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SaaS Fatigue (sachagreif.com)
38 points by sgdesign on Feb 12, 2012 | hide | past | web | favorite | 28 comments

I love all HNers dearly, but I have to say, prior to writing off monthly payments as a model: consider how much you're likely to gain in business from someone who occasionally buys apps for $10 and thinks $130 is a lot of money versus how much you're going to lose by not being able to debit the bank account of a business $200 to $2k a month. (P.S. Neither of those are large numbers if you are doing something worthwhile for them.)

Absolutely, I'm sure that in a lot of case SaaS makes perfect financial sense. I'm just saying it's not ALL the cases.

For example, would it make sense to run Bingo Card Creator as a SaaS?

If I got a do-over this would be the first thing I changed. I thought teachers would rebel against recurring billing because every other education product did it. It took me five years to spot the logical flaw there...

Interesting. If you ever do switch, it would be interesting to see what your customer's reaction is and how much more profitable the SaaS model is compared to the current one.

We would probably all agree that the core question then is "When does a SaaS pricing model (vs. an outright, perpetual software license) make sense?" The answer varies based on a range of criteria, as well as who you are (i.e. profit-maximizing business, or price-sensitive, value-maximizing customer).

Some key criteria that matters to both parties:

- Difference in price/revenue between one-time and recurring: If the recurring revenue stands to significantly exceed the one-time fee (accounting for attrition and those who decide not to buy into the subscription), a SaaS model is attractive to the business, and not to the price sensitive customer.

- How steep would the one-time fee be (and who is the decision-maker, i.e. will they have the budget for this?): If the one-time fee would be so steep that a lot of IT managers (or whoever the buyer is) won't have authority or willingness to front the cash, a SaaS model makes sense. This is a case in which both the sellers and buyers prefer a lower cost (even if it results in a higher long term expense for the consumer since the buyer may be spending out of a bureaucratic budget that they don't want to under-use, i.e. when budgets are slashed for being under-used).

- Likelihood of renewal: If the seller does not think that you will renew (due to low switching costs, an inferior product, etc.), then an upfront fee maximizes profit. If you think you are likely to renew time and time again, the buyer probably prefers the one-time fee because that is likely lower than a subscription cost in the long run. So, again, the seller and buyer are at odds: buyers who will renew would rather an upfront cost to save money, sellers expecting buyers to renew want an ongoing subscription fee.

There are surely other criteria; what else would you add?

It seems like SaaS pricing model pits seller and buyer at odds because of conflicting incentives. But as the SaaS model grows more prevalent, it can be expected that buyers/consumers will basically just have to deal with it, as they have with exorbitant annual software licenses in the past. For SaaS startups this means opportunity; for consumers it seems to mean continually increasing costs under the guise of frequent updates, flexibility to cancel, and an easier ability to try out software within corporate budget limits.

There are surely other criteria; what else would you add?

Budget. The SAAS bill is probably paid from the Operations budget but the desktop software bill is probably paid from the Capital/Supplies budget. For a lot of companies, it's easier to get approval for money from Operations than Supplies. Learned this from an old boss who used to be a CFO at another company.

Ah yes, the good old days where you bought a program and owned it. I remember those days. They were the same days in which the computing awesomeness available to us for $117/mo was only accessible to large corporations.

Sure, review your subscriptions periodically to make sure you are getting value for money. Don't subscribe to services that lock in your data. Aside from that, it is at the same level as "don't subscribe to magazines that you don't have time to read".

People will always pay for things of value - myself included. I run a consultancy of 10, and I love the tools I use.

- I pay $100 a month for Harvest

- I pay $100 a month for Pivotal Tracker (though we're going to be replacing that shortly with our first SaaS product, http://projectorpm.com)

- I pay $49 a month for Basecamp

- I pay $39 a month for Flowdock

Are these worth it? Absolutely. I will gladly pay for products that kill the pain of running a company (invoicing, project-centric communication) and make me more money (ability to keep tabs on all of my receivables, etc.)

I don't even consider things like Redmine because I don't want to deal with managing my own infrastructure. For example, it's up to Harvest (in order to survive) to monitor, backup and provide a reliable service.

The SaaS model isn't going away anytime soon.

If you do go with monthly payment options, PLEASE make it possible to pay for a full year of months. Part of my fatigue with these services is the monthly credit card payment paperwork I have to file at our institution for each of these charges. As we use more and more of these services, the tracking ads up.

