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I want to make this a balanced argument. I’ll start with the positives.

Software-as-a-Service (SaaS) is a fairly recent innovation which has taken-off phenomenally well, and with good reason. SaaS offers huge economies of scale, because it can be shared by many organisations. It also tends to embed industry best practice. For these reasons it is often exploited very successfully in the back-office (HR, finance, payroll, planning, etc.) where market differentiation from competitors may seem irrelevant, but where efficiency and standardisation seem critical. So far so good.

But SaaS has other advantages: It requires little advance capital investment, can be very quick to procure, and tends to be easy to use. These features make it interesting to entrepreneurial executives seeking to introduce new functionality quickly, so they can change their business models, provide new products and services, or better the customer experience.

But, buyer beware! This alternative entrepreneurial exploitation of SaaS must be approached very carefully. Here’s why it concerns me …

Software-as-a-Service companies operate on scale. They’re motivated by pooling together the maximum number of users, from the maximum number of organisations, into a single publically-shared solution. If they can’t do that, they’ve failed, and a competitor will offer a better price.

So in each new software release they introduce functions designed to please the majority. They gravitate towards the lowest common denominator. That may suit them, but may not always suit you.

If you’re sitting on a bus with 50 passengers who want to turn left, who’s going to listen if you want to turn right? Similarly, you can’t be assured that shared SaaS software will evolve so as to preserve the differentiating functions you originally signed-up for.

So if a SaaS provider removes your treasured functions, what can you do? Maybe the software is highly-customisable, to allow you to react quickly to reproduce your own unique functionality in the new release. But if it is, surely others could follow you just as easily, posing a different kind of threat to your market position.

Or you could switch to another SaaS package, offering a new competitive edge? But again, others could follow quickly if they so chose.

I think the best answer is to plan a little more carefully in the first place. Proving concepts with SaaS might be fine, but SaaS is not a permanent home for your company’s unique ways of working.

So here’s what to do …

If you seek to use software as a market differentiator, then be prepared to custom-engineer the critical functions, and maintain control of the associated intellectual property. (You can still use PaaS or IaaS to access cloud benefits.)

Continue to differentiate outside software too, with your reach, products, customer experience, etc.

In parallel, work with the business strategy team to identify functions which will not contribute to the differentiated market position in the years to come. Many of them are likely to be back-office functions. Seek to move these functions to SaaS (or Business Process-as-a-Service) as quickly as other commitments permit.

What do you think? Is this a recipe for SaaS success?

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