production

SaaS business model: all you have to know about the trend of the decade

Recently, I have thought about my time at university. Like any student, I had to write dozens of papers. And I did it in MS Word software. But to do so, I had to pay for a MS Office bundle license and install it on my computer. Each time I wanted to share a file with someone, I had to send it via email. The uploading and downloading were ridiculous. Moreover, I had to carry the USB stick with all my files in my pocket just for the case I decide to work on some paper in a library or any other place, except for my home. 

Years went by and I now never even think about MS Word when starting to write a new piece. I have Google Docs on the starting page of my laptop. It does the same thing that MS Word did, but something has changed. It’s free and available anywhere, anytime, for anyone. I can access all my documents from any laptop, tablet, smartphone… basically from any device, that has a browser. If I owned a smart fridge with a built-in display, I could even do some editing right in the kitchen. However, my personal assistant Alexa helps me make notes in while cooking. 

But what I absolutely love about Google Docs is the possibility to share the file via a link with my colleagues and instantly see their edits. No uploading and downloading. No stress. No duplicate files. 

MS Word and Google Docs perfectly illustrate the shift from on-premise software to software as a service (SaaS). This is just one example, but there are thousands. 

Software as a Service is a new standard in the industry

Some time ago, it was the norm to buy an installation CD for each piece of software you needed. Now I am 99% sure that your laptop doesn’t even have a CD-ROM. With technology evolution, this hardware has become redundant. 

Instead of running on your computer, software as a service runs in the cloud. Remote servers take over all the calculations and your computer doesn’t suffer from overheating anymore. 

What are the benefits of the SaaS model for the customer?

I would never return to using MS Office after trying Google Docs. The SaaS model has a handful of benefits for users. And that’s why it has kicked off on-premises dinosaurs from the game. These are just a few of them:

  • No installation required
    SaaS products work in the cloud. There’s no need to download and install anything, which greatly saves you time, efforts, and storage on your device.
  • Free trial
    Previously, you could only buy a CD to test software. If it didn’t fit your needs, there was no way out (you’ve already used your installation key). Now, you can test the software for free before deciding to pay for it.
  • Monthly or yearly payment
    Subscription enables you to pay a small sum of money on a regular basis instead of paying much more upfront. Also, you can pause or cancel your subscription anytime.
  • Regular updates
    If you subscribe to a SaaS, you only access the latest version of the product. There’s no need to install patches. 
  • Access from any device
    You can log into your account from any device anywhere in the world. You are not bound to a single PC. 

Why is SaaS business model beneficial for service providers?

There are many reasons to move your software business to the cloud and sell it as SaaS. Here are just a few of them:

  • You get stable revenue on a monthly or yearly basis
    When selling a lifetime license, you get the money only once. And it is hard to predict how many licences you manage to sell the next month or the next year. It is harder to plan your budget. When selling software as a service, your income is stable and predictable. 
  • More potential clients
    The price for on-premise software has definitely scared some of your potential customers away. Now when you charge a few dollars per month, they can afford to give it a try! It works especially good for business software such as complex ERP or order management systems. If previously only an enterprise could afford your on-premise service, a SaaS solution becomes a considerable option for medium or even small businesses.
  • More people know about your service
    SaaS usually offers free trials, which is beneficial not only for the users but for the service provider as well. Even if the user doesn’t subscribe after the trial, he already knows the functionality you offer and may come back for it later or recommend it to other users, who search for this kind of a solution.
  • Relatively cheap SaaS software development process
    When outsourcing your SaaS app to a company with related expertise, you may be surprised with the speed and costs of development. You will be able to release your first MVP in a couple of months. All the next features are created in short sprints and released successively. You can start selling your app straight away, constantly improving functionality and user experience. 

Various revenue streams for SaaS business

Even better is the fact that Software as a Service application can be monetized in various ways.

  • Subscription
  • Plan upgrade or upsells
  • Affiliate program
  • Setup or customization fee
  • Paid API
  • Advertising
  • Advanced customer service

You can combine multiple monetization models and create your unique strategy that perfectly fits your business.

Conclusion

Slack, Dropbox, Google Drive, Grammarly, Hubspot, G Suite, Canva, Trello, Soundcloud - these are just a few software as a service solutions I use regularly. These companies either predicted the trend and decided to switch to SaaS approach, or made their way in the industry from scratch. You can read more about the most successful SaaS examples of our time in our article.  

Microsoft has missed the momentum. It already offers MS Word as an online service, but it won’t have the users that once switched to Google Docs back. 

The outcome of the battle between cloud-based and on-premises software is already predefined. Switch to SaaS before your competitors do and secure yourself the piece of the pie. Litslink is ready to help!

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