I entered the software industry asking this very question...
What is SaaS?
No one had an idea what it is.
Because most engineers are investor dependent.
They don't care to know.
I will tell you as I only figured out during my experience as a direct marketer and software engineer.
I was reading a book on Profitable Direct Marketing and the author, Jim Kobs explain the difference from moving from a Transactional business model to a Continuity Relationship Based model.
He used the example of a Book Club.
Instead of selling a book on a transaction basis.
You could build a service of sending a book every month to the door.
Hence a Book of the Month Club.
#MailOrderBasics
It's the same thing with software.
Author, Peter Thiel has been very skeptical of SaaS entrepreneurs as they are
process marketing based. Which is true.
This is where my background in engineering comes in.
The law of this blog is that you need a substantial, valuable working product/service before you can go into the market and dominate. Most SaaS entrepreneurs are just salesmen and marketers. No problem with this. But the problem is, the hype around a channel strategy.
It's a Red Herring.
All SaaS is:
SaaS is a software subscription service delivered through the internet.
That's it.
But for a service to be valuable, the software's features must benefit the user.
These businesses are tough to build monopolies because there is nothing differentiating from the rest.
I'll give you an example from my real life.
Adobe's Photoshop is a monopoly among photo editing software.
I don't know of any other one.
The term for Photo editing is Photoshopping.
Before the internet, they sold Adobe Photoshop by the package.
You would goto the store and pick up the software and install it onto your computer
This was a transaction based business model.
For every update, you would have to go back to the store and buy the update.
Now, you do not need to do this.
The software is delivered through the internet.
So you access all the features of Photoshop through the internet.
It's the same software, different delivery system.
So instead of going to the store, or even having to use the same computer to use the software.
You can access your work via the web.
Cool right?
The strength is in the Economics of the service though.
If you want to cancel Adobe's Creative Cloud.
It will cost you $247.
No other photoshop service can try it because they don't have the grip on the
market like Adobe does.
Because Photoshop was a breakthrough back in the early 90s.
But if one cannot create a breakthrough in software or any other product.
The way of delivering the service is null.
This is why SaaS is getting a bad name. Because there is nothing ground breaking about it.
If the product is garbage. The service will not be profitable.
So focus on both, how you are going create a great product and how to maintain a good relationship with your customers. Because without a long term customer relationship. SaaS is nothing.
Other examples is Microsoft Word.
Back in the late 80s Microsoft had a monopoly on Word Processing applications.
So what has Microsoft done to keep their applications relevant?
Upload their services to the internet and charge a recurring fee on the anywhere, anytime usage of Microsoft word.
This is what you call Legacy Cashflow. Both Photoshop and Word are Legacy products that have had a 30 year monopoly in their respective markets but have just switched delivery systems.
Too bad most SaaS entrepreneurs think this applies to them without the pain, sweat and tears of creating a breakthrough product.
In short, they are cutting corners.
That's what a buzzword means: To cut corners.
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