SaaS-enabled solutions deliver win-win for companies and customers
Technology companies transitioning to a software as a service (SaaS) model, in which software is licensed on a subscription basis and hosted centrally, are set to realise significant benefits including increased revenue, reduced time to market and improved customer reach. Moreover, in the context of the COVID-19 pandemic, the fact that the SaaS model is not distributed physically rather deployed almost instantly is sure to make it a preferred choice among customers who are now urgently forced to consider technologically evolved business solutions for both their business needs, as well as their increasingly remote work models.
What is driving the shift?
Even before the arrival of COVID-19, SaaS was increasingly favoured due to the steady rise in the subscription-based economy. This, together with the fact that it also provides greater flexibility and security while reducing software expenses and time-to-market, means that several software companies and their customers are transitioning to the model to realise the numerous potential benefits it offers.
- The rise of subscription-based services: The convenience and cost saving benefits of digital subscription offerings has led to an increased uptake across a range of software services. Customers consider the ability to choose annual or monthly licensing fees coupled with simplified procurement and a lower cost of entry highly attractive.
- The evolution of the SaaS model: From a high degree of on-premise and manual efforts to install and manage applications, the SaaS model allows for software applications to be hosted in the cloud, eliminating the need for local storage. The cost of acquisition and the burden of software management is also minimised. Multiple users can use the model remotely at a time offering more robust and secure data backups and recovery.
- Reduced software expenses: The cost savings inherent in the SaaS model are significant. The lower cost of entry means that customers are often able to categorise software investments as operating expenses rather than capital expenditures. The vertical scalability offered by SaaS means that licenses can be easily expanded or reduced based on changing business requirements. Since most activity is driven from the data centre, the customer’s ability to launch and scale digital applications as part of their digital transformation strategy, is considerably enhanced.
Companies spend an average of USD 2,884 per employee on SaaS (more than hardware) and this figure is increasing with more industries transitioning to a SaaS model. The SaaS market size is expected to reach USD 157 billion in 2020 and is forecasted to gain USD 60 billion between the years 2019 and 2023.
Journey from on-premise to SaaS-enabled solution
The journey to shift from providing on-premise solutions to becoming a SaaS-based solution provider involves intense levels of testing. Initial unit testing is followed by automated integration testing and then troubleshooting. Advanced production tests are conducted to inform the analytics stage enabling continuous improvement. Finally, the quality metrics milestone allows developers to enhance their understanding of the user experience and fix issues.
What to look out for
The main challenges for technology companies transitioning to a SaaS model are the scale of deployment, application modification and the financial impact of a recurring revenue model. The fact that software providers have to support many customers through a single installation of the software requires them to implement multi-tenancy within their software architecture and combine the application with the support services required to operate a service-based business.
Those wanting to make the shift will also have to develop the expertise required to deploy, manage and scale applications as they assume responsibility for the operation of the application on behalf of the customer. The complex, dynamic nature of service-based business models will require appropriately differentiated charging models and offerings – for example pay-per-use, special offers and campaigns.
With this in mind, once a decision is made to make the shift, it will be important to rigorously evaluate the different potential SaaS models and adopt an iterative deployment approach allowing for greater learning and flexibility during the course of deployment. Software companies and their customers should periodically assess their overall SaaS roadmap to regularly check their progress against their strategic goals.
Leading industry examples
- Software company Adobe’s major change to its business model through the creation of the new business category ‘Digital Experience’ has resulted in more predictable revenue, greater technology innovation and more data-informed customer understanding and interactions. The data centric approach of the Adobe Experience Cloud has reframed content strategy to better justify and align advertising spend. The company also recalibrated its talent strategy to strengthen marketing competence and ensured leadership buy-in to stay the course despite an initially predicted dip in revenue. Consistent commitment to their strategic direction has resulted in Adobe currently reaping the benefit of over USD5 billion in recurring revenues.
- InVision, a company providing digital product design platforms for start-ups, corporations and design agencies, transitioned their core business model to cloud computing by moving from on-premise workforce management to a multi-tenant SaaS product. Using the Techcello framework that provided all engineering and operational components in a ready to use format, Invision was able to offer a cloud-based SaaS offering to their customers within a very short period of time. The time and cost savings achieved enabled them to focus on modernising and migrating all their products over the longer term.
- Kronos, a workforce and human capital management cloud provider, set a clear revenue expectation from cloud-based SaaS by 2019. Realising this required a complete transformation of the business, they invested in their SaaS transformational journey by setting up a Transformation Management Office to drive the change program and launching the ‘Make the Shift’ communication campaign to educate and mobilise employees on the journey. Performance highlights show that Kronos’ focused commitment to shift to the SaaS model has paid off for the company. These include 90% bookings for cloud solutions, 30% annual growth rate of subscription revenues and 95% customer retention.
The willingness to learn, innovate and stay the course is instrumental to succeed on the journey to SaaS-enabled solutions. The ability to remain disciplined, structured and systematic is key. However, the value ultimately delivered shows that the effort is worth it. Software companies offering their customers SaaS-enabled models create a win-win solution that can be hard to beat. Apart from the cost, efficiency and productivity gains for the providers of these models, they also enable their customers to access affordable, flexible and secure digital solutions to remain resilient and thrive in an increasingly complex world.