The Commoditization Of SaaS
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The Commoditization Of SaaS
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Re: The Commoditization Of SaaS
#2> Chances are that your company or your industry will be commoditized especially when you don’t think it can happen because, in reality commoditization always happens
Everything else in the post rests on this, and I'm not sure that its true. Do you have research or statistics to support this claim?
I'm curious what these industries are. Oil? Investment funds? Pharmaceuticals?
I'm thinking that there are a few industries where commoditization has not happened over the last few hundred years. Of these, I'm curious how many of the industries commoditization could happen in, but has not, and how many (for some reason) are strongly resistant to commoditization.
Re: The Commoditization Of SaaS
#3I think there are two conflating ideas here, commoditization and uniqueness. Commoditization will happen over time, especially with open source becoming a bigger part of more industries, but that doesn't mean you need to rush to become a commodity.
You should start with something unique and keep making unique things that delight the people who are willing to pay for those things.
It's not a complicated idea, but it takes focus and time to really get to know your customers and their needs.
Re: The Commoditization Of SaaS
#4> Chances are that your company or your industry will be commoditized especially when you don’t think it can happen because, in reality commoditization always happens Everything else in the post rests on this, and I'm not sure that its true. Do you have research or statistics to support this claim? I'm curious what these industries are. Oil? Investment funds? Pharmaceuticals? I'm thinking that there are a few industr…
In regards to the commoditization point & to you examples of Oil, Investment Funds and Pharmaceuticals there has been consolidation within these. For instance, OPEC has effectively brought all the oil-producing nations under one rule so to speak which has established uniform pricing throughout the world.
Moreover, commoditization doesn't happen immediately as there may be industries who disrupt existing solutions (as SaaS has done to Enterprise Software) but aren't yet fully established themselves (or in particular verticals of the new industry) and these can have time to evolve before commoditizing. Having said that, it's always better to commoditize yourself before customers (and potential customers) perceive you as a commodity. The reason for is that it becomes much harder to evolve into a preferred partner/problem service where you can make much higher profit margins during this stage as you are being compared on price & not your defensible value add.
Re: The Commoditization Of SaaS
#5I think there are two conflating ideas here, commoditization and uniqueness. Commoditization will happen over time, especially with open source becoming a bigger part of more industries, but that doesn't mean you need to rush to become a commodity. You should start with something unique and keep making unique things that delight the people who are willing to pay for those things. It's not a complicated idea, but it t…
I mentioned the uniqueness elements to highlight areas where SaaS services can evolve into from their "solution" service to a "problem" service.
I do however agree with you that, you should always try to offer something unique (as this is the USP and where you can make higher profit margins) and that it can sometimes take time to achieve this. However, SaaS is not revolutionary and it can be copied by anyone and some of them may have a nice user interface and/or great product functionality but it is not revolutionary aka a commodity - which as I mentioned in the post is a death spiral as it focuses on competing on price.
Re: The Commoditization Of SaaS
#6> Chances are that your company or your industry will be commoditized especially when you don’t think it can happen because, in reality commoditization always happens Everything else in the post rests on this, and I'm not sure that its true. Do you have research or statistics to support this claim? I'm curious what these industries are. Oil? Investment funds? Pharmaceuticals? I'm thinking that there are a few industr…
Huh? Oil the perfect example of a commoditized market? You go buy oil on a commodities exchange and take delivery from whoever bothered to fill your contract (you don't really care who).
Re: The Commoditization Of SaaS
#7There is intense competition in the Saas space, but competition is different from commoditization imo.
The simpler the Saas service, and the lower cost of switching, the more competition and commoditization that may go on. But this article is talking specifically about Saas replacing enterprise software. Software is sticky, and some software is very sticky because it is mission critical, highly integrated into the business workflows, and/or there is significant user interaction.
For example, if a company has 500 sales people all happily using salesforce.com, why would a CIO disrupt everyone's work to switch to a cheaper but different product? The cost of salesforce.com is not a significant cost to the business, but the cost of disrupting people's productivity swamps any savings you might from switching to a cheaper service.
This is similar to someone telling a company to drop MS Office because OpenOffice or GoogleDocs have equivalent "good enough" functionality and are free. There is no 'commodity' version of MS Office which looks and behaves exactly like MS Office but just with a lower price.
Re: The Commoditization Of SaaS
#8As a result, by commoditizing yourself and creating a new unique selling point which is, unique to you, important to your customer (or potential customers) and is defensible against your competition, on top of your SaaS you can increase demand and give yourself the opportunity for highly profitable growth.
I don't follow. Okay so I find a selling point but what exactly makes it defensible or 'unique'?
Re: The Commoditization Of SaaS
#9This is the tradeoff... SaaS gets great margins because it's not custom. There's a high fixed cost, then each incremental addition has benefit. Even with a low marginal cost this is true. The #1 SaaS can also add lot of features and increase reliability and spend more on Marketing.
You could argue that Wal-mart is a commodity too. It's just stores and the same stuff as K-mart and 7-11. But it crushes them. There's room for both Wal-mart and Tiffany's just like there's room for a SaaS for your billing system, and Accenture to build a custom one.
Re: The Commoditization Of SaaS
#10There is intense competition in the Saas space, but competition is different from commoditization imo. The simpler the Saas service, and the lower cost of switching, the more competition and commoditization that may go on. But this article is talking specifically about Saas replacing enterprise software. Software is sticky, and some software is very sticky because it is mission critical, highly integrated into the bu…
The only part I would disagree with you on is that SF.com isn't a significant cost - that's 500 x $100/month or $50,000 a month or around $600k a year. Now I know there would be significant discounts - but you get the idea.
But you are right that the switching costs trump the costs.
For the switch to make sense, I think you need to offer 4x the value to make up for the switching costs. So that can be some combination of cost savings and better functionality.
Salesforce.com is a perfect demonstration of the power of the network effect - the product, in my opinion, has really isn't that great. Yes, it's fairly flexible but feels very dated and the reporting is slow and cumbersome. In theory, their system should be relatively easy to disrupt, but none of the competitors can match the number and level of integrations out there.
A good article about the economics of SaaS: http://pandodaily.com/2013/06/15/what-the-data-reveals-about...