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The unprofitable SaaS business model trap

blog.asmartbear.com

31–40 of 99 posts

Re: The unprofitable SaaS business model trap

#31
I was going to launch a SaaS in Spain oriented to the education market, but when studying my potential customers locally, did make me almost leave immediately by the expectations.

I did get a nice job offer in other country and finally did stepped out of my draft/idea.

Still, I've the feeling that there are SaaS to be created and be successful. But maybe it's just a minor representation of a big no-no.

Re: The unprofitable SaaS business model trap

#32

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.

Yammer was not even close to a profitable business at the time of acquisition, not was that ever a goal.

Re: The unprofitable SaaS business model trap

#33
post #4

I love Jason's blog but I'm having some trouble understanding this post. It's okay to spend $X on customer acquisition if $X is less than the lifetime value of a customer (where X ends up being rather high for enterprise customers). But if it takes (pulling this number out of the air) two years to recoup that initial $X, then each customer is unprofitable for the first two years. And if you're a growth-minded SaaS fi…

I think he implies that the two years you mentioned are longer than the average customer life cycle.

Re: The unprofitable SaaS business model trap

#34

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 trackin…

It is often really difficult to hear about some of the enterprise players, unless you happen to work in a department they're targeting, simply because the vastly lower user base (usually orders of magnitudes below B2C or even SMB companies) generates a lot less buzz and mainstream coverage. But you probably know about a few of them. If you're a developer, something like JIRA is probably roughly equivalent to Marketo…

so if I described it as a dashboard-of-patio11's-brain would it be so wrong?

I just get the sneaking feeling that an awful lot of the companies are simply trying to land-grab what half a dozen good open standards would solve to the 80% level

I think by that I mean we are going to see a desire to build your own walled garden, but unless people succeed to the facebook level, there will be standards and consolidation, then a rapid rise of competing open implementations, and bingo, no more market.

Re: The unprofitable SaaS business model trap

#35
post #4

I love Jason's blog but I'm having some trouble understanding this post. It's okay to spend $X on customer acquisition if $X is less than the lifetime value of a customer (where X ends up being rather high for enterprise customers). But if it takes (pulling this number out of the air) two years to recoup that initial $X, then each customer is unprofitable for the first two years. And if you're a growth-minded SaaS fi…

The tl;dr version is that your company will never get to a size where the executives will suddenly go "oh, well, we're big enough" so you'll always be in that customer acquisition phase, and thus you'll never be profitable.

Re: The unprofitable SaaS business model trap

#36
post #30

Earlier quoted context omitted.

The majority of these aren't B2B, really, and of those that are, very few of them are "enterprise" players like Eloqua or Marketo.

Having put the list together myself, I'm certain that 99%+ are B2B. It's true though that there aren't that many "enterprise" players, although Marketo is there.

I just started scraping that list to do some brief analysis / categorising myself - if I come back here with the results later will you object?

Re: The unprofitable SaaS business model trap

#37

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…

Sony didn't see the PS3 as a console. It was a heavily subsidized Blu-ray player, that also happened to play games. So they lost that generation's console war, even though they were losing money on every sale, but won the much more strategically important video format war. Also, thankfully for them, the PS3/Xbox360/Wii generation lasted twice as long as previous generations, so they had plenty of time to recoup this…

If that's the case, then Microsoft isn't going to be very happy with how this generation is going to turn out for them. I mean, if they're banking on post-disc, then they don't have a competitive advantage over PS4 in real terms. The complaints gamers had about the DRM system is that it turns your discs into digital but doesn't really give you any actual benefit from doing so.

Re: The unprofitable SaaS business model trap

#38

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…

> I was surprised that Microsoft didn't take a couple billion dollars and buy PS3's.

> Obviously, Microsoft could have got in a lot of trouble for attempting such a strategy,

Umm, I think you answered your own question:)

And to go a bit further, the console strategy that Microsoft and Sony employ is to lose money selling the console to grow the user base and make it up on games sales.

Re: The unprofitable SaaS business model trap

#39
post #30

Earlier quoted context omitted.

Having put the list together myself, I'm certain that 99%+ are B2B. It's true though that there aren't that many "enterprise" players, although Marketo is there.

I just started scraping that list to do some brief analysis / categorising myself - if I come back here with the results later will you object?

Not at all. Let me know via the feedback form (available via the dropdown in the upper right when you sign up) what format you need the data in and I'd be happy to provide it as JSON.

Also, if there's some data missing that you want us to collect, check out our extractor API: https://github.com/starthq/extractor#starthq-extractor-api

Re: The unprofitable SaaS business model trap

#40
A seriously bad article. I don't know the company in question, but there are always companies in industries that either a) are very profitable, b) not profitable yet, because they invest in growth (profit = sales - (marketing) - R&D) or c) are unprofitable. Many software businesses don't earn money or low rates of ROEs - so what? It would be much more interesting to look at some cross-sectional data than to speculate based on sample size of n=1 ?! Btw, looking at the website of MKTO I'm not surprised, although the public market puts a tag of 900M$ on this company, which in 2012 made 60M$ in revenue while having netincome of -35M$. this has nothing to do with the SaaS model in general IMO (working for a quite successful one myself). Constant market-fit, zero-cost deploys, world-wide customer-base - what more do you want? Compare that to 5 -10 years ago, or making your living with custom software.
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