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I still don't know a single SaaS B2B company - at scale - that is actually profiting right now.[0] The general assumption is that the cost of sale will continue

by mbesto 13y ago

I still don't know a single SaaS B2B company - at scale - that is actually profiting right now.[0] The general assumption is that the cost of sale will continue to go down (and thus become profitable), but once the market gets saturation (it is in CRM-SaaS for example), then the cost of sales goes right back up. > The other company has to bust ass for measly 20%/yr maintenance fees. This is a funny assumption. On-premise maintenance fees for the likes of SAP, Oracle, etc sit on a nice ~80% gross profit margin.[1] This model is obviously broken today, but has been a major source of revenue for traditional software. Here is what I think I will happen to SaaS models (note - it isn't pretty): http://www.techdisruptive.com/2012/11/28/how-are-we-going-to-make-enterprise-cloud-profitable/ http://www.techdisruptive.com/2012/11/28/how-are-we-going-to... Anyone know a large successful Enterprise SaaS that isn't selling jackets? [0] - http://finance.yahoo.com/q/ks?s=CRM+Key+Statistics http://finance.yahoo.com/q/ks?s=CRM+Key+Statistics [1] - http://blogs.forrester.com/duncan_jones/13-02-14-saps_maintenance_price_hike_should_concern_sourcing_professionals_and_their_cios http://blogs.forrester.com/duncan_jones/13-02-14-saps_mainte...

reubenswartz 13y ago
37Signals? (Perhaps not a coincidence that they are private.)
- dave_sullivan 13y ago
  When 37signals started coming out with products, they were really early to the "self-serve saas web app built by cool web devs just like you and me" model. In many ways, they practically invented the industry. Fast forward 9 years or so and the market is very crowded with plenty of investor money allowing businesses that will never turn a dime to stay in business too long (sell lots of jackets)--on the premise that they can be like 37signals. For startups from the last 2-3 years (or ones currently entering that business), given the competitive reality + the massive downward pressure on saas prices (not to mention upward pressure on user expectations), I don't think the analogy works as well. Also, 37S never has published numbers, so who really knows what their growth/profitability has looked like over the past several years? I wouldn't be surprised if their growth has slowed significantly due to steeper competition and an inevitable cooling of their brand's coolness.
nostromo 13y ago
I used to work for one, LivePerson. Nobody in the valley knows or cares about LivePerson, but it's quite the little performer. http://finance.yahoo.com/q/ks?s=LPSN+Key+Statistics http://finance.yahoo.com/q/ks?s=LPSN+Key+Statistics
bch 13y ago
What does "selling jackets" mean in this context?
- monkeyspaw 13y ago
  From the end of the article: >It’s like the old Jackie Mason joke — A man is selling jackets at cost. The customer asks “how can you sell at cost, how do you make any money?” Answer: “I sell a lot of jackets!”'
  - badclient 13y ago
    Except jackets have no recurring revenue.
    - monkeyspaw 13y ago
      I think one point of the article was that recurring revenue is more complex than that. It all depends on pricing, time to recoup customer acquisition cost, and a few other things. If it takes 18 months to become a "jacket" (ie break even), then whether or not it's worth it depends on factors such as churn, cost of account servicing, cost of IT, etc.
      - badclient 13y ago
        then whether or not it's worth it depends on factors such as churn, cost of account servicing, cost of IT, etc. Sure, but that's stating the obvious for anyone in the SaaS business.
fishcakes 13y ago
Any SaaS B2B company with network effects does this easily because the revenue from each customer is a function of the value they derive from the software, which increases with the square of the number of customers. Think Excel (network effects derived from its communication properties), CoreLogic (derived from having all the data), Addepar, etc. These companies also typically have high fixed costs across all of their customers once they are at scale.
pinaceae 13y ago
they exist, i know of at least one example. but they are not public (yet), hence their financials are not widely known. soon though. your techdisruptive article is very much focused on the SAP take on this, transforming themselves into SaaS. there is big demand in SaaS for real turn-key solutions, rather than the classic generic enterprise software that needed an army of consultants to even boot up. customers want this and won't buy non-SaaS anymore.
- mbesto 13y ago
  > there is big demand in SaaS for real turn-key solutions, rather than the classic generic enterprise software that needed an army of consultants to even boot up. "classic enterprise software" is turn-key.... The challenges for SAP to transform themselves into a profitable SaaS are no different than any enterprise SaaS trying to be profitable.
  - pinaceae 13y ago
    no. classic SAP or ORA is generic, they have certain industry templates but applying them is far from easy and fast. there is no way to simply turn on SAP CRM and start working with it say as a biotech.

