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Software as a Service vs Software as a Product

The Cloud Computing experts

Software as a Service vs Software as a Product

Software as a Service companies are growing faster than Software as a Product (SaaP) companies, according to reports.

The Software Equity group has announced that in 2014 SaaS companies grew at a staggering 28%, compared to an 8% rise for SaaP businesses. Private SaaS companies grew even faster, with a median rate of 37%.

Cloud strategies suggests that there are four reasons for this growth:

End user trends

The growth of the SaaS industry is largely attributed to the change in how end users want to access software. There is a full blog on the end user benefits of software hosting here, however as a brief recap, here are a few key benefits discussed:

  • As long as the end user has an Internet connection, they can access services anywhere.
  • As the software is typically paid for on a subscription basis, end users can benefit from reduced capital expenditure.
  • Increased collaboration capabilities – share files and information on the move.

Deferring revenue to accelerate growth

Revenue from a SaaS customer is initially less than SaaP revenue, as it is paid for on a subscription basis, but the overall revenue for SaaS overtakes SaaP as long as customer churn rate is low. The lower the churn rate, the better the revenue.

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SaaS sales create incremental growth

Software as a ServiceIf a SaaP business was to sell £6,000 worth of software in one quarter, it must sell at least the same amount next quarter or it will have negative revenue growth.  If a SaaS business was to do the same, it would continue to grow because the contracted revenue is added to the previous recurring revenue. This difference would attribute in a dramatic SaaS growth rate, over SaaP.

SaaS companies have more expansion revenue

For a SaaS business, once partnered with a company, it’s much easier to continue to sell internally and expand growth. This is due to the fact that there are fewer barriers to the selling process; customers can usually ‘try before they buy’, are not tied into any long contracts and don’t have to install the software manually themselves.

For more information on Software as a Service solutions and how to deliver your software successfully online, call 03453 888 327.