Prepare for SaaS to revolutionise your revenue model
Thursday 16th January 2014
While Software as a Service (SaaS) will prove to be more profitable in the long-run than reliance on legacy systems, one of the things that is likely to be disrupted in the short term is a business' revenue model.
Alongside a speed up of the development cycle, which adds pressure to Independent Software Vendors (ISVs) but is attractive to customers who wish to ensure their services are the most up to date, the old "revenue-before-expense" model of licensing will be changed.
What previously made this model beneficial to ISVs was the fact that it made more money, faster, through the use of event-driven sales. For customers, on the other hand, it was a lot more risky; it required them to establish processes to assess whether software was suitable for them and then invest a lot of capital in the project without fully understanding how much of a benefit it would be in the long-term.
The introduction of the subscription model offers a lot more flexibility for customers as it allows them to spend in smaller increments on SaaS products, allowing them to try out a service and then cancel it if it does not prove beneficial to them. It is a much better method for customers to assess the business value of a product than trying to calculate this beforehand.
For ISVs, however, they may not see financial return in the short-term as a result of the building costs associated with migrating to SaaS. However, the stream of revenue tends to be more consistent and, as the model is more preferable to customers, it is likely to generate more money in the long run.
It is easier for ISVs to build loyalty with customers as they are able to get hands-on experience with a product before investing in it long term. With this in mind, it is more likely that they will approach ISVs for more business solutions in the future.
While it may appear to be a struggle in the beginning, switching to a subscription model will significantly aid customer retention in the long-run.