Understanding SaaS: More Than a Subscription
The Business Benefit of a Modern Product Development Paradigm
Software-as-a-Service (SaaS) has been around for a long time. Spearheaded by Salesforce in the Customer Relationship Management (CRM) segment, the subscription-based licensing quickly took over the marketing technology world.
In its simplest definition, Software as a Service means that rather than purchasing a product, a ‘box’, a buyer purchases the service - the right to use that piece of software without actually ‘holding a box in their hand’.
Prior to a subscription model, enterprise software buyers would find themselves with large upfront investments for a software license, often accompanied by annual maintenance and support fees - traditionally ranging from 10 to 25% depending on the level of support chosen. The large sum of the initial purchase made software licenses part of the capital expenses which meant long decision making and procurement cycles.
When marketing took over large parts of the technology budget, these long evaluation and procurement cycles became no longer acceptable and the shift to subscription and thus operating expenses rapidly rippled through the marketing facing part of the enterprise software industry. This had tremendous implications on vendor bookkeeping and reporting and I only too well remember the worry in the CFO’s eyes a good decade ago when working at a legacy software vendor. But most vendors eventually made that shift - the ones who did not are just not around anymore.
Another force fueled the pivot to a subscription-based licensing model: The rise of ‘The Cloud’. As companies became increasingly comfortable with dropping their server farms in the basement and moving to a serverless model, Software-as-a-Service became a more and more attractive model. From a Total Cost of Ownership (TCO) perspective, adopting cloud offerings meant enterprises could shift the cost of setting up and maintaining the infrastructure to their software vendors. And whilst that meant tremendous reduction in cost, more crucially it meant significant reduction in risk for maintaining the security side of the software and the risk for software breaking either because of badly maintained infrastructure or under the load of peak traffic.
However, something sneaky happened right there when vendors moved to ‘The Cloud’. And from conversations with prospects and even digital agencies and system integrators in the past half-year, I am shocked how little awareness there is for the final crucial benefit of Software-as-a-Service: The death of software versions.
Gartner Research predicts that through 2021, digital transformation will take enterprises twice as long and cost twice as much as anticipated, causing them to push things off until they’re out of date. There are many reasons for that, but from what I learned in conversations with digital leaders, upgrades are a major culprit.
Cloud-native SaaS means no upgrades ever. The cost and effort involved in upgrading technology is huge and often underestimated in total cost of ownership conversations. The risk in upgrading, particularly in more complex environments is high, especially for organizations that customised part of the tooling to better accommodate their needs. And lastly, the resources that work for weeks - sometimes months - on an upgrade project, they don’t contribute to actually propelling the digital experience for customers forward. The opportunity cost for that is rarely taken into account.
Seamless, rolling upgrades means that you always have the latest functionality at your disposal. When talking to organizations on legacy technology, one of the biggest frustrations of teams is that they are always behind, in some cases multiple versions. So whilst a vendor might have made improvements to a new version released, they cannot utilize the features to improve their digital customer experience because they have not yet upgraded to that next version. Often, because the upgrade is, when the actual business case is made, prohibitively expensive.
These two benefits - no upgrades ever and always the latest tooling - when they come together, can provide significant competitive advantage because of the innovation capacity they open up.
Tangent: One of my biggest pet peeves in this upgrade treadmill is when legacy vendors ask for additional license fees for major upgrades. One customer told me the other day that a ‘leading’ CMS vendor asked for a 6-digit figure for them to be allowed to leverage the latest version. Honestly, I thought this was a thing of the past. This organization had invested millions of dollars into said vendor over the course of the years. Dollars, that the vendor used to create this new version. How messed up is it to ask a customer to pay for something that they funded in the first place? This organization shared my views and took the opportunity to deliver themselves from this attitude and switched to a Cloud-native SaaS solution.
The bottom line: Legacy vendors in marketing technology largely switched their finance models to subscription and moved their infrastructure to the cloud to appear more sassy. But in order to really BE SaaS, the Software Delivery Model has to follow too.
That is the hardest part because the internal architecture is not set up for a microservices, cloud-native delivery. Because the way engineering is set up, is not set up for weekly releases. Because APIs are not thought about first as modern SaaS vendors do, but an afterthought. This isn’t just a matter of technology, this is also a question of changing 30-year-old mindsets. I spoke to an industry analyst recently who told me that to the best of his knowledge the only vendor who ever successfully managed to refactor from on-premise to cloud-native SaaS in the digital experience software space, is Vtex - who just a few days ago entered unicorn status.
So when you look out for new marketing technology, ask these three questions to make sure you are buying into tools that will give your innovation house the agility and flexibility you need, and that you don’t accidentally buy into the upgrade treadmill:
- What effort is involved in upgrading to the latest version of your solution?
The answer should be: No effort. And if in doubt, have this confirmed by a reference that matches your use case and complexity.
- How often do you deploy new functionality releases (so not hotfixes and bug fixes)?
The answer should be at least monthly. Check the product release documentation to verify.
- What license premium do you ask for new versions? The answer should be: None. You may want to confirm that in your contract.