Software runs my life

Month: August 2008 Page 1 of 3

Costs of deploying SAAS

SAAS is a cheap delivery model right? Well it depends if you are a technical or a business oriented person. There was a very interesting article on Business Spectator today regarding the costs of deploying SAAS software.

One of the most interesting statistics for me was that Salesforce.com (one of the few genuinely profitable SAAS success stories) spends half its revenue on sales and marketing. When I think about it it makes sense, but I guess coming from a technology background it isn’t something that I would have initially thought of. The scary thought that comes after this is what percentage of revenue is taken up once you include support as well? The even scarier one is are you really achieving scalability if these represent the vast majority your costs?

As the article points out, there are three economic fundamentals:

  1. How much it costs to attract new customers (known as subscriber acquisition costs)
  2. How much money can be extracted from those customers in regular subscriptions (known as “average revenue per user”, or ARPU)
  3. How often subscribers drop out and have to be replaced (the churn rate)

From http://www.networkcomputing.com/gallery/2006/1012/1012f2e.jhtmlFor point 1 I think SAAS companies still rely on their old mantra that the SAAS model generally is still struggling for widespread momentum. I think this still holds true, but perhaps these days more because of the costs of migration and training rather than lack of market acceptance or knowledge. The sales and marketing costs are therefore quite high as they are pulling lagging and inflexible customers into what is now a competitive market place with low barriers of entry.

These low barriers of entry tie into the last two points. Companies can theoretically treat SAAS software like they would their telephone company and switch at any stage. This means that new entrants can come in and undercut the established players, keeping subscription revenues down across the board.

The interesting part for me is that online classifieds is somewhat like the SAAS model. It relies on subscriptions and has a low barrier to entry. Why are they so profitable then? I have a few ideas:

  • A new twist on the established classifieds model, rather than a whole new model
  • Industry maturity leading to a consolidation of players (and profits)
  • The difficulties in targeting consumers online

To be honest I really feel like I am missing something here. Can anyone help?

My TechEd Testimonial

I was recently invited (for the third year in a row) to be filmed in a promotional testimonial for Microsoft TechEd Australia 2008. It was recently put online on the TechEd testimonials page, but I have uploaded a YouTube version to save everyone downloading Silverlight. Let me know what you think!

Yahoo Pipes and SEO

I was reading Seth Yate’s blog yesterday and noticed a few tweaks. One of them was the sidebar with a whole list of interesting bits of news and posts from other websites. This is a great way to boost your PageRank, seeing as Google loves you linking related content together. I started clicking a few links to find out how he actually pulled all the data together, and this is when I clicked “Recently Shared” and stumbled across his Pipe (you will need a Yahoo account to see it).

The basic idea of Yahoo Pipes is to pull together and mash up content. I would really suggest having a read of this guide to get a basic understanding of some of the possibilities. I have implemented it down the left hand column of this site, albeit after running the feed through Feedburner so I can assess it’s effectiveness.

The next step is to include the User Input element. I could pass the titles of my blog post into Pipes, which then searches Digg or some other blog indexer and gets the most relevant (and popular) articles? Who needs to add quality links into your blog posts when a well tweaked Pipe can do it for you? 🙂

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