"Software is eating the world […]That’s the big opportunity. I know where I’m putting my money"
In 2011, Marc Andreessen, famous co-founder of VC fund Andreessen Horowitz predicted in his article "Why Software is eating the world" the acceleration of software that disrupts almost all high-tech & low-tech industries. Agriculture, the film industry, the automobile, music, book industry or national defense have become vertical "software-powered". The software is everywhere. The advent of Amazon in the early 2000s can be considered as the "tipping point" of the acceleration of the software market. Amazon’s strength lies fundamentally in its ability to have developed a software platform to market products online. Amazon is certainly known by the general public as a marketplace where you can buy and sell a wide selection of new and used products. But, Amazon is above all a software company with a robust "core system" and an ability to offer software-driven services ("software-driven"): Amazon Prime (delivery service), Amazon Drive (cloud storage service), Amazon Web Services (cloud computing service), Amazon Music (streaming platform). Amazon has somehow re-engaged the seamless customer experience in the consumer retail universe, has become a trusted third party of a multitude of sellers and has offered SaaS solutions with a platform logic.
Why has SaaS become the norm?
In 2000, the message of Marc Benioff, CEO of Salesforce is clear: “No Software”. With the arrival of Salesforce, we are moving from a client/server logic to a SaaS logic (Software as a Service) based on a subscription, an on-demand consumption mode and a “multi-tenant” approach allowing publishers to achieve economies of scale.
Hosted in the cloud and operated by a service provider, SaaS is generally distinguished from on-premise solutions installed directly on the company’s servers that use it.
One of the revolutions of SaaS lies in the logic of leasing and not purchasing, ie via a monthly or annual subscription system that is based on a number of metrics: the number of users, the volume of data, the size of the company, the number of transactions...
Typically, SaaS solutions include 3 components: annual license to the solution, data hosting and maintenance. This template allows users to benefit from the latest software updates automatically. Beyond technical considerations, why are SaaS so popular?
One of the features of SaaS is self-service. Like banks that have finally offered apps to their customers allowing them to carry out a number of autonomous operations, SaaS solutions generally allow users to use self-service solutions, ie in near complete autonomy. Netflix, Spotify, Evernote in the B2C universe; Salesforce, Slack, Dropbox or Stripe in the B2B universe to name just a few examples.
The “self-service” model is correlated with the pricing model and the level of customer success. Generally, offers with low pricing and freemium offers generally offer basic features that require little or no support. Onboarding is done in “self-service” by users.
In the B2B SaaS ecosystem, there can be a setup and training phase to take control of the solution and allow users to identify the value they can derive from the features. The complexity of some SaaS solutions, particularly in the Cyber, Compliance or ESG verticals, for example, require greater support to connect the solution to the customer’s databases and IS. This is where customer success makes sense in the customer relationship and building a relationship of trust.
Beyond self-service, user experience (UX) and user interface (UI)…
2- UX and UI, at the heart of SaaS
SaaS that works are generally characterized by quality standards in terms of UX/UI. It is about offering users a seamless experience with features that respond to their painpoints.
The User Experience (UX) refers to the background, the content, the user journey whereas the User Interface (UI) is the visible area of the iceberg: the interface, the graphic charter, visual identity, call to action to direct users and increase conversion, acquisition in the marketing sense. There is an increasing permeability of B2C SaaS and B2B SaaS, especially in terms of UX and UI. This permeability can also be explained by a porosity of personal and professional uses of SaaS users, such as Slack or Dropbox for example.
The best SaaS stand out from the rest through an intuitive interface allowing users to understand the product architecture and simply perform a number of tasks. A good UX/UI experience usually results in a propensity of users to remember key information about the solution and to use it regularly, thus reinforcing customer retention. When we talk about UX/UI, how not to evoke the concept of nudge and more generally the impact of behavioral sciences in technology. In other words, how to capture users' attention and evoke users' emotions in a subtle way to increase conversions?
Last but not least, the maintainability of SaaS, ie the automated update is the other key advantage of SaaS products
3- Automatic updates
SaaS are products that evolve with automatic and frequent updates; evolutions ensured by publishers. These updates are a significant advantage for users who will benefit from new features and updates, or even new products. This can improve retention and reduce churn, ie attrition as the costs of maintaining older versions of the software are borne by publishers. Users are driven by the regular innovations of SaaS publishers who, for example, seek to upsell, ie offer users more expensive subscriptions with more features.
In addition, these updates also make it possible to manage patches and strengthen the security of the products and data they contain. But SaaS releases must also be done wisely, especially in the B2B universe. More than 2-3 releases per year (for B2B SaaS), customers may perceive these changes negatively because of the incompressible time required to take over for example new features or the reluctance of customers to pay more for a product due to the addition of a feature. Updates must be accompanied by a data-driven culture, ie to measure the uses of product users upstream and downstream of updates in order to take the pulse of their level of satisfaction with these changes.
Ultimately, the automatic updates made by SaaS have a dual objective: to reduce attrition (“churn”) and boost sales, more particularly what is called monthly/annual recurring revenue (MRR/ARR).
In this first installment, we have described some elements showing why SaaS has become a standard. In the next installment, we will do a deep dive on SaaS pricing. What are the drivers? What are the pricing models? What are the pitfalls to avoid?