Benefits of SaaS Business Model

I had a chance to hear two VCs outline the benefits of a SaaS business model at the CINACon 2007 conference a on September 22.

Benefits of SaaS Business Model

While Francis and Sean manned the booth I attended the Visionary Session.

First up was Ann Winblad, Co-founding Partner, Hummer Winblad Venture Partners.

  • Capital Efficient, allows for self-sustaining and reaching profitable as quickly as possible.
  • Predictable Revenue Stream

Tim Wilson, General Partner, Partech International

  • Users of software cannot steal the software.

At SKMurphy we’ve seen some other benefits from the SaaS model for startups

  • Higher Valuation
    With recurring revenues, steady monthly and predictable growth, a SaaS firm is able to demand higher valuations than a conventional on premises software startup. If you approach VCs with a scaling plan rather than a development funding plan, you can get a higher valuation.
  • Shorter Sales Cycles
    Here is data we find from our clients for B2B Sale Cycles

    • Pay-per-Use: 4-10 weeks
    • Subscription: 10-22 weeks
    • Time Based License: 28 weeks
    • Perpetual License: 40 weeks (assuming 3 year lifetime value of customer > $150K; caution: B2C may be very different).
  • Other Benefits for Your Customer
    • Lower Cost of Ownership (at least initially may end up higher as adoption/use proliferates)
    • Software Provider handles managing upgrades, bug releases and initial deployment setup.
    • Easy test drive, see that it works.
    • May be easy to switch to competitors, although data lock-in effects are subtle but real.

SaaS business models are taking off

We use ones like Salesforce, WebEx, TypePad and Central Desktop everyday. The business models are proven and and gaining wide adoption. However they come with new issues. Issues like shorter release cycles, blurring of development team roles, and the management of customer feature requests and bugs when you control the infrastructure impact your customers, team and management controls.

SKMurphy is hosting a SaaS Roundtable: Managing Rapid Release Cycles on Oct. 30, 2007.

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