First, let’s discuss the market in general.  What is the target market for SaaS?  The SaaS offering actually has a wide variety of markets.  SMB customers should, would and will utilize the complete array of SaaS products.  Small Businesses have a need for an “IT Utility Company.”  A place to go to get reliable service a la carte.

The real SaaS product is not software, but the utility service.  I like to compare SaaS with the local power company.  Information Technology is typically dealt with as a cost center much like the electricity service.  Can you do without Electricity?  Information Technology is often operated in house by a professional staff.  However, IT departments are overloaded, often understaffed, and/or lack skills to deliver high end services. And are not often a great way to deliver Line of Business (LOB) services.

Here are some examples:

·         SMB companies less than 50 employees often outsource IT or hire desktop engineers.  There is a need for SMB’s to have the same toys as the big boys, but you need system engineers to perform these tasks….  IT Utility Providers (SAAS based Companies) have high end engineers with proven records included in the monthly fee.

·         The business of a small business is their core competency.  A small business must focus on providing and servicing directly its client base with more efficient services and continue to find more better ways to market and sell these services.  Developing and maintaining a customer relationship system, billing system, order entry system etc are not their core function.  The requirement to learn how to build these applications and then maintain them only distracts critical business resources (time/money) from servicing the core business driver. 

·         Learn everything again for the first time.  When you deal with a SaaS company/ISV whose primary focus is to serve a certain market with a certain application they become experts on the fine data points of this application.  We have an ISV customer who focuses on providing back office online services to small and independent Insurance agencies.  These guys really know there stuff on the ins and outs of the requirements of the Insurance echo system AND they understand how to make technology meets those needs.  Instead of the small business needing to learn all this new the first time they can leverage the knowledge and learnings of this ISV for a much smaller use of the SMB resources (time/money)

In a nut shell, the real product of a SaaS provider is Information Technology in a Utility package.   The selling of “Software as a Service” is weaker marketing than offering an Information Technology Utility.    The positive of SaaS is having a provider do the hard work and the customer writes a check for the service.  Small and large companies alike have a need for an IT Utility and the SaaS Services bundled into packages. 

Of course this whole discussion could and should lead to the question of “shouldn’t a hosting provider create an echo system of targeted ISVs providing online applications. This hoster could then offer a menu of SMB applications from ONE Source on ONE Bill.  Great question and I will discuss this in upcoming Blogs.