- A simple definition of SaaS
- Deployment: How products are deployed and distributed
2. Definition from the pricing perspective
- If it's not generating recurring revenue, it's not SaaS
3. Who uses SaaS?
4. B2B SaaS adoption gaining momentum
5. Are you a SaaS entrepreneur? You must build your revenue flywheel
6. Not a SaaS entrepreneur? Become an investor
A simple definition of SaaS
SaaS, Software as a Service, is delivering applications in a ready-to-use manner over the internet. With the arrival of SaaS, users do not have to slog and spend a fortune installing and maintaining complex software on-premise. Instead, they use it on-demand on their devices.
The software rests on the SaaS vendor's cloud server and is readily accessible to users with a usual internet connection. The SaaS vendor owns the software and manages its security, delivery, user access, performance upgrades. Users of the software pay monthly or annual rent as they use or as a subscription fee to use the product.
Traditional software sales involve a transfer of ownership, but in SaaS, users rent the software as long as they want to benefit from it.
Deployment: How products are deployed
Deployment of software means where your application resides, whether on-premise in your machines or on the cloud owned by third-party vendors.
On-premise deployment: Many enterprise businesses have their legacy software on-premise and they bear its total cost of ownership. On-premise usage of software requires businesses purchase the license to use it. The cost associated with on-premise deployment is very huge.
Cloud deployment: Third-party vendors will host your application on cloud and will take the responsibility of managing it and keep it running all the time. Your users can access the application on-demand.
Cloud has become immensely popular for its advantages like scalability, agility, security, lower cost, maintenance, etc.
Pricing model - If it doesn't generate recurring revenue, it is not SaaS.
We saw the definition of SaaS from the view of a general audience.
From an investors' and founder's perspective, the biblical verse is recurring revenue. Don't call it SaaS if it is not generating a steady stream of revenue at regular intervals. (ARR, MRR)
Once a user buys your SaaS product, are you sure of a recurring subscription next month or year? If you are not certain about a subsequent subscription, you may not term it recurring revenue, at least by Investopedia's definition of recurring revenue.
Unlike one-off sales, these revenues are predictable, stable, and can be counted on to occur at regular intervals going forward with a relatively high degree of certainty.
As per the Value SaaS pricing framework, charge your customers for the value they extract out of your product; Or for the high-value problem, your software solves for them. Conversely, underpriced products are masqueraded mannequins and will turn off potential customer interest resulting in logo churn.
Let your product lend your customers a hand out of a stumbling block. Then, your product becomes a magnet that attracts nails on top of nails. Your happy customers become your brand advocates helping you find more sales. Your product keeps them hooked as long as you solve a high-value problem.
With returning customers and recurring revenue, your software fits the bill of a SaaS product.
Who uses SaaS?
"Computing may someday be organized as a public utility just as the telephone system is a public utility," Professor John McCarthy of MIT said during its centennial celebration. Software has become a public utility now.
If you are on the internet, you will most definitely use SaaS. If you binge-watch your favorite series on Netflix, if you take an Uber back from your work (yeah, in the pre-pandemic world), if you get a wooden case for your iPhone X from Amazon, you have used SaaS.
Marc Andressen famously said, 'Software is eating the world.' In turn, SaaS is eating the world of software. Software has reshaped every established industry sector, and with the arrival of the internet, delivery of software at a large scale to every mobile device has become seamlessly possible.
Like consumers, businesses are frequently using SaaS more than ever. In 2016, 38% of companies relied on SaaS for 80% of their software requirements. In 2022, 86% of organizations will be dependent on SaaS for software, according to a survey. Big enterprises like Google, Adobe, Hubspot, Microsoft follow the SaaS model to do business.
B2B SaaS adoption is gaining momentum
Moving to the cloud has proven to fuel growth by 19.63% and reduce burden for businesses. Horizontal SaaS enables companies to manage their sales, human resources, customer relationship management, administration. Vertical SaaS, a less matured model compared to horizontal SaaS, provides solutions to specific industries.
An example of horizontal SaaS is iMocha, an IT skill assessment platform that helps companies find top talent to join their IT teams, irrespective of the industry. On the other hand, GaragePlug is a vertical SaaS that helps automotive workshops manage their business hassle-free, from job card creation to billing and invoicing. Another example is Quick Dry Cleaning, as the name suggests, an end-to-end business software for dry cleaning vendors.
Adopting SaaS applications helps businesses reduce cost - no upfront payments, zero maintenance, and no need for an in-house team. Even the biggest challenge in cloud technology, data security, is taken care of by the SaaS vendor.
38% of companies are running entirely on SaaS already. Source
SMBs widely adopt SaaS, but enterprise businesses are catching up faster and will leave SMBs behind in 2022.
Are you a SaaS entrepreneur? Build your revenue flywheel.
If you are building a SaaS product, you should make certain right choices to deliver high value to your customers and generate recurring revenue from them.
Upekkha's Value SaaS flywheel has guided SaaS entrepreneurs in making the right choices to build and grow a product capital-efficiently without burning equity.
Upekkha suggests aspiring SaaS entrepreneurs understand the problem of their potential customers like the back of their hands even before writing a single line of code. Learn how to get your first ten customers.
Not a SaaS entrepreneur? Become an investor
Do you feel missing the train if you are not building a SaaS product? Invest in Upekkha SaaS startups through UP Funds on AngelList.
Since 2016, Upekkha has worked with 55 startups over seven cohorts, and 4 of its first cohort startups have reached $1M in Annual Recurring Revenue. Using UP Funds, you can invest with a minimum commitment of $10,000 every quarter for at least a year.
View more details about UP Funds and invest now.