All SaaS strategies are not created equal
In most business transformations, companies want to act as quickly as possible. With the SaaS business model transition, however, there can be valid reasons for a more measured approach. Companies evaluating SaaS transition strategies must consider the customer and competitive dynamics of their market and determine what the right speed and degree of change is for their business.
On the far right end of the spectrum, companies are becoming SaaS-only businesses. This means that existing products will no longer be sold as perpetual licenses and all new products will be rolled out in SaaS forms only.
On the far left end of the spectrum, companies are ready to offer SaaS but still emphasize the sale of perpetual licenses. In this approach, companies can offer customers a choice among a full range of consumption models and use pricing incentives to steer customers toward the perpetual model. Companies may choose this approach if the existing customer base is largely satisfied with the traditional licensing model and competitive conditions are not driving a rapid shift to SaaS.
Companies choosing this strategy still need to “cross the chasm” as they need to be ready to accelerate the transition to SaaS on short notice if needed. Based on our experiences at EY, most companies choose one of the middle options as a starting point.
Whichever SaaS road is taken, companies need to think through the details of SaaS offering that they plan to extend to their customers. When designing the SaaS strategy, vendors must ask which business challenges will be addressed given the range of benefits that customers may expect. To start, vendors should ask themselves the following questions:
- How is the SKU defined? What is the licensing unit? Does the SKU include product, maintenance and professional services?
- Is there a minimum dollar amount? Minimum time commitment? Minimum usage baseline?
- Is the customer allowed to scale up or scale down?
- Can the license be used across on-prem and off-prem/hosted deployment models?
- What is the price point? What is the crossover point in terms of years when comparing SaaS with perpetual pricing? What are the billing cycles?
- Is there an upgrade path from existing licensing models?
- How can customers be incentivized to commit to multiyear periods? To renew?
- How will volume discounts work? What options will be provided for customers who want enterprise license agreements (ELAs)?
Companies should think through the answers to these questions, and others, with the customer value proposition in mind.
Expect more than a pricing change, expect a business transformation
Many companies underestimate the degree of business transformation required to achieve the SaaS model while others have a full appreciation and are hesitant to dive in. In either case, the right next step is to understand the operational requirements of crossing the chasm and to assemble a team that can transform the organization.
That team will need to rethink how to operate each function including sales and enablement, product engineering and customer support, finance and accounting, and IT. M&A activity will also need to be thought through carefully whether the reason is as an add-on to a current software vendor business or the company is seeking SaaS-by-acquisition. Bottom line, the SaaS business model brings its own challenges.
Lessons learned to enable the transformation
Those considering the transition now can benefit from the lessons learned by those who have executed the crossing before them. The following are some of the lessons we’ve observed over the past few years: