The unprofitable SaaS business model trap • Hacker News Board

Re: The unprofitable SaaS business model trap

#41

Post by rubinelli » Tue, Jul 23, 2013, 7:46 PM UTC

DannoHung wrote: post #37

rubinelli wrote: post #23

Earlier quoted context omitted.

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.

Yeah, from what I understood, Microsoft's original plan was to have the disc as a convenient way to prevent a lengthy, multi-gigabyte download and to save space on the console's hard drive, but they failed to sell this vision to the developers.

Re: The unprofitable SaaS business model trap

#42

Post by reubenswartz » Tue, Jul 23, 2013, 7:51 PM UTC

mbesto wrote: post #26

I still don't know a single SaaS B2B company - at scale - that is actually profiting right now.[0] The general assumption is that the cost of sale will continue to go down (and thus become profitable), but once the market gets saturation (it is in CRM-SaaS for example), then the cost of sales goes right back up. > The other company has to bust ass for measly 20%/yr maintenance fees. This is a funny assumption. On-pre…

37Signals? (Perhaps not a coincidence that they are private.)

Re: The unprofitable SaaS business model trap

#43

Post by fusiongyro » Tue, Jul 23, 2013, 7:58 PM UTC

jmduke wrote: 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 problem is that the costs are all front-loaded. By the time your first batch has come through, you already have another batch costing you. If you're going to become positive, your per-customer expenses have to go down over time, or you'll never catch up to the debt.

Re: The unprofitable SaaS business model trap

#44

Post by dave_sullivan » Tue, Jul 23, 2013, 8:16 PM UTC

reubenswartz wrote: post #42

mbesto wrote: post #26

I still don't know a single SaaS B2B company - at scale - that is actually profiting right now.[0] The general assumption is that the cost of sale will continue to go down (and thus become profitable), but once the market gets saturation (it is in CRM-SaaS for example), then the cost of sales goes right back up. > The other company has to bust ass for measly 20%/yr maintenance fees. This is a funny assumption. On-pre…

37Signals? (Perhaps not a coincidence that they are private.)

When 37signals started coming out with products, they were really early to the "self-serve saas web app built by cool web devs just like you and me" model. In many ways, they practically invented the industry. Fast forward 9 years or so and the market is very crowded with plenty of investor money allowing businesses that will never turn a dime to stay in business too long (sell lots of jackets)--on the premise that they can be like 37signals.

For startups from the last 2-3 years (or ones currently entering that business), given the competitive reality + the massive downward pressure on saas prices (not to mention upward pressure on user expectations), I don't think the analogy works as well.

Also, 37S never has published numbers, so who really knows what their growth/profitability has looked like over the past several years? I wouldn't be surprised if their growth has slowed significantly due to steeper competition and an inevitable cooling of their brand's coolness.

Re: The unprofitable SaaS business model trap

#45

Post by s_q_b » Tue, Jul 23, 2013, 8:16 PM UTC

Businesses that don't make money will always fail. For some reason, the tech industry finds new and interesting ways to delude ourselves (and investors!) into thinking this law doesn't apply. But sooner or later, like gravity, it exerts its pull.

Make something people want. Sure. But more importantly, make something that costs less to make than people will pay.

Re: The unprofitable SaaS business model trap

#46

Post by nostromo » Tue, Jul 23, 2013, 8:19 PM UTC

mbesto wrote: post #26

I still don't know a single SaaS B2B company - at scale - that is actually profiting right now.[0] The general assumption is that the cost of sale will continue to go down (and thus become profitable), but once the market gets saturation (it is in CRM-SaaS for example), then the cost of sales goes right back up. > The other company has to bust ass for measly 20%/yr maintenance fees. This is a funny assumption. On-pre…

I used to work for one, LivePerson. Nobody in the valley knows or cares about LivePerson, but it's quite the little performer.

http://finance.yahoo.com/q/ks?s=LPSN+Key+Statistics

Re: The unprofitable SaaS business model trap

#47

Post by kposehn » Tue, Jul 23, 2013, 8:20 PM UTC

s_q_b wrote: post #45

Businesses that don't make money will always fail. For some reason, the tech industry finds new and interesting ways to delude ourselves (and investors!) into thinking this law doesn't apply. But sooner or later, like gravity, it exerts its pull. Make something people want. Sure. But more importantly, make something that costs less to make than people will pay.

Instagram.

There are businesses that can succeed at it, but they rely on not making money until acquisition, where the acquirer bets that they will add other value down the line.

That said, it is not an avenue I necessarily want to follow.

Re: The unprofitable SaaS business model trap

#48

Post by s_q_b » Tue, Jul 23, 2013, 8:22 PM UTC

kposehn wrote: post #47

s_q_b wrote: post #45

Businesses that don't make money will always fail. For some reason, the tech industry finds new and interesting ways to delude ourselves (and investors!) into thinking this law doesn't apply. But sooner or later, like gravity, it exerts its pull. Make something people want. Sure. But more importantly, make something that costs less to make than people will pay.

Instagram. There are businesses that can succeed at it, but they rely on not making money until acquisition, where the acquirer bets that they will add other value down the line. That said, it is not an avenue I necessarily want to follow.

Instagram hasn't proven it's ability to make any money for anyone yet, and I doubt it ever will.

I don't doubt that sometimes there's a greater fool you can scam into buying your money pit, and even provide return to your investors. It's crazy exceptions like this that keep the good-money-after-bad merry go round turning.

But it is not now, nor has it ever been, a viable path to building a sustainable business.

Re: The unprofitable SaaS business model trap

#49

Post by Maro » Tue, Jul 23, 2013, 8:40 PM UTC

lifeisstillgood wrote: post #25

This kind of feeds into a theory of mine (not well expressed I fear): The earthquake so far has been Google's effect on Sales and Marketing: - each person online is just one click away from every other (person?) web presence (business sites mostly, but other people increasingly) - So if you were the most attractive business on the web you would get all the customers. The mechanism through which your attraction was di…

For a company that is doing HR/office/mood stuff very well, like the company I work for (Prezi), these activities could not be outsourced because they are part of delivering the core values and feeling of the company and are instrumental in getting the right people on board (HR) and keeping them (office/mood).

Re: The unprofitable SaaS business model trap

#50

Post by Maro » Tue, Jul 23, 2013, 8:45 PM UTC

kposehn wrote: post #47

s_q_b wrote: post #45

Businesses that don't make money will always fail. For some reason, the tech industry finds new and interesting ways to delude ourselves (and investors!) into thinking this law doesn't apply. But sooner or later, like gravity, it exerts its pull. Make something people want. Sure. But more importantly, make something that costs less to make than people will pay.

Instagram. There are businesses that can succeed at it, but they rely on not making money until acquisition, where the acquirer bets that they will add other value down the line. That said, it is not an avenue I necessarily want to follow.

But Instagram didn't make money as a company for itself, Instagram itself was sold and made money for the founders/investors. The two are not the same.