I have been posting on and off on the SaaS model elsewhere in this blog. Sandhill.com published an article on The Bottom Line on SaaS recently. While this article was more focused on SaaS per se Salesforce.com, it summarily mentions the following three advantages of the SaaS offering:
1. SaaS Vendors Capture A Higher Share of Customer Spend.
2. Better Profitability for SaaS Vendors.
3. Continuous Innovation.
The other interesting thing this paper mentions that if you use SaaS, you can show your IT spend as an operating, recurring spend rather than a one time capex.
I would add the following points:
- SaaS vendors may indeed capture a higher percentage of the customer's spend, but they also have higher capital expenses in setting up a suitable IT infrastructure backbone. I am not sure of the economics involved, but if the SaaS vendors capture double of the customer's dollar spend percent, I am sure they incur higher expenses than they would have in a pure play license sale.
- SaaS vendors do not necessarily have economies of scale as the article mentions. In many cases, the SaaS vendors may maintain multiple complex "one-off" customer configurations that do not offer the scale advantage. Thus it is also important to understand that the "one size fits all" SaaS offering with standard software does not offer any competitive advantages for customers who are more desirous of exactly mirroring their business processes. It may be virtually impossible for an "out of the box" software (SaaS or other) to achieve this.
- SaaS vendors have many avenues of innovation that the customer cannot have in his captive setup. As I mentioned earlier, access to product and technology specialists and proactive fixes coupled with "learn one fix many approaches" are some areas where SaaS vendors have unique opportunities. I would also add security and compliance to this list.