ISVs Utilizing SaaS to Reach New Markets

The Software as a Service (SaaS) model is a tremendous model for the Independent Software Vendor (ISV) to reach new target markets without cannibalizing existing revenue streams. Many ISVs have created perpetual licensing models that are targeted at large enterprise software vendors who are willing to purchase software goods at high prices and renew these license terms on an annual basis. Although this has proven to an extremely profitable model for many ISVs, this model often neglects or excludes the SMB market.

Enter Software as a Service!

Migrating or extending existing software appications to the SaaS model often opens up new market opportunities, due to the subscription based nature of SaaS. Where the price point for entry may have previously been above the 50K mark, SaaS based offerings can reduce the barrier to entry by providing services to many thousands of subscribers rather than hundreds of enterprise class companies. Rather than creating a situation where the existing revenue stream of perpetually licensed products is cannibalized by the new SaaS offering, it is often possible to target the small to medium vendor segment, generate additional revenue opportunities, and develop a profitable migration path for existing enterprise customers to also take advantage of the SaaS offering.

ISVs considering entering the SaaS market should consider that SaaS revenues are increasing rapidly. According to IDC, by 2010, subscription based revenues will account for 8% of all software revenue. ISVs can take advantage of this trend by rapidly developing SaaS applications to enter new markets, expand existing market share, and migrate existing customers to a more cost effective delivery platform.

In considering entering the SaaS space, ISVs should consider the operational benefits associated with supporting a single version of a hosted platform, as well as potential revenue from professional services engagements to migrate existing customers from perpetually licensed models to the subscription based SaaS model. If planned properly, the migration from the perpetual license model to the SaaS model can increase professional services revenue, provide short-term diversification to revenue streams, and provide long-term predictability for SaaS based revenues.