Why build SaaS?
This unit focuses on the main motivational drives for the SaaS model from both the customer and software provider points of view.
Customer motivations for using SaaS
Pay per usage
This consumption model provides customers with more freedom and the ability to pay only for what and how much they use.
Lower Total Cost of Ownership (TCO)
By purchasing SaaS, customers don't need to invest in their own hardware, internal resources, IT, and operations, because the software provider takes care of the underlying infrastructure and operations.
Flexible purchase model
If necessary and aligned with IT management, business owners can gain more control over picking the solutions instead of IT being in charge.
Operating expenses (OpEx) over capital expenditures (CapEx)
There are financial and tax reasons why customers might prefer to purchase SaaS solutions, because OpEx offers more immediate tax deduction benefits.
Software provider motivations for creating SaaS solutions
High market demand
Customers prefer SaaS models, so software providers want to provide consumption-based software.
Greater financial impact
Examples in the market show that SaaS companies are able to achieve higher valuation and better business transformation.
Lower costs
With the right architecture, development, and operating model, it's easier and cheaper to support customers on one single platform by handling underlying infrastructure.
Economies of scale
Software providers sell copies of software, similar to traditional manufacturing where the same type of item is produced with high volume that brings the price per unit down.
With software, the more users are on the platform, the higher the margins are. The product isn't only software copies, but the whole service, including the underlying infrastructure costs.
Mutual motivations for the SaaS model
Faster time to market
Being in control of the underlying environment and operations allows software providers to deliver new functionality to customers faster.
Security
The software provider takes responsibility for protecting customer data and using the latest security and compliance regulations, guaranteeing security for customers.
Contoso scenario
For Contoso, it makes sense to deliver a SaaS solution, because their target customers don't want to have dedicated designers or support their own infrastructure for websites. Contoso's customers prefer to pay only for the services they use.
Contoso also provides the value of data analysis and autoimprovements. Without this functionality, customers would have to hire web developers and designers to do analysis and suggest and implement changes.