3 Simple Reasons The SAAS Model Is Better For Small Tech Businesses

SaaS

When new tech companies start working on a game-changing product, it’s easy to see the full potential of your idea. Where many small companies go wrong is trying to change an entire industry without having the resources available to operate within a changing economic landscape.

For some, the idea of licensing your software to another company can seem like you’re selling yourself short. But in reality, SAAS platforms make it easy to put your program in the middle of the industry, thanks to several simple adoption drivers. To top it off, there are several key reasons why SAAS could make your business more agile and profitable than a traditional model.

1. Protection From Legal Regulation

While it’s clear that Uber has made a huge splash in the world economy, the company is facing several legal hurdles. Between regulation, licensing, and geographical restrictions, the company isn’t able to expand as quickly as they would like to. Under a SAAS model, Uber could have licensed their platform to cab companies, releasing them from liability. For comparison purposes, consider the popular car selling website Auto Trader. The auto trader simply makes their platform available to private and commercial sellers alike. They still make a profit off the industry, but it’s their users that are required to hold the warranty liability, the appropriate insurance, and all other regulatory obligations. The software company simply holds a service contract between themselves and their users.

2. Financially Efficient

With our modern financial system, SAAS businesses are more financially efficient than direct to customer services. It all boils down to a simple accounting concept. Businesses have fixed costs and variable costs. Expenses that are directly tied to a revenue source are variable, and monthly overhead costs are fixed. If you have an application that is providing service to consumers, expenses such as your hosting, maintenance, and marketing are all fixed. But with a SAAS platform, these costs are variable. Your clients get charged for use of your service, regardless of their conversion rate. When you sign somebody, you have guaranteed money coming in. Banks look more favourably on these types of businesses, allowing you to raise capital more easily.

3. Simpler To Scale

Thanks to a cloud-based architecture, scaling a SAAS business is simple. Many providers offer need-based scaling. When the demand is high, you’ll have more resources available. When demand is low, systems cut back on your resources to save money. When your service business is looking to scale into existing sectors, there is tons of red tape and steps to go through. Your company has its work cut out for it, with no guarantee of success. But when you’re licensing your system to businesses already in the niche, all you need to do is improve the availability of your services and you can scale overnight.

The Role Of Tech Companies

By nature, tech companies exist to streamline real-world systems. Some of the most successful tech companies in the world offer their services directly to consumers, and it’s easy for new businesses to want to replicate that type of success. However, this is a very resource intensive process. If you want to expand quickly, licensing your technology as a service is one of the most efficient ways for tech companies to do business.

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Karthik Krishnan

The passion for technology has never failed to fascinate in every stage of Karthik’s life and it continues. The interest is not just in what it can do for Karthik, instead of how he can contribute to the changing society. Starting from a young age, he has always been interested in technology.

  • SAAS is a great way to make your software business more profitable, it is also as you mention financially flexible for the customer. However what happens when your customer wants to leave? If you have any respect for your customers you should also offer them the option of a perpetual licence… because vendor lock-in is a potentially evil long term business model. The obvious example being: Does anyone remember when salesforce.com was actually a cost effective solution?