A cross posting with Cloudave.com
I’ve always viewed SaaS as a disrupted technology, and I mean disruptive in the classical sense as outlined by Clayton Christensen. Looking at the SaaS market though, I can’t help but wonder if the a good deal of SaaS companies don’t fully appreciate this.
By this I mean, they don’t seem to appreciate the macroeconomic forces they are playing with as well as the customer needs they are addressing.
Not wanting to do Clayton a disservice, but I’m going to quickly summarise my understanding of disruption and how it occurs.
- There is an incumbent business model
- These incumbents enter into a cycle (arms race even) of continually adding features to their products in an attempt to keep adding value to the clients, and hence maintain their pricing.
- The cycle continues until you get to a point where the products are over spec’d compared to client NEEDS or even requirements, and accordingly over priced
- Then someone finds or offers an alternate product or delivery method, which is much cheaper and actually more suited to the clients real needs
- The incumbents, talk to their clients (who have sunk investments and a political agenda to support their buying decisions) who say they aren’t interested in this new product approach etc. The incumbents completely miss the new trend, because hey…the customer base aren’t asking for it.
- The disrupter gains a foothold in a niche part of the market, gets scale over time and eventually becomes acceptable to the mainstream. They then enter the arms race cycle (they are the new incumbents), while the old incumbents struggle belatedly to meet the market…
Phew… all this is shown in this picture (from Wikipedia)
So back to today’s SaaS market and my assertion that many of the players don’t fundamentally get this economic and market dynamic. Here is what I see
- Many SaaS providers seem to be targeting the mainstream market, not the niche. You can tell this because they are going after current incumbent providers customers….
- They are over specifying their products. That is to say instead of understanding the niche’s absolute needs, they’ve attempted to offer like for like functionality when compared to the incumbents product. My guess is because they aren’t targeting niches
- Their pricing isn’t disruptive… in some cases its not that cheap. Instead they are banking on other levers like speed to benefit, opex not capx and the other regularly articulated benefits of SaaS
Based on my assumption that SaaS is still early in its market cycle ( 2 minutes into the first quarter of the game ), by acting this way the SaaS companies are missing the greater opportunity and literally giving the incumbents a breather.
I know some SaaS providers aren’t playing like this, to those that are I would say this. Know your business,
Step back, think a little, be the disruptor. Ask yourself
- Are we better suited competition head on with a SAP, Oracle or MS with their huge resources, channel and marketing engine, or going after those customers who have a more basic need, haven’t bought a product or literally hate the incumbent price model. I would contend that there are a bunch (the vast majority in some markets) of clients who’d love some basic HR, ERP or accounting products (for instance) who can neither afford the entry price or the ongoing maintenance and are ‘making do’ or deferring another year
- What features does this niche really really need? I bet its not 30 massively configured modules requiring 50 servers, and a team to implement and manage
- At what price can you offer this much simpler product? Make sure its more than it costs you to make and ensure it’s a lot cheaper than the traditional providers. You need scale to win, price for the long term.
- Who can you pre integrate with to offer a broader offering (instead of building it all)