97. Why Businesses Are Shifting Towards Software as a Service
(Episode 1 of 2 with Justin Rondeau)
Justin Rondeau is the general manager for Scalable Labs and manages several software companies including Recess.io, TruConversion.com, Praxio.com, and powers the technology behind DigitalMarketer.com.
In today’s episode, we’ll discuss the tectonic shift of SaaS and why businesses are shifting towards it. Many different companies have adopted SaaS because of the tremendous opportunity it provides to develop recurring revenue streams.
What is SaaS?
Software as a service (SaaS) is a way of delivering software online. Instead of installing and maintaining the software on our own computers, we simply gain access to it via the internet (Source: SalesForce).
SaaS customers usually pay a monthly subscription fee for access to the software (Source: Digital Guardian).
When we purchase software and install it onto our computer, we only own the specific version we purchased. But what happens when that software is updated? In the past, if we wanted the newest version, we would have to pay for it again and reinstall it onto our computer. However, now, when we purchase software as a service, we pay a small monthly fee to have access to the newest version of that software. When the program is updated, we get instant access to the updated version.
Adobe is one of the best examples of SaaS. We pay a small monthly fee for Photoshop (or their other software) and continue to get the updated versions, rather than buying Photoshop 4 and then, when they make a new version, have to repurchase Photoshop 5.
More than two decades ago, I was the CEO of a publicly traded SaaS company. Back then, we had to do everything ourselves from scratch. Everything involved custom coding. Now the world has changed. It’s so much easier to create SaaS products than it was two decades ago. It has created a tectonic shift that many businesses are taking advantage of.
Here are some of the reasons businesses are taking advantage of SaaS:
The Benefits
The software is designed to solve a problem.
When Justin starts a new SaaS project, he asks himself, “What’s the problem we’re trying to solve? How is this software going to solve that problem?” Once he knew the problem, he would start building the software to solve it.
SaaS is designed to help us solve our problems while saving us time and money at the same time.
“The reason why a business would want [SaaS] . . . [is because] they have a need for something that needs to be done. And this tool does it. They don’t have to pay massive upfront costs to build it themselves or have large license fees or anything like that. And then . . . they’re never really out of date. It’s always an evolving product, so they always have the latest edition,” Justin explained.
Time and Money
SaaS can save us time and money.
It is so much easier now than ever before to create SaaS products. Before, in order to create a product, we would need to rely on multiple developers who would code from scratch. Now, we can pull from other frameworks that are already out there. Something that would have taken days now takes minutes.
“Now you’d be able to create your own apps yourself without having to rely on developers,” Justin said. “[It’s] all based off of other frameworks that are out there . . . It would normally take multiple front-end developers to handle because they’d have to code from scratch. Now [we] can pull from libraries of different elements.”
The ability to develop our own software products not only saves time but also money. Instead of paying massive, upfront costs, businesses can build software themselves or pay small recurring fees to have access to constantly updated software.
“It takes minutes now. It’s a different world, and that’s why I think everyone’s moving towards the software side of things because you can generate something fairly easily,” Justin explained.
As software is becoming easier and easier to make, it is starting to cost less.
Justin said, “It may have taken me $2 million to get my first product out the door when I started two decades ago. But nowadays, maybe for $200,000 you can get a great SaaS product out the door.”
In today’s remote work environment, my companies, Adoption.com and Monetization Nation, don’t even have physical offices for headquarters anymore. Everybody works remotely, and in that type of environment, a software product that is not SaaS or cloud-based makes it really hard to work.
For example, we’ve been using Google Docs and Google Drive for a long time. We migrated many years ago from Microsoft products to Google Drive for that reason. That SaaS product is so much better than a Microsoft document that is sitting on your computer. With SaaS programs like Google Docs and Google Drive, I don’t have to worry about having the recent version. I can also have four different people editing a document at the same time as it is shared on the cloud. This saves me time and money and makes remote, collaborative work so much easier.
Recurring Revenue
Justin referred to recurring revenue as the gold standard for a business, and SaaS makes it easier. However, as the market becomes more saturated, it can be harder to achieve. We need to be more intentional about what we are asking our customers to subscribe to.
“We always talk about getting recurring revenue and subscription revenue is one of the best ways to make sure you’re going to stay in business. It is harder to front-end those types of offers though, to try and get people to take you up on a subscription. Especially now that people are more used to this in the SaaS economy,” Justin said.
Subscription is one of the best ways to have recurring revenue. At the beginning of each month we know we will have a certain amount of money deposited into our banks.
There are a million different things we can subscribe to. With so many options, what is going to make us choose one subscription over the other? For example, think of subscriptions to streaming services. There is Netflix, Hulu, Disney Plus, Vudu, HBO Max, Amazon Prime, Apple TV, Peacock, Paramount Plus, and more. Which should we choose, and why should we choose one over the other?
If we’re going to charge for a recurring revenue stream, we need to make sure we are providing recurring value. How do we keep subscribers with us longer? We have to have a consistent reminder about why they decided to sign up. We need to be delivering great value all the time. This works best when our customers have a recurring problem that needs a constant solution, not something that is a one-time issue.
This is why so many people are willing to pay for a subscription to streaming services. Consumers have a constant need for entertainment, and streaming services provide constant new value. They also don’t necessarily all offer the exact same thing. For example, the only place we are going to find The Lion King or Mulan is on Disney Plus. The only place we are going to find a Netflix Original such as Stranger Things is Netflix. This is why it is so common for people to be subscribed to multiple streaming services.
So, are we providing consistent value? Are we providing value that our consumers can’t get anywhere else?
Think about resume builders. There are many resume builders out there that ask for recurring revenue. However, we really only need to build a resume once when we’re looking for a job. If we have a problem that can be solved in one day, we aren’t going to want to sign up for a subscription. How many of us are subscribed to a resume builder? Probably very few.
“Now there’s even dedicated SaaS services to unsubscribe you from SaaS products,” Justin explained. “It’s getting so weird. I think we’re running into a climate where recurring revenue is crucial to businesses, but it can’t be it. You need to find other ways to bring in cash; it can’t just be purely recurring . . . doing it on subscription revenue alone isn’t going to be enough going forward. ”
Key Takeaways
Thank you so much Justin for sharing your stories and knowledge with us today. Here are some of my key takeaways from this episode:
1. SaaS has become an important tectonic shift.
2. SaaS programs are designed to help solve a problem.
3. We don’t have to pay massive, upfront costs to build the software all from scratch.
4. SaaS is a great way to provide recurring revenue.
5. The SaaS market is becoming saturated.
6. We shouldn’t only rely on recurring revenue and should have diversified revenue streams.
7. To maintain subscription revenue we need to provide constant and unique value.
Connect with Justin
If you enjoyed this interview and want to learn more about Justin or connect with him, you can find him on LinkedIn, email him at justin@scalable.com, or visit his company website at https://scalable.com. You can also watch, listen, or read episode two of Justin’s interview for more stories and secrets.
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