Enterprises falls right on the SaaS trap
In the realm of Software as a Service, commonly referred to as SaaS, one cannot escape its omnipresence. The choice between buying, building, or renting software has become a matter of wisdom, and evidently, the prudent decision is to opt for rental (or not). This sentiment is often echoed by those responsible for the technological culture of a company, such as a Chief Technology Officer (CTO).
The audacious journey into the world of SaaS can be traced back to a certain software company that introduced the famous chat tool, which revolutionized the landscape of business collaboration, rendering even Skype obsolete.
For a mere $9.90 per user per month, one can access a plethora of benefits. This affordability is particularly appealing, especially when the software in question is not central to the core business operations. However, it is essential to remember that this seemingly innocent $9.90 per month expense can quickly escalate to millions of dollars annually, especially as your company grows, and the need for cost optimization becomes imperative.
The initial $9.90 typically covers only the basic features. When an organization requires advanced enterprise features, such as SAML, data locality, or comprehensive audit trails, they must transition to the Enterprise Plan, which often entails doubling or even tripling the monthly cost. SaaS providers are acutely aware of a startup's journey and are willing to invest in their success, knowing that as enterprises mature, the cost and complexity of transitioning away from their services become prohibitive, creating a sense of dependency.
But that's not the end of the story. Most SaaS offerings provide a substantial discount, ranging from 15% to 20%, for annual or bi-annual commitments. This introduces a complex scenario where migration decisions must align perfectly with billing cycles, creating logistical challenges and resource constraints, a task typically reserved for the desperate or the exceedingly resourceful.
Don't just take my word for it; examine the quarterly earnings of giants like ZOOM in Q4 of 2023, where a staggering 57% of their revenues came from enterprise customers. This pattern holds true for other industry leaders like Gitlab, Slack, Jira, Notion, Adobe, Figma, Grafana, Miro, and many more.
The list of SaaS providers is extensive, and while some tools offer unparalleled value, compromises in productivity may be necessary to keep expenses in check. Competing solutions exist in the form of open-source alternatives or pay-as-you-go options, exemplified by Serif's challenge to Adobe with Photoshop, Illustrator, and InDesign alternatives.
It's important to note that cloud expenditure presents a unique case, best exemplified by Hey.com's savings of $7 million, as articulated by David Heinemeier Hansson in his article.
Of course, not everything should be sourced away from SaaS providers. Hosting your own email or attempting to replicate Cloudflare's services can be a formidable undertaking, for instance.
The key here is to approach SaaS decisions on a case-by-case basis and exercise caution when introducing new providers. Carefully scrutinize the potential cash burn associated with a solution under various growth scenarios, and conduct quarterly evaluations, as the SaaS landscape evolves rapidly, much like the growth of one's hair.
