Earlier this week a group of UK-based software CEOs talked about their experiences of adopting a Software as a Service strategy. Some were in the process of transforming a traditional licence based software businesses - others were building a SaaS business from scratch. I believe that their lessons learned are of profound importance for any software or services businesses...

Megabuyte LogoThe event was sponsored by the always excellent Megabuyte team at IS Research - if you haven’t already subscribed to their service and want to keep tabs on what’s happening in the UK technology sector I strongly recommend that you look into their offerings.

The panel discussion complemented Megabuyte’s latest research into SaaS Opportunities and Challenges. It reflected the dirt-under-the-fingernails experiences of a group of companies that were successfully (and enthusiastically) realising the opportunities for their organisation whilst addressing the inevitable challenges thrown up from finding new ways of delivering value.

I wanted to share a few of their most interesting observations:

Balancing Investment in Support Against Cost of Sales

It’s self evident that the only way in which SaaS businesses can be sustainably profitable is if they retain and grow their customer base and minimise subscriber churn. So the post-sale customer experience becomes particularly important. Smart SaaS companies realise that there’s no point in winning a customer you can’t retain.

To an extent traditionally deemed unnecessary in the classic world of licensed software, SaaS companies are looking at ways in which their products can be made simple to adopt and easy to use, and investing in responsive support services that resolve problems quickly and support widespread user adoption.

Changing Client Expectations

SaaS businesses are 24*7 service businesses. Many of the CEOs talked about a dramatic evolution in client expectations. They expected the systems to “just work”. There was much discussion about IT becoming a utility much as electricity is today. And of course all of this brings new demands on SaaS vendors to guarantee exceptional levels of uptime.

As the panel pointed out, SaaS infrastructure is designed to do exactly that - to deliver a level of scalability, reliability and uptime that most on-site IT systems would find it hard or impossible to emulate. And despite a few highly public outages, SaaS infrastructure is - by and large - delivering on the promise.

Changing Role for the Channel

This is a subject I’ve written about before, and the CEOs were clear: the role of the channel is dramatically different in a SaaS enabled world. Conventional IT “Solution Providers” are going to be unable to earn their traditional margins because they won’t be delivering significant value through merely reselling a SaaS application. Much of their historical role of provisioning and implementing software and hardware has simply been taken away.

The move to SaaS is also affecting traditional Systems Integrators - not least of which because the cost and complexity of configuration, customisation and integration is that much easier in the world of SaaS. It’s hard to imagine them earning the fat, multi-million pound fees and multi-year contracts they used to earn from old-fashioned behind-the-firewall SAP or Siebel implementations.

As the CEOs pointed out, the partners who thrive in a SaaS world will the ones who bring genuine business process expertise to the party - helping clients to get the most out of the application by ensuring that their use of the system reflects the latest best practice and serves to realise the full potential of their investment.

Ring Fence Your Old Business

The final piece of advice I’d like to share is for traditional software vendors who are transitioning to SaaS: ring fence the two businesses, and manage them as separate entities. This is not just because the financial dynamics are so different - it’s also because the mindset required to make a success of a SaaS business is so different.

You can’t afford to have the new opportunity polluted or constrained by old-fashioned thinking.

What’s Your Experience?

I’ve captured just a small slice of what proved to be a fascinating debate. What’s your experience? Whether you’re in a SaaS start-up or a traditional software business that’s in transition, how do these thoughts resonate with the lessons you’ve been learning? And are there any other lessons you’d like to share?