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The unprofitable SaaS business model trap

blog.asmartbear.com

11–20 of 99 posts

Re: The unprofitable SaaS business model trap

#11
Interesting given Get Satisfaction's recent approx. 10x price increase: http://blog.getsatisfaction.com/2013/07/16/the-latest-about-...

I just exchanged tweets with them this afternoon saying it would be interesting to see how this change affects their revenues (maybe if/when they IPO).

Re: The unprofitable SaaS business model trap

#12

It doesn't matter what business you are in, if you aren't turning a profit on each sale, you won't make it up in volume. In fact, volume will kill you fast. I remember when Sony was selling the PS3 at like a $200+ loss at launch. I was surprised that Microsoft didn't take a couple billion dollars and buy PS3's. It would have cost Sony hundreds of millions of dollars and would have made the PS3 a money sink hole for e…

What are you talking about? This is standard practice. Microsoft also sells its consoles at a loss: http://www.neowin.net/news/report-microsofts-xbox-division-h...

The idea is that once you get your console in peoples' homes, you can make money off of the accessories and games.

Re: The unprofitable SaaS business model trap

#13

It doesn't matter what business you are in, if you aren't turning a profit on each sale, you won't make it up in volume. In fact, volume will kill you fast. I remember when Sony was selling the PS3 at like a $200+ loss at launch. I was surprised that Microsoft didn't take a couple billion dollars and buy PS3's. It would have cost Sony hundreds of millions of dollars and would have made the PS3 a money sink hole for e…

You can sell razors at a loss if people buy your razorblades at a substantial profit.

You are of course right. The problem is that software companies end up doing the exact opposite more often than one would expect. We do the equivalent of selling razors at a profit, and to make the deal sweeter throw in the commitment to provide "as many razors" as the customer can possibly demand, and replacement razors at heavy discounts... for as long as there's an entity called McRazors, Inc.

Re: The unprofitable SaaS business model trap

#14

Interesting given Get Satisfaction's recent approx. 10x price increase: http://blog.getsatisfaction.com/2013/07/16/the-latest-about-... I just exchanged tweets with them this afternoon saying it would be interesting to see how this change affects their revenues (maybe if/when they IPO).

This also explains why we're seeing services like KISSmetrics, Dropbox for Teams, etc. moving to annual, pre-paid pricing rather than monthly with free versions

Re: The unprofitable SaaS business model trap

#15

It doesn't matter what business you are in, if you aren't turning a profit on each sale, you won't make it up in volume. In fact, volume will kill you fast. I remember when Sony was selling the PS3 at like a $200+ loss at launch. I was surprised that Microsoft didn't take a couple billion dollars and buy PS3's. It would have cost Sony hundreds of millions of dollars and would have made the PS3 a money sink hole for e…

Herbert Dow would be proud: http://www.quora.com/Business/Whats-the-shrewdest-smartest-m...

Re: The unprofitable SaaS business model trap

#16

It doesn't matter what business you are in, if you aren't turning a profit on each sale, you won't make it up in volume. In fact, volume will kill you fast. I remember when Sony was selling the PS3 at like a $200+ loss at launch. I was surprised that Microsoft didn't take a couple billion dollars and buy PS3's. It would have cost Sony hundreds of millions of dollars and would have made the PS3 a money sink hole for e…

You can sell razors at a loss if people buy your razorblades at a substantial profit.

Printers and ink cartridges is the other example that comes to mind.

Re: The unprofitable SaaS business model trap

#17
post #12

It doesn't matter what business you are in, if you aren't turning a profit on each sale, you won't make it up in volume. In fact, volume will kill you fast. I remember when Sony was selling the PS3 at like a $200+ loss at launch. I was surprised that Microsoft didn't take a couple billion dollars and buy PS3's. It would have cost Sony hundreds of millions of dollars and would have made the PS3 a money sink hole for e…

What are you talking about? This is standard practice. Microsoft also sells its consoles at a loss: http://www.neowin.net/news/report-microsofts-xbox-division-h... The idea is that once you get your console in peoples' homes, you can make money off of the accessories and games.

This was covered in the post, but under the heading of "Undoing the effect of cancelations"

> Undo the effect of cancellations through up-sells/upgrades. Salesforce.com and ZenDesk charge more for every person you add, and more per person when you increase the features in your plan. Their customers grow (on average). Thus, their revenue over four years is not 4R, but rather it might be R on the first year, 1.5R on the second, 2R on the third, etc., so perhaps 7R in four years.

MS, Sony, and Nintendo hope that once you have the console, you will continue to buy games. And the console maker will collect a license fee from each game sold. If MS bought a ton of PS3 consoles, then the general public would have to buy a lot more games to make up for the loss. So the strategy does work, but it would work against any of the companies, not just Sony. But I think the PS3 had one of the biggest losses of any console at $240 - $300 depending on the version of the console purchased.

Re: The unprofitable SaaS business model trap

#18
Edit: following downvotes.

There is a seemingly sudden rush of SaaS companies at IPO / major growth levels in the B2B marketplace - how do people track them, or know about them? Is there a news outlet I am missing?

Add to that, the underlying sell for SaaS companies is either ease of implementation (which is a non-differentiator) or it is a genuine new activity (cross enterprise, co-ordinated 3rd party cookie tracking to massively increase campaign targeting / feedback) - so is there a discussion area on what these guys are doing underneath?

Basically - what am I missing?

My original for posterity:

I have never even heard of these two companies - where on earth does one find all these suddenly growing companies?

And frankly, is there a wiki page on what they are really doing under the skin (marketo / eloqua look like glorified dashboards for third party cookie tracking)

(Not that there is anything wrong with a glorified dashboard, I just like to know what people are really doing)

Re: The unprofitable SaaS business model trap

#20
I'm curious if Yammer fell into this trap or if they were able to reach profitability with any of these techniques. Seems like they had a bit of viral growth but some initial searching implies they hadn't turned a profit yet.

Also, the press seems to only want to talk about their revenue growth.

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