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Great article! A few comments: > In the perpetual license model, in-house IT staff managed all software instances and thus could incur the internal costs to sw

by mbesto 13y ago

Great article! A few comments: > In the perpetual license model, in-house IT staff managed all software instances and thus could incur the internal costs to switch vendors if they so chose. This argument is flawed. There are switching costs no matter if it's SaaS or on-premise. This is why big companies outsource IT - it's easy to get rid of 100x Accenture consultants who specialize in SAP and replace them with 100x Accenture consultants who specialize in SalesForce. The switching costs are normally around process change, change management and training. > Budgets are much more decentralized now, because departments often adopt SaaS technologies and make purchasing decisions independent of the centralized IT organization. In the past, the tops-down technology sales model made it very easy for a CIO to unilaterally replace application vendors. Which makes them less sticky. Team frustrated using the $150/month PM tool that they chose? Good, they can get rid of it. LTV goes to zero. > This is why many SaaS companies today invest aggressively in sales and marketing when adoption is high, even though it puts pressure on current profitability. SAP and Oracle did too at one point. They're milking their ~90% gross margins on support contracts today. BUT, they still spend a shitload on cost of sale. I don't see cost of sale going down[1]. > As a general rule if LTV is 3X or greater than CAC, that’s a good sign that the business model is working. The fundamental problem today with SaaS is that I have yet to see to that a scalable and sustainable LTV exists (i.e. "winner take all"). As the OP points out, we can insinuate (not completely prove) a 3x LTV for Workday, but what exactly are they doing that SalesForce hasn't done in the last 15 years? Lastly, if this is a winner-take all situation, then shouldn't we stop talking about SaaS, since "SaaS" = "Workday"? Or perhaps, is this simply pointing out that if you're a SaaS your sole position should be to spend donkey-loads of money on marketing/sales, because you'll just end up getting acquired for your customers anyway? [1] - 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...

melindajb 13y ago
these are great questions...I suspect they're looking at erp equivalents with heavy technical integration, not the basic project management app, which have switching costs, but nowhere near the complex, often heavily regulated, issues involved in a multi billion dollar company's data integration situation. Not saying you're wrong, just that in large installs the post is closer to true than not. As for spending donkey loads of money on marketing, it's really hard to get that model funded today. Investors are wise to it. Not to mention, paid search isn't nearly as cost effective as it was in certain categories. So you're left to grow on only product, SEO, and content, hoping for a viral loop. investors only (should) come in when you can prove that $1 in marketing spend yields $3x in revenue.

by mbesto 13y ago

melindajb 13y ago

these are great questions...I suspect they're looking at erp equivalents with heavy technical integration, not the basic project management app, which have switching costs, but nowhere near the complex, often heavily regulated, issues involved in a multi billion dollar company's data integration situation. Not saying you're wrong, just that in large installs the post is closer to true than not. As for spending donkey loads of money on marketing, it's really hard to get that model funded today. Investors are wise to it. Not to mention, paid search isn't nearly as cost effective as it was in certain categories. So you're left to grow on only product, SEO, and content, hoping for a viral loop. investors only (should) come in when you can prove that $1 in marketing spend yields $3x in revenue.