Within the tech community, there seems to be widespread belief that SaaS is the only way to build a Software company and achieve long term profitability. I didn’t realize how pervasive this belief was until after I launched Duet and the questions started flowing in
“This is great, but how will your business survive without recurring revenue? I think a hosted solution would be better”
I agree. Recurring revenue is important, but SaaS is not the only path to recurring revenue for web based software. In fact, many successful companies have been generating recurring revenue from self hosted software for decades.
An Alternative Business Model
Here’s how these companies earn recurring revenue:
- Licence Upgrade Terms – When you purchase the software, you own your copy forever. Most software is updated over time. Typically the license terms will say that updates are free for a specific period of time after the purchase date. If the purchaser wants to update the software after that period ends, they will need to pay an upgrade fee. This is actually very similar to yearly pricing for a SaaS app.
In Duet’s case, all purchases come with free updates for one year. If a user would like to update their purchase after that year ends, they need to purchase an upgrade license, which will give them free updates for another year.
- Support & Maintenance – With a SaaS product, support is usually built into the price. With traditional software support is usually offered as an additional fee that is billed yearly or monthly. This is a significant portion of revenue for most traditional software companies.
Duet offers support for free. There will always be a free support option for Duet, but in the near future there will also be a premium support option that will provide quicker responses, guaranteed response time, higher level of support (i.e. assistance with minor customizations), etc.
Many software companies also provide additional services as a source of revenue. These services can include customization, installation, maintenance, etc. I provide all of these services for Duet.
So, is SaaS the only business model for the web? Nope, there are lot’s of ways to build a successful business around software. SaaS is just one of them. The business model laid out in the article is one more, but there are definitely other equally legitimate business models for software.
Other factors to consider
The other reason I will not be converting Duet to a SaaS app is that it would fundamentally make Duet a different product; A product that I don’t think the market wants or needs.
The reason that I created Duet is simple – there is a segment of the market for project management apps that isn’t being served by existing apps. This segment of the market has unique characteristics that prohibit SaaS from being a good fit and they can be described with the either of the following two characteristics.
- These users don’t have the resources to pay the high monthly fees associated with SaaS apps.
- They need a greater level of control over their data.
This segment is largely ignored and this means that it’s a great target for a new business.
The SaaS project management space is massively oversaturated and apps in this space are dropping like flies; do.com and rule.fm are two great examples of this phenomenon. There’s simply too much supply and very few obvious ways to differentiate your product.
SaaS might be the easiest way to deliver your vision. It might be the most obvious business model. But it’s important for every app developer to think critically about the needs of your target market and determine whether SaaS is actually the best delivery mechanism for your product. In many cases, SaaS will indeed be the best path to profitablity, but it’s definitely not right for every app – Duet is one of them.