In a SaaS world, Its ALL about the platform

SaaSweek just posted with provocative title, is PaaS a passing Fad?  The answer is hell no.


If you buy into the rudimentary definition of SaaS that Ben Kepes, Smoothspan and I got to recently, then the whole SaaS ecosystem will be dependant on platforms. And logically, it doesn’t make economic sense for every SaaS vendor to create their own.  (I know this gets into shaky ground because I still don’t believe there is a good understanding or even consensus of what a platform is.)

If every SaaS vendor were to build their own platform, then literally there is a cost transference from the on premise business to the SaaS providers and the only people who will win out are the hardware and storage vendors. That just doesn’t make economic sense. There is already a bunch of data (here and here) showing that its harder to get to profit for a SaaS business. Why would you want to lump the expensive costs of setting up your own datacentre, operational framework, billing, backup, site diversity etc when you can just buy that?

Would a SaaS company build another “internet” to connect to its customers? Again, no. SaaS companies use the internet as its network because of sound economic reasons (name another globally ubiquitous network, with understood standards – loose as they are – that’s cheap?).  The infrastructure, diversity cost are provided by other platform providers (ISP’s) and they can do this through economies of scale.Platform providers, those doings PaaS, offer the potential for the same basic economic advantages.

SaaSweek raises a couple of valid points about why PaaS isn’t globally accepted.I’d counter those with the following comments.

  • Apart from, none are approaching scale so the benefits aren’t really there. But they will be.
  • Expertise, its really hard to build a good SaaS application, let alone build a good datacentre, operational framework, back up and restore environment, internet connectivity.
  • Speed to market. Given that SaaS is sold on a subscription basis, it is subject to the rule of 78. the sooner you hit the market the soon you’re revenue starts compounding. Also the faster you develop the less costs and that’s a good thing too.
  • PaaS brings its own community and the associated advertising, social networking and open source development mantra. This helps you with speed of development, resources and of course customers.
  • Funding, what is to stop a PaaS provider supporting a great idea on its platform in a VC capacity?
  • PaaS is still in its infancy, the models, rules and mores of how to be a PaaS provider aren’t 100% formalised. Smoothspan talks about being Switzerland and questions whether can pulls this off. I’d agree that you do need the neutrality. I’d also say watch this space. It’s my prediction that will become wholly focused on PaaS, and be more than willing to let the CRM business fight its own fights. Why? Well CRM only solves part of a business’ needs. is solving the rest.  And this is what platforms are all about, more services from same infrastructure.

I’ve said before Telco’s do SaaS, they also do platforms really really well. Don’t believe me, well check out this. They’ve taken one core asset, or platform (copper) and sold at least 3 core services down it. Voice, access / rental and now data. They are doing the same with mobile networks. Voice, SMS, data, and content.  They’ve also sorted out sales, provisioning, billing and support (to a greater or lesser degree I).

These traits are the mark of a great platform provider. Telecommunications is a $1.2 trillion dollar business built on platforms. If you want to know what the future looks like, do your history.

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