Over a year ago, I wrote a somewhat rhetorical post asking how SaaS companies make money. This post analysed the underlying economics of a SaaS company and pointed to some clear differences in this model versus on-premise software. Judging by the continued interest it's clearly a topic area that people still want answers too. So now, a year on, I thought I would write a series on ...well how to make money as a SaaS company. 

SaaS alone isn't a winning proposition, SaaS is still in the business of solving customer issues, and at the end of the day is just another way of delivery. This means that if your service is a substitute for existing processes or software you will still have to convince people that your way is better. Better being faster, cheaper, more functional.

If your service is radical, solving the previously un-solvable, then you could be on a gold mine if you can sell it. As part of this article I've tried to think of who is a well known example of this but it's not easy. Potentially Google with Adwords. There is a downside to being radical too, you may have to educate the market which is an expensive challenge to undertake. Pingar.com is an example of this  (hat tip, some of the thinking borrowed from Ben)

You really need to spend a bit of time finding out how big a market your SaaS could address. It better be large because you are entering the scale game. Scale drives down your costs, scale drives up your profit, scale is everything in a multi-tenant world.

If you can't get to a scale position I would suggest finding a niche and sticking to it or looking at other ways of delivering the outcome. Large markets are important for revenue too. Look closely at Telcos, they are the poster children of the subscription revenue game, making a small amount of money off a large number of customers.

You also need to think globally, it's the internet stupid....think ubiquity. Some poor soul might discover you and if you are set up to only deal with one small geography you've got a problem. It's called client dissatisfaction, a killer in the SaaS world.

Challenge existing market definitions and sizings especially from big name analysts, take time to think. The reasons for that is that SaaS can subvert the traditional model, you might be better at servicing the long tail or providing to untapped parts of the markets. It could actually be that your service, while substituting an existing offering, is better suited to the mass part of the market. That is you could grow the market.

Take away message, know how big your market is. Be crystal clear on what value your clients are going to pay for and create a service that gives them that. Google knew cost per click was their game, and this hasn't changed. Salesforce.com was a CRM company, now they are a PaaS company. Both revenue models are consciously understood throughout the business.

More to come....