SaaS Value Proposition

14 March 2023

It's coming up to renewal time for our very expensive CRM, and questions are being asked about whether the tool is providing good value. This made me think about how value is judged for SaaS products, where the cost model is so different to the traditional approach of managing our own infrastructure.

What is SaaS?

SaaS stands for Software as a Service – it’s a delivery model where the software application is provided over the internet rather than requiring software to be installed. Salesforce is considered by many to be the pioneer for modern SaaS software, but SaaS now dominates many parts of the business app landscape. In fact, the global SaaS market was valued at $121.33 billion in 2020, and is projected to reach $702.19 billion by 2030, expanding at a compound annual growth rate of 18.82% from 2021 to 20301.

Advantages of SaaS

Consider the old model where you install and host servers, storage and networking, and then have to monitor and maintain them. SaaS removes most or all of the maintenance overheads from your team, allowing them to focus on tasks that provide value to your organisation.

Even if you choose the infrastructure as a service (IaaS) approach and use a cloud platform to host your infrastructure, you and your IT team need to spend precious time monitoring, updating, securing and maintaining that infrastructure. Not only that, but bill shock is a real possibility with the public cloud, with misconfigured jobs or networking coming back to bite you financially at the end of the month. An example comes to mind of an intern working at a medium sized IT firm. They set up a logic app to pull messages off a queue; unfortunately, the app also placed multiple messages on the same queue. This caused the compute to grow exponentially over a few days before it was spotted. By the time we were asked to assist the bill stood at over $25k, an expensive lesson for a small mistake!

With SaaS, on the other hand, bills are generally more transparent and spending is far more predictable. Cirrus for Microsoft 365, for example, is a single charge per backed up licensed Microsoft 365 user, so costs are linear and predictable with no unexpected charges.

SaaS also democratises many services. As a small business you would generally not be able to afford to license and maintain the cutting-edge software used by enterprise companies. With SaaS, however, there are often cheaper or even free small business type plans which allow companies of any size to benefit from the latest innovations. You then also benefit from the security and resilience built into that software, which will be set at a high level to meet the needs of the most demanding companies. As an example, with Cirrus we engage an external vendor to run regular penetration tests. These are an expensive exercise and if you were hosting the software yourself you might not be able to afford them, however with SaaS economies of scale come into play and all customers can benefit.

Other advantages include the fact that the app is accessible from anywhere with an internet connection. I often think that if COVID-19 lockdowns had hit before the almost ubiquitous availability of SaaS products, the economic fallout would have been exponentially worse. The ability for many of us to be working from home softened the impact on the economy (which is not to understate the impact it did have on many people).

Possible pitfalls of SaaS

As I alluded to in an earlier blog, data ownership - particularly when trying to move away from a provider - can be a real problem with SaaS tools. When the provider uses a proprietary data format or doesn’t offer easy export options, lock-in can be a big issue. Also, backing up your data in a SaaS tool has historically been close to impossible, leaving you completely reliant on the SaaS provider to protect the data. Thankfully that is changing, particularly with more popular products such as Microsoft 365.

Another potential issue is paying for features you don't require. Often the SaaS product might include features of no interest to you, but you may be charged for them anyway. Look for flexible licensing or a straightforward offering if this is a concern.

How do we measure the SaaS value proposition?

Putting a dollar value on the benefits of a SaaS product is difficult, but given the advantages discussed above you need to consider all components. The easiest to quantify are:

  • cost of staff and services to maintain, update and secure the environment
  • infrastructure costs
  • networking costs.

Harder to quantify but certainly worth considering are:

  • accessibility from almost any location
  • scalability to meet your business needs.

Generally speaking, in a SaaS world shared services and economies of scale click in, which allow for lower cost and better value to you, the customer.