SaaS fatigue wish #2...add LDAP support.

Build something that can expose any LDAP to any web app safely and you'd probably make millions.

Already exists: JBoss Teiid (http://www.jboss.org/teiid) virtualizes your LDAP (and more besides) allowing you to 'safely' expose your directory as a restricted view. I use it all the time. Haven't made any millions yet, but I'll keep smiling.

Key part: "to any web app". You'll need some kind of OAuth provider on top so people can just plug it in right next to their Google, Twitter or Facebook providers.

If I'm interested in cutting SaaS costs I think the first thing I would cut was a site that monitors my SaaS bills. But I'm probably not the target market.

I agree. The whole time I was reading the post all I could think was "Why is the author ignoring the countless benefits of SaaS?" - Scale indefinitely, access from any device, no need to install updates, no need for IT department, etc.

Then you get to the punchline, "You have too many monthly costs. Now add me to that list so I can help you remove the others!".

Ironically, the least expensive plan on his monitoring service is almost double the most expensive plan on the list of his own SaaS subscriptions.

Sorry if I gave off the wrong impression, but I'm not related in any way with Cloudability. I just thought it was a cool service.

The reason there is no SaaS fatigue is that $117/month is still chump change for most companies or even angel funded startups. So yes, if your customer base is made primarily of individuals or nonprofitable or nonfunded businesses then there is a chance for fatigue. Most profitable SaaS cos charge what is perceived as a tiny amount by their profitable or funded clients.

Angel funding is very much not a prerequisite to being able to pay for business tools which cost $120.

It's amongst the possible prerequisites. Others include being profitable, of course. If you are not profitable, funded or part of a large corp, there is a real chance of SaaS creep from a cost angle.

Real businesses are either cash flow positive or (somehow) financed. If you are neither, then for the purposes of market segmentation at SaaS companies, you are not a real business.

Every time the topic of SaaS pricing comes up, someone makes the point that 3-month-old startups with no revenue can't afford $10/$20/$50/$100 per month. That SaaS companies could set up a pricing scheme that would allow even 3-month-old startups to use their services. That this might pay off in the long run when a few of those companies make it big.

SaaS companies could do that, but if their service is truly valuable, they don't need to --- companies with traction will pay for value whether or not it comes with warm fuzzies attached --- and if their service isn't truly valuable, they should fix that problem, not their pricing table.

and if their service isn't truly valuable, they should fix that problem, not their pricing table.

Totally agree.

I'd be interested in knowing which SaaS you guys pay for a monthly basis, to see where I stand.

* Rackspace Email ($20/mo)

* SnapEngage ($19/mo)

* ZenDesk ($9/mo)

* RepositoryHosting ($6/mo)

* PayPal Website Payments Pro ($30/mo + per-trans)

* Authorize.net ($40/mo + per-trans)

* Merchant account ($30/mo + per-trans)

* Softlayer ($600/mo)

* Linode ($19/mo)

* Kall8 ($2/mo)

I think that's about it for the monthlies.

If I didn't own them, I'd also be paying $9.95/mo for W3Counter, $69/mo for w3roi and $20/mo for DialShield based on my own usage.

What pisses me off is when SaaS offers aren't offering a pricing model that would actually fit for me althoug it wouldn't be a technical difference to them.

I'm currently trying to move away from gmail to something else that also offers me caldav/carddav integration. I could run my own mail server, but I really, really don't want to ...

One perfect solution for me would be atmailcloud(.com). They offer a snappy webinterface and cal-/carddav for 2 USD/user. The problem: the minimum amount of users is 5. I could just change the http post and probably get away with just buying a single user, but I'd rather be able to pay for something I'd love to use without having to fake my way arround it.

Considering our org chucks way over $5k a month at salesfarce, I reckon dynamics CRM would be cheaper...

Oh and don't get me started on Atlassian's products. They are hideously expensive when you hit 90 users.

SaaS is fine for a couple of users usually but it doesn't scale from experience. By then it's way too late to switch.

I would be interested in hearing results from anyone who has switched the payment structure of their product. From say, one-time-purchase to saas, or vice-versa.

I've written a follow-up to this post: http://sachagreif.com/saasternatives/

Lean startup SaaS tools bundling for cost is an idea I'm vetting now: leanmeanbundlemachine.com

You know what everyone else calls this? The cost of doing business. Recurring expenses are a fundamental part of business life, it's best to get comfortable with them.

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