SaaS Knowledge Innovation

by Arthur Lawida
Managing Partner

At first glance, companies usually consider SaaS solutions in order to reduce implementation and operational costs. The TCO of a SaaS solution should be less because the core operational costs are spread across all of the tenants.

While this alone is a very good reason to consider a SaaS solution, I think the best reason for a company to consider SaaS has more to do with leveraging the shared innovation that becomes inherent in the solution over time.

At one level, this innovation is in the technology. When tenants ask for enhancements to the core technology, all can benefit and share the costs. When a client asks for a core enhancement, the SaaS vendor must analyze the usefulness to the other tenants. Depending upon the result of this analysis, the cost to the client who requests the customization can range from the entire cost, if it is not likely to be a shared innovation, to completely free if the SaaS vendor feels the innovation will significantly enhance their core offering. In all cases, this ends up in a negotiation based upon functionality delivered, time to delivery and cost.

What is often overlooked by the market is the deep knowledge and wisdom that becomes collected at the SasS vendor across both vertical and horizontal markets served by their solution. This experience can be an extremely valuable asset to a new tenant, especially if they are entering a new business area or sales channel.

Whether it is an eCommerce solution or an HR solution, the SaaS vendor is likely to have seen practices develop over time that it can share with the new client in a way that does not violate the confidentiality of the other tenants. This kind of knowledge, gained from actual operating experience, means each new client doesn’t have to make the same mistakes everyone else made and over time will become a vital differentiator between SaaS vendors and premise based solutions. The key is that unlike traditional software companies, SaaS vendors must operate their client’s businesses and this provides a significantly faster feedback mechanism to drive further innovation into the shared platform.