The Shift to SaaS
Maybe you’ve noticed the shift. If you haven’t yet, give it a year or so and you’ll definitely be seeing it (and probably experiencing it firsthand).
We’re entering the SaaS era. Software as a Service (SaaS) structure allows you access to software and its functionality remotely, which you pay for with a monthly subscription fee and access via the web. You pay less overall for full use of the software, saving on licensing fees, while the company over time gets a sustainable revenue stream, rather than one-time payments every few years. This is how it is supposed to work, in theory.
SaaS has been an ideal model for the enterprise software industry for awhile already. We offer it for our partners and customers, as do many others. But it’s been making a big splash in the world of home consumer electronics and home and professional software recently, with the conversion of two giants: Adobe and Microsoft.
The general gist of Adobe’s problem and solution is this: a subscription price allows for users and the Adobe to all be getting the correct value for the software provided. Under the new model, a professional graphic designer will pay more than someone simply trying it out or learning, but that’s okay, because their career and income are relying on the program. This was a problem with the packaged software of old, as it made it difficult for Adobe to correctly price its software in the sweet spot between consumers that wouldn’t buy it (or, bought it and wasted a lot of money) and those who got a very good deal for their professional needs, while Adobe was getting a poor deal on this portion of their market. It’s the problem of economic surplus, and it’s explained very well with regards to Adobe right here.
On top of the new company-customer relationship, the subscription model provides an easy channel for updates, so users always have the most recent versions. A monthly subscription to Adobe Creative Cloud allows you to run the software, including its most popular Creative Suite tools and other less popular programs too, on two devices per subscription. That’s an upgrade from the traditional one-time, one-copy software sales model. Adobe also threw in a couple gigs on online storage space, making full use of the “cloud” in its SaaS model name.
We’ve explored the company’s transition on the blog before. Sanjay Bhatia, our CEO, even went on Fox Business News to talk about it. Sanjay argued that it’s the business shake-up that will make Microsoft the most valuable company in the world. Tall order? We’ll see. It’s certainly no small reorganization. Sure, companies often release new versions and updates to products, but it’s rare that they adjust their entire business model in so major a way.
But just as it does for Adobe, the subscription model, offering services in a monthly-fee format, offers a much steadier base of revenue for the plethora of products, devices, and software that the company produces for consumers. It also ensures long-time users continue to stick around, and build stronger relationships with the “services and devices” the company sells.
What do you think of the SaaS model? Are you using it in your software company? What price model has worked best for you? Post your thoughts below.