The SaaS subscription business model needs a new twist – and here’s why

Renat Zubairov know-how

Saas subscription business model with a twist

Before the arrival of the SaaS subscription business model, enterprise ISVs could focus on doing what they do best – developing great software to solve a business challenge faced by their target market. The download CD (remember those?!) had a purchase price. Then periodic updates followed until the product was deemed obsolete. It was a straightforward, one-size fits all model for a mass marketplace. A simple “price per product” economics.

SaaS changed the world of software in more ways than just the mode of delivery. It has shifted ISVs onto an entirely new model based on subscriptions that are accrued over time. The revenue from each product sale is not immediately secured. It can vary wildly with the length of each customer’s tenure, not to mention customisation and maintenance requirements. In this subscription business model, creating customer ‘stickiness’ is the aim of the game.

A sticky situation

With the growing popularity of SaaS applications, companies expect ISVs to make sure their product not only works but works well with other applications to create a fully integrated platform. The 2019 Okta report confirms that enterprises the world over are increasingly selecting technologies that ‘prioritise interoperability, automation and offer a broad range of functionality.’

But when this is the need of each single customer, the SaaS vendor has to make some key decisions. Which customers will they market the product to – a few big companies or many little ones? How will they allocate time and resources; is it meeting the customer’s individual ‘interoperability’ needs or focusing on developing the core product at the risk of increasing customer churn?

It is a lose-lose situation. Whichever path they choose, they’ll either be disappointing existing customers or spending time on integration at the expense of acquiring new ones and improving the core offering.

Integration as standard

Our own conversations with ISVs have highlighted loud and clear that this is a critical dilemma for SaaS providers. The old purchase model could deliver a cost-plus return per customer unit. The subscription business model, on the other hand, is less able to guarantee the same return. Time and money spent on integrating APIs for each individual customer can easily spiral over the subscription contract period. The task of supporting customised versions into the future can also become onerous.

An integration platform as a service (iPaaS) allows SaaS vendors to achieve exactly that. By building universal integration capability into their own application, ISVs can offer a new kind of one-size fits all subscription business model. At the same time, without the need to employ specialist integration capabilities within their business, software vendors can save on development costs and still deliver the most comprehensive, premium value product possible.

ISVs can integrate a white-labelled iPaaS solution into their own software. This provides complete interoperability with any existing architecture – and new additions. This way, ISVs can focus on what they do best and spend less time on the maintenance and integration of an increasingly complex portfolio of customers.

A simple, effective solution to the SaaS subscription business model, can flip the lose-lose situation to a win-win for ISVs.


About the Author

Renat Zubairov

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Renat Zubairov is CEO and co-founder of elastic.io. He is an experienced hacker, product owner and agile evangelist. Renat is a speaker on international conferences, user groups and active open source community member. During his career Renat was working with world best companies like Nokia, Nokia-Siemens Networks, TCS and DHL. Last 5 years he has been working in product start-ups in Application Integration, Data Integration and Business Process Management areas. Leading development of Application Integration (ESB, SOA) product.


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