From Software Business Community

SaaS Monetization

Financial implications of SaaS

For buyers, SaaS means that capital expenses are now converted to operational expenses. Software companies will see their traditional perpetual license revenues decrease but with SaaS offerings their subscription revenues will grow.

Example monetization strategies

• Attract new customers by using your base product and then up-sell the attracted clients to more high margin priced bundles once they’re on-board.
  • Maximize the ease by which people can sign-up for SaaS offerings. Current customers are much more likely to invest in the premium product than non-users exploring your service for the first-time. Allow them to discover the software's value on their own, then approach them with the more robust, premium-service.

Pricing in SaaS

Offerings should be priced in a way that they do not cannibalize on-site software revenue streams. Traditionally revenues were typically based on large, up-front payments for software licenses and then service contracts for maintenance and support. In a SaaS pay-per-use model, revenue is generated by a larger number of smaller transactions. This large amount of small transaction can put an exceptional strain on existing billing systems, thus SaaS sometimes requires new Billing Platforms.

SaaS allows vendors to price their service based on its relative value to the customer, thus price discrimination becomes possible.

Subscription based pricing

Pay per use

Prepaid

Flatrates

Contract management in SaaS

The SaaS concept usually allows buyers to quickly switch providers, and contracts have to reflect this.

Trends in SaaS monetization

Gartner predicts that SaaS will account for 25 percent of new business software by 2011, up from 5 percent in 2005. [1]

See also

• Main article on Software as a Service (SaaS)
• See Opsource.net for a list of SaaS Case studies