Can SaaS Companies Survive in Today’s Economy?

The demise in June of LucidEra, a SaaS business intelligence company with excellent products, talent, and customers, raised questions about the viability of SaaS independent software vendors (ISVs).

While analysts such as Jeff Kaplan wrote that the dissolution of a single SaaS company does not diminish the promise and advantages of SaaS and cloud computing, Jeff also predicted that other SaaS companies will follow suit due to the economy, increasing competition, and decreasing availability of venture capital.

Another observer, Chirag Mehta of SAP and author of the blog, “Cloud Computing,” wrote an excellent post detailing the business challenges facing SaaS companies today. “SaaS 2.0 Will Be All About Reducing the Cost of Sales” includes insights such as:

• “SaaS 1.0” is characterized by initial SaaS products, with initially high investments in infrastructure and delivery until less expensive platforms such as Amazon became available. An expensive direct sales approach is still common, and the cost of sales is not significantly reduced to scale with the volume business model and smaller average deal size.
• “SaaS 2.0,” built on inexpensive platforms such as Amazon and Salesforce.com resulting in reduced costs and time to market, will require sales cost reduction for SaaS vendors to remain competitive – The sales organization will need to focus on customer relationships and service excellence to ensure high contract renewal rates, and will need to reduce the use of direct sales.
• Self-service demos to “self-selling” trials – Customers should be able to access, use and purchase the fully functional software with no intervention from sales, webinars or slide presentations.
• Customer acquisition to customer retention – Increased competition and the pay-as-you-go SaaS model itself make it easy for customers to switch vendors. Focus on retaining customers by providing excellent service, keeping track of contract renewals, marketing new solutions to them, and tracking usage analytics, sales activities and the effectiveness of marketing campaigns. Modernize sales tools to provide customer, competitor and partner intelligence.
• Low-touch persuasions to hi-touch interactions – Design a flexible sales force to accommodate a variety of prospects and customers, and an ecosystem of channel partners to help with sales. Reserve direct sales engagements for C-level executive deals that require considerable effort and interaction to close.
• Low-barrier adoption to zero-barrier productivity – Eliminate barriers such as up-front credit card requirements and registration. Allow prospects to immediately access a fully functional live sandbox and to import content from other sources.