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Cooking with SaaS: More calories for your software dollar

Posted by terrosatechnologies on January 5, 2009


In prior Thinking about SaaS articles, I have described the software and hardware efficiencies that are inherent in the SaaS software delivery model. In this article I will discuss why there is something even better driving up the software value to the end customer – market competition. Better yet, the competitive model of SaaS has already been proven in the restaurant business. Welcome to “Cooking with SaaS”.

 

I grew up in the days when most meals were cooked at home. My mother chose foods that she thought would not only be healthy for the family, but fit within our budget. No fancy foods, and with the exception of Thanksgiving, no extravagant portions were prepared. My mother was the gatekeeper to control excess consumption, thus managing our family budget – and our calorie intake. After all, calories were a direct function of how much money she spent at the grocery store. She was a generalist, good at cooking all types of day to day meals at a reasonable price. This is analogous to today’s premise based application systems, where we purchase the various ingredients that make up a system: Servers, operating systems, network gear, databases, and licensed application software. Then generalists serve up whatever applications are needed. Also, most IT staffs are very careful not to over spend on equipment, software licenses, and other components so sometimes end users go a bit hungry.

 

As I entered my twenties, more and more families were eating out on a regular basis. Restaurant food became cost effective enough to be justified based on the added convenience, enjoyment of dining out or time savings. Given that few families could afford a full time maid or a chef to do the cooking, using an “external provider” restaurant became a way to deliver more creative, complex, elegant or faster food. From my conversations with a number of companies who have outsourced their systems, the question of cost savings can be debated. But at least someone else has to do the cooking and wash the dishes. Even if outsourcing is a breakeven financially, it moves the IT headaches to someone else. Many times however, eating out at a full service restaurant every day can put a dent in one’s budget. So whether outsourcing dinner or systems, the focus moves from managing the costs of individual ingredients, to managing the final bill. We controlled this by how many times we ate out and the types of restaurants we visited. We could only afford so much outsourcing.

 

Over time, enough restaurants sprang up and significant competition between them started to benefit consumers. Many low cost providers entered the food outsourcing business, mostly with hamburgers and fries. But many other types of outsourcers created effective restaurant chains with systematized menus in the mid-market as well. These large restaurant chains had much more control over the supply costs than my mother ever did. They worked directly with the potato growers, the meat producers, and other providers. They negotiated down the price of every ingredient, every cup and every napkin. They now owned or influenced a lot more of the overall food delivery process for their specific menu. Additionally, since restaurants focused exclusively on their own menu day in and day out, they became process experts at delivering their meals in the most efficient way possible.  Virtually every element of their operation became managed and refined.

  

A SaaS provider that manages both the software creation, as well as the software delivery of their application has a very similar advantage. They become experts on their own application, far beyond what any single premise based customer could experience. Since a SaaS provider has a specific area of focus and is entrusted with their entire customer base on the shared system, they can develop operational, performance and security features beyond the capabilities on any one customer. When evaluating SaaS vendors, it is critical to perform a vetting process that identifies the vendors who understand this and have taken steps to develop superior processes.

 

Taking this restaurant analogy one step further, can shows us the future of SaaS as well.

 

As the food outsourcing business became more competitive, my mother’s paradigm of calorie control as a function of grocery costs was turned on its head. Now restaurants are in the business of providing as many calories as possible in order to beat the competition. Free refills, giant size portions, discount coupons, etc. Not just at fast food joints, but at very nice mid-range restaurants too. Menus focus on good taste and lots of it. The grocery bill is something that they negotiate with the suppliers, not with the customers. The customer pricing is based on the competition. And the customer switching cost is low. If one restaurant is no longer competitive for some reason, it is relatively easy to switch to another.

 

As the SaaS market develops and customers have the choice of many excellent providers with competitive products, the SaaS providers will negotiate down costs with their suppliers, make their processes as efficient as possible, and raise the quality bar in order to remain competitive. Since the end customer has not purchased the product, installed equipment or hired staff to run it, every contract renewal becomes a Friday night choice of restaurants. We will indeed have more software calories for our dollar, without having to wash the dishes.

 

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This “Thinking About SaaS” article is one in a series produced by Terrosa Technologies’ President, Kim A. Terry. Each article addresses a different knowledge area of applications delivered via the SaaS subscription model.

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About Terrosa:

Terrosa Technologies was born out of the recognition that software provided as a service produces greater efficiency, value and benefits over traditional site installed solutions. Enabled by a fast reliable Internet and the ever increasing sophistication of Saas offerings, many companies will be able to reduce their cost of operations and afford to do more with less. In uncertain and financially challenging times, it is more important than ever that Terrosa is helping our customers deliver products and services more efficiently and with less risk.

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One Response to “Cooking with SaaS: More calories for your software dollar”

  1. Max said

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