be like that and that’s the difference between those that are successful in the world of software as a service and those that are just getting by. The winners accept that they’re carrying the can for quality of service, not just uptime or performance but the actual business benefit that their service offers. They’re striving to make their service better, easier to use, more valuable and more reliable than their competitors and they recognize that they can only do that by leveraging the unique capabilities that an on-demand delivery model allows. They allow their customers to do more with less. Less hassle, less frustration, less risk. Why would you go anywhere else?