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4 Disruptive Business Challenges ISVs Must Consider Before Moving Towards a SaaS Model

Cygnet Infotech

Whether you are a startup ISV, a serial product innovator or an established ISV, you cannot ignore the opportunities presented by the SaaS model. The numbers speak for themselves:

Cisco’s Global Cloud Index Forecast, 2013-2018, says

Cloud Data Centers will process 78% of workloads, compared to 22% by traditional data centers.
By 2018 SaaS will 59% (from 41% in 2013), IaaS 28% (from 44% in 2013) and PaaS 13% (from 15% in 2013) of the total cloud workloads.
The number of personal cloud storage users is expected to rise to 1984 million in 2018 from 922 million in 2013.

IDC Futurescape predicts that

By 2016, enterprise IT will shift 11% IT budget to cloud-based delivery models, away from traditional in-house delivery. 
It also forecasts that by 2017, 35% of applications will be cloud-enabled.

While long-term predictions tend to be wide off the mark sometimes, there is a consensus among all top analysts that cloud-based applications will thrive in the coming years. When you want to SAAS-enable your existing suite of products, you will run into knotty technical as well as business challenges.

We talked to our clients and identified four of the biggest business challenges ISVs face, when moving from an on-premise model to a SaaS-based delivery model.

1. Overhauling Sales and Marketing Strategy

“The technical challenges are huge, but when you dive deeper, you realize that changing your marketing and sales processes is a much more complex proposition.” – CEO, Established ISV, UK. 

  • There is a fundamental difference in the types of users and the user expectations when you shift to SaaS.
  • While most on-premise installations go through the IT, you will now be able to sell directly to non-IT decision makers.
  • This means that the tone and focus of your marketing material will have to accommodate a new target audience.
  • It also means that sales will have to come up with a different strategy for generating leads and pitching your products.
  • Also, a SaaS subscription may bring a lot less upfront revenue than an on-premise installation. So, the cost per sale has to come down. Investing in a powerful website may become mandatory to fuel direct, low-cost conversions. 

2. Creating Effective Billing & Subscription Package 

“SaaS upended traditional software licenses and made install disks an artifact of the 90s. Then, hefty annual SaaS subscriptions gave way to today’s more flexible, user-friendly monthly plans.” – Ray Sobol, writing for  TechCrunch.

  • When you move to a SaaS-based revenue model, you will lose any chance of forced customer lock-in
  • Most SaaS customers are interested paying only for what they use and only for the features they want
  • For example, if you have an event management software – some may only want to use it to manage venues, while others may want to use only to manage events.
  • This makes it imperative for an ISV or product innovator to offer subscriptions & billing options that give the most value to different sets of users.  

3. Segmenting and Targeting Customers

As discussed above, different modules and aspects of your existing on-premise software will offer certain value for a specific set of users.

  • Your challenge is to find the potential uses for the product’s different features and modules, and in identifying the group of users most likely to use them.
  • The next task is segmenting the potential buyers clearly on your website and marketing collaterals, and creating pricing plans most suited to their needs.
  • Only by demonstrating the value of your product to different sets of users upfront will you be able to persuade them to try your product. 

4. Creating New Sales Commission Models 

Generally, a SaaS product doesn’t generate as much initial revenue as an on-premise installation. Consequently, it may not be possible to sustain sales commission models where you pay a large commission to your partners or resellers on sale.

  • For the kind of resellers who just get you a subscription, you just need to find a right commission model.
  • But for resellers that help in customer support or other maintenance areas, you might need to give admin level access to SaaS product. It is up to you to decide – whether user such partners or build the capabilities in-house.
  • On-premises installation is also replaced as the product will now run directly on cloud. Partners that help you with installation, deployment, configuration and other aspects may not be valuable with a new model.
  • At the end of the day, there is a good chance that you will able to offer less incentives to existing partners, and you will have less need for many of their services.
  • This makes it imperative to take a close look at your existing model, future marketing strategy, sales goals, and identify the best path and sales partnership models for the new approach. 

Wrapping Up

Needless to say, a move to SAAS-based model will raise umpteen challenges – more than the critical ones we have listed above.

    • Apart from evolving a totally new marketing and sales approach, you will also have to train your personnel for the new roles.
    • The product designers and developers will have to think more about delivering a smooth and delightful user experience.
    • You will need to find way to rapidly address customer challenges, remove bugs, add new features or functionality – and roll it out.
    • At the same time, you will have to take steps to reduce churn and grow your number of subscriptions.

A move to SaaS-based model is not at all easy – apart from the business challenges there are huge technical hurdles than you need to cross. But, changing markets and evolving customer expectations may make it imperative to move to SaaS.

Wondering if you need to SaaS-enable your products? Check out this post and get a quick answer!

Cygnet Infotech

Cygnet Infotech is a CMMi level 3 and is ISO 27001:2013 and ISO 9001:2008 certified, 18 year old global technology provider enabling ISVs & enterprises through emerging technology, software engineering, technology consulting, SAP Implementation, advisory & maintenance services. It’s proven 18-year track record boasts of successfully delivered 1400+ valuable software solutions to its diverse clientele across the globe using a global delivery model.

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