Secrets of Software as a Service Capitalization

I think it’s time for a new look at the financial and marketing aspects of SaaS. What I mean by this is, I’ve been very technical and specific with discussing the finances inherent to SaaS in the past, but not from a general business perspective, which I think may turn off those with just a newly hatched interest in SaaS. So, today, I think we’ll look at software as a service capitalization from a strictly sales and business angle.

What I mean by this is, software as a service capitalization is a look at just different ways to earn revenue through SaaS. I’m not going to discuss calculations, ROI procedures or best practices, I’m just going to suggest some different ways it is more than possible to make money in this new industry, some of which are very easy for the very patient.

Do note that some of these do parallel business models I’ve discussed, I’m just not going there with them, when I address them.

The easiest way to capitalize on SaaS is actually the same way it’s easiest to do so for any web-based concept, and that is through ad revenue and donation power. The problem here, though, is that even when successful to a high degree, it requires significant patience to achieve momentum. If relying solely on donations, it’s a gamble, and the service would have to be so exemplary as to fight innate human greed, and good luck there.

Ads of course have the downside of being very low-income per unit, requiring massive user bases, as well as being very obnoxious to the users. Ad blocking software is also an obstacle that’s beginning to be a real variable to concern oneself with.

Most serious SaaS providers are more about subscriptions of some sort. This isn’t perfect either, but it’s considered the standard, and has about as much success rate as anything in business can likely or realistically have anyhow. Charging a flat monthly rate is a very steady and obvious way to go, but remember that this too requires a significant user base, and a little patience, because the problem here is scale. The monthly rate has to be pretty low, because SaaS’s biggest sell right now is that it’s a more cost effective deployment model, from a customer perspective.

The freemium model itself, which is a highly discussed topic, is often misunderstood. Freemium usually means that there is a freeware and a subscription model of the same software. The freeware version is usually differentiated by its reduced features, reduced quality or possibly ads or other limitations. This has some overhead, which ads can offset, but freemium models have a vicious cycle of self-opposition. By this, I mean that you rely on conversions to the paid version, but the overhead from the free version’s support drives costs for subscriptions up. The higher prices make conversion less likely, which in turn drives the prices higher.

Software as a service capitalization is obviously just as doable as capitalization on any other industry. The myth that it’s special in this regard, or overly challenging is just that – a myth.

Omri Erel
Omri is the Head of Demand Generation, as well as the Lead Author & Editor of the SaaSAddict Blog. Omri established the SaaSAddict blog to create a source for news and discussion about some of the issues, challenges, news, and ideas relating to SaaS and cloud migration.
Omri Erel on sabtwitterOmri Erel on sablinkedinOmri Erel on sabgoogleOmri Erel on sabfacebook