SAAS with iOS: Powerful

When iphone was launched (6-7 years ago), little did we know that one of its biggest weapons would be its “Closed Application Ecosystem”. Several years later, we see that mobile apps are a part of our daily life. They have permeated into the corporate world as well. Companies are building mobile interfaces in their existing applications for their employees and customers.

Development of Cloud (in Enterprise) is another significant development of the last decade. Fixed costs converted to Variable costs. New companies successfully challenged the dominance of traditional large players.

Mixing the 2 big developments of the last decade creates another set of powerful products. Cloud apps consumed on Mobile devices (with inputs like Location, and Identity) become even more useful. Traditional enterprises like Banks, Insurance, Real Estate, Restaurant Delivery….all have powerful mobile apps. There are few industries like Healthcare and Manufacturing etc, that are running behind the curve. Good opportunity for new comers to tap into these industries and come up with disruptive mobile solutions.

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Offshore Companies Can Launch Successful SAAS Products

In last 10 years, SAAS applications have disrupted traditional Enterprise Software Industry. It started with SalesForce, and the trend continues till this day. Here are some of the things that differentiate SAAS from Enterprise Software model:

  1. Variable Cost
  2. Efficiency with Scale
  3. Services (Instead of Product)

The list can go on-and-on. Numerous articles have been written about why SAAS works better than the traditional Enterprise Software. In this article, I would like to mention one aspect which is sometimes overlooked.

Traditional Enterprise Software companies require a large “Sales Force” to schmooze customers for annual license (and maintenance) contracts. Selling Enterprise software requires “connections” in the industry. This is a competitive advantage that deters most new entrants from launching their competitive Software products.

Alternatively,┬áMost SAAS products acquire their customers using their online e-commerce portal. Since customer acquisition happens online, traditional competitive advantage (“connections in the industry”) does not work here. Instead, now the customers can try multiple products simultaneously and pick the best one that suits them the most. “Technical Prowess” and “Quality of Customer Support” become the new competitive advantages.

Since “Technical Prowess” and “Quality of Customer Support” become the key differentiating factors, any company that can provide high quality on these 2 parameters has a good chance of success. Interesting point is that these 2 parameters can be executed remotely! This brings Global teams into the picture. A team sitting in India or Philippines or Brazil can deliver high quality Technology and Customer support. They do not require Sales foot-soldiers in the US to gain US customers. More importantly, these teams can do it at a better RoI (Return on Investment).

We are seeing this trend at a fast pace. SalesForce is continuously challenged by their Indian competitor, Zoho. Zendesk is challenged by its Indian competitor, Freshdesk. Olark has a powerful competitor in ZopIM. Browserstack (based in India) is the best SAAS based testing platform.

The list goes on!

New Revenue Model for Internet businesses

In past 2 decades, Internet has changed the way companies have traditionally generated revenue. New businesses were spawned, new business models were formed and new industries were born.

Initially, corporations started selling goods online, bypassing the middlemen and reaching out to the consumers directly. Example: Amazon. This was the early wave of Internet based e-commerce.

In next phase, web advertising became the mantra for web portals. Example: Hotmail, AOL, and Yahoo. In past 15 years, Internet expanded at a very fast pace and therefore Search became the centerpiece of Advertising. And therefore Targeted Advertising became the norm. Example: Google.

In the past 7 years, Internet evolved into a more social platform. It became permeated into the daily fabric of our lives. Facebook and Twitter are experimenting into the recommendations based revenue models.

Internet became omnipresent and therefore, people started using it for entertainment. This led to the growth of Virtual Goods model. Example: Zynga. During the last decade, developing and maintaining internet products/services became more efficient and therefore Freemium and SAAS models evolved. Example: Salesforce

Since 2008, Daily Deals models evolved that connected the Social Graph with Local Commerce. Example: Groupon & LivingSocial.

Moving forward, few new revenue models are coming up. In the absence of a defined name, I would call them online-offline revenue models.

Online-Offline model:

As the name explains, this is the association of Online platforms with Offline (Local commerce) businesses. Online platforms are very scalable and therefore have lower marginal acquisition costs compared to their Offline counterparts. On the other hand, high fixed cost for Offline businesses makes them look out for alternate options to acquire new customers. This is like a marriage made-in-heaven.

In this process, the internet company generates revenue from Local businesses by acquiring customers for them. Groupon could fall into the same category but that model has its own caveats. Same could be said for Foursquare. Some companies are doing it quite effectively: Example: Redfin. Since this revenue model depends on the Offline businesses, we can expect to see specialized verticals. Example: Redfin is in the Real Estate business. Kiip is in the retail business.

There is a scope for creating more online-offline revenue models in other verticals. For example: Healthcare, or Retail. The premise of the model remains the same: Internet company acquires customers (with low acquisition cost) and generates revenue by driving them to Local commerce (offline).

Simply acquiring customers on Internet and driving them to Local businesses is not enough because switching cost for consumers is low and the barriers to entry (for new entrants) is also low (Groupon problem).  The challenge would be to create a model that can increase the switching cost as well as increase the barriers to entry for potential competitors.

Foster innovation in your Organization

Here are 5 things that medium-large companies can consider to spur innovation:

1. Make processes less rigid: Most companies have well-defined processes to meet delivery goals of their projects. But, this comes at a cost of “innovation” because employees get “used to” working in processes and therefore do not “look for” innovative ideas. If the processes are not very “rigid”, this will prompt employees to “think outside-the-box”. That will eventually lead to innovation.

2. Employee rotation: Generally careers move in a vertical direction. People get good understanding of the vertical (HR, Finance, Marketing) but have no understanding of how other verticals work. Moving employees in different verticals will put “some” employees out of their comfort zones and force them to learn new skills. During transition, they will question the basics of the department, and that will lead to looking at things from a different perspective.

3. Open culture: Innovation is about thinking out-of-the-box. Support from top management for openness will encourage employees to communicate their “wild” ideas upwards. Some of these “wild” ideas can spur innovation if they reach the right top-management.

4. Networking: Large companies are like “cities” or “towns” where people do not know about each other. Fostering networking (from different departments, locations) will lead to brainstorming which is the seed for innovation.

5. Outside-the-Industry: Look at companies out-of-your-industry to see how they solve problems. Find out if some of those initiatives can be brought into your own industry (with some modifications). For example: Outsourcing started with manufacturing…and then moved over to Software services, finance, and market research.

ciao~