Akamai Diversity

The Akamai Blog

Want your App Delivery to Kick SaaS? Avoiding the Challenges and Pitfall of SaaS Delivery

1st of a 2-part blog post

SaaS is growing like crazy.

We have all observed the fact that the SaaS market has experienced tremendous growth over the course of the past few years, and that rapid growth is forecasted to continue for the next several years.

  • According to Gartner, the global SaaS market is projected to grow at a steady CAGR of 19.5% through 2016, which will result in total revenue growth from $13.5B in 2011 to $32.8B at the end of 2015
  • According to IDC, SaaS will account for 25% of new business software purchases this year
Those are some serious growth numbers!

This new software consumption model has accelerated the transition from on-premise hosted applications, to a new approach where applications are now hosted in the Cloud by SaaS Providers and consumed over the Internet by end-users. The main driver of this growth is that SaaS Providers offer a compelling value proposition to their Enterprise and SMB customers, in that SaaS Providers can help their customers increase agility and lower IT and support costs, and most importantly, allow their customers to focus on their core business instead of supporting their apps.

Challenges abound and Failure rates are high

However, the torrid growth of the SaaS market, combined with the sky-high expectations of SaaS customers has introduced significant new challenges that SaaS Providers must address in order to maintain a competitive position in the market.

The diagram below, from Joel York @ chaotic-flow.com, highlights just how challenging the SaaS business can be for SaaS Providers.

SaaS blog post photo 1.png
The takeaway from this diagram is that SaaS Providers must manage churn very closely. If you don't effectively manage customer retention and churn (20% churn per year is the upward bound), then you will reach a plateau in your growth trajectory where any new customers you sign in a given year will be offset by the amount of existing customers that bleed out of the backdoor via churn. The result is that the SaaS Provider will not generate enough profit to continue to invest in their SaaS app(s) and technology platform, let alone invest in additional sales and marketing activities. They will lose their competitive edge, and eventually fail.

For SaaS Providers, it's critical to have a strategy in place for proactively managing customer retention and to minimize churn. How will you keep your churn #s as low as possible? How will you onboard new customers as quickly as possible to ensure they can get up-and-running and begin realizing value from your SaaS apps?

Stay tuned for the 2nd part of this 2-part blog post.

Learn more: http://www.akamai.com/html/industry/software-as-a-service-providers.html

Leave a comment