fetch Solutions to provide a Component Industry Supply-Chain Software Suite of Tools developed over the last 10 Years by Component Industry Consultant

SaaS vs. Software – Two Fundamentally Different Business Approaches

Posted by Paul Chen, President, Managed Services

It’s clear that Software-as-a-Service is continuing to grow, and as a business model, it has the potential to be very profitable. According to Gartner’s estimates, by 2011, 25% of new business software will be delivered as SaaS. Compare this to their assessment of traditional software licenses, which Gartner says have been stagnant for the past 36 months, and you’re left with a very healthy outlook for the SaaS market.

This recent growth has led a number of companies (and individuals) to consider developing a SaaS-based solution. As part of the decision process, there is often a significant focus on how long it will take, and how much capital is required to build and market a successful, profitable SaaS solution (particularly in comparison to traditional, licensed software solutions). This comparison will almost always lead to a conclusion that SaaS is more expensive, and takes longer than traditional software to reach a point of profit.

While these are important metrics to consider, the way I see it, the real question is not, “how much will it cost”, but instead, how do you “do it right” to help ensure success (and the profits that come with it)?

I am not claiming to have all the answers, nor do I think there's only one right way to build a successful SaaS business . I do, however, know that there are a lot of important issues that are overlooked by many people entering the space, especially when they’re coming from more traditional software markets. While the two models (SaaS and traditional software) appear very similar on the surface, I would argue there are a lot more differences between them than similarities. When you consider that, approaching the two business models in the same way does not make any sense.

Fundamentally, the switch to a SaaS model requires you to first understand that SaaS is not simply another delivery mechanism – it’s a paradigm shift that affects virtually every department in the organization. To be truly successful, a SaaS-based offering needs to be built from the ground up as a service, rather than a product. Every business decision should be made with this in mind – from product feature decisions to sales and marketing efforts.

In my next posts, I will share with you the three biggest lessons I’ve learned building a SaaS business, and explain why these three things are, in my opinion, critical to the success of any SaaS initiative.