by mbesto 13y ago

reubenswartz 13y ago

37Signals? (Perhaps not a coincidence that they are private.)

dave_sullivan 13y ago
When 37signals started coming out with products, they were really early to the "self-serve saas web app built by cool web devs just like you and me" model. In many ways, they practically invented the industry. Fast forward 9 years or so and the market is very crowded with plenty of investor money allowing businesses that will never turn a dime to stay in business too long (sell lots of jackets)--on the premise that they can be like 37signals. For startups from the last 2-3 years (or ones currently entering that business), given the competitive reality + the massive downward pressure on saas prices (not to mention upward pressure on user expectations), I don't think the analogy works as well. Also, 37S never has published numbers, so who really knows what their growth/profitability has looked like over the past several years? I wouldn't be surprised if their growth has slowed significantly due to steeper competition and an inevitable cooling of their brand's coolness.

nostromo 13y ago

I used to work for one, LivePerson. Nobody in the valley knows or cares about LivePerson, but it's quite the little performer. http://finance.yahoo.com/q/ks?s=LPSN+Key+Statistics http://finance.yahoo.com/q/ks?s=LPSN+Key+Statistics

bch 13y ago

What does "selling jackets" mean in this context?

monkeyspaw 13y ago
From the end of the article: >It’s like the old Jackie Mason joke — A man is selling jackets at cost. The customer asks “how can you sell at cost, how do you make any money?” Answer: “I sell a lot of jackets!”'
- badclient 13y ago
  Except jackets have no recurring revenue.
  - monkeyspaw 13y ago
    I think one point of the article was that recurring revenue is more complex than that. It all depends on pricing, time to recoup customer acquisition cost, and a few other things. If it takes 18 months to become a "jacket" (ie break even), then whether or not it's worth it depends on factors such as churn, cost of account servicing, cost of IT, etc.
    - badclient 13y ago
      then whether or not it's worth it depends on factors such as churn, cost of account servicing, cost of IT, etc. Sure, but that's stating the obvious for anyone in the SaaS business.

fishcakes 13y ago

Any SaaS B2B company with network effects does this easily because the revenue from each customer is a function of the value they derive from the software, which increases with the square of the number of customers. Think Excel (network effects derived from its communication properties), CoreLogic (derived from having all the data), Addepar, etc. These companies also typically have high fixed costs across all of their customers once they are at scale.

pinaceae 13y ago

they exist, i know of at least one example. but they are not public (yet), hence their financials are not widely known. soon though. your techdisruptive article is very much focused on the SAP take on this, transforming themselves into SaaS. there is big demand in SaaS for real turn-key solutions, rather than the classic generic enterprise software that needed an army of consultants to even boot up. customers want this and won't buy non-SaaS anymore.

mbesto 13y ago
> there is big demand in SaaS for real turn-key solutions, rather than the classic generic enterprise software that needed an army of consultants to even boot up. "classic enterprise software" is turn-key.... The challenges for SAP to transform themselves into a profitable SaaS are no different than any enterprise SaaS trying to be profitable.
- pinaceae 13y ago
  no. classic SAP or ORA is generic, they have certain industry templates but applying them is far from easy and fast. there is no way to simply turn on SAP CRM and start working with it say as a biotech.