In the past 6 months of working a SaaS business, I have gained some insight into the SaaS world. Although I have not been in it long enough to weather the all the storms, I do have some interesting observations to share.

The end of the one size fits all solution

Once upon a time, when a small business owner needs accounting software, he would go to the local office supply store and grab a CD stored in a beautifully packaged box that is 10 times bigger than the CD itself. He didn’t have many choices to choose from, the selections he had was based on which software company had the connections to get into the distribution channels that shelves the software packages in office supply stores. As he installs the accounting software into his computer, he realizes that this software had 90% of the features he will never use. He could have bought the simpler version, but he realized the simpler version is missing a few key features he absolutely needs to run his business. He also realized that whenever he loads up the program in his computer, the computer is taking a long time trying to load up 90% of the features he will never use.

This was back in the days of buying off the shelf software packages. There was very little choice for the consumers to pick and choose from.

The custom tailored solution based on client interaction

The emergence of SaaS has given the market a new way of meeting the needs of the consumers. Software solutions delivered through an online platform allows the consumers to have instant access to many different types of software solutions previously unavailable on the shelves of office supply stores. Software developers are now bypassing the distribution channels and reaching consumers directly on the internet, cutting down the cost of delivering software by eliminating “the middle man” in the process. This allows for the formation of an interesting dynamic between the consumers and the vendors, where consumers can now speak directly to the software developers and requesting features and services directly. This results in software applications that can meet the needs of the consumers better than ever before. Most importantly, consumers will no longer have to keep “upgrading” to newer versions of the software in order to take advantage