The SaaS commercial model profitability challenge hit a new phase this week. Late last year Salesforce.com announced an Analytics Edition – that’s great as analytics has been one of the obvious capability holes. But it plans to charge extra for it, i.e. it will not be rolled into the core offering. That is upsetting some customers who are happy to pay extra for some additional capabilities but feel analytics should be baseline functionality.
As we have said previously, SaaS is positioned and priced as a commodity service and that generates downward pricing pressure, making it difficult to grow market share and revenue profitably. As the early stage growth curve slackens, SaaS-only providers in particular will need to increase their margins by reducing the cost of supply or raising prices either directly, or indirectly by making more developments available as paid-for options.
Judging the fine line between what should be core and therefore ‘free’ and paid-for extensions is tricky, and customers will have their own agendas of course. But suppliers will be under intense pressure to offer even more for even less. This will put more pressure on the search for profitability, fulfilling the deflationary trend that TechMarketView identifies as a SaaS characteristic. The commercial model needs modification but it won’t be an easy task. This is something we will be looking into over coming months.