Speakers included Joyce Chung, founding partner of Cardinal Venture Capital, and Rene Lacerte, founder of PayCycle, an on-demand payroll solution for small businesses. PayCycle uses the SAAS business model.
Chung expects the SAAS model to become the de facto software delivery platform for many ISVs in the next 10 years versus a separate business model.
Contrary to the traditional software delivery model where a customer installs software behind a firewall, SAAS has a more efficient development cycle. New releases and bug fixes can be rolled out within weeks versus months or years.
Under the traditional model, bugs cannot be fixed immediately when they are reported. When updates are released, customers have to be notified to take action to implement them.
Under the traditional model, the vendor might need to have different versions on hand to support customers should they not all upgrade to the latest version. Under SAAS, the vendor is able to support everyone with the latest version since whenever a customer logs on to access the product which is delivered as a service, the customer gets the latest version.
Under SAAS, customers can make purchases by credit card. There are adoption opportunities from lowered pricing. The vendor is able to obtain recurring revenues, and predict customer usage by seeing what pages and screens customers use and stop at. Products can be sold via telesales, trials, or Internet marketing through WebEx seminars versus the high cost of human capital from paying commissions to sales people for face to face contact.
One drawback of SAAS, is that up front investments need to be made to infrastructure, which could delay profitability. However, Chung indicated that venture capitalists preferred investments to infrastructure to capture market share. Venture capitalists want companies that are able to establish derivative opportunities. Under SAAS, a vendor is able to gain a lot of data which assists in building other business opportunities. A vendor who is able to monetize data flow is able to create a barrier to entry. This allows the vendor to perhaps give away applications for free and focus on cash flow from having the central repository of information.
For instance, Lacerte explains that PayCycle’s ability to allow employees to view their paychecks online creates opportunities with lenders who need to look into the income histories of loan applicants.
Chung mentioned that the focus of a healthy business includes cash flow not only earnings.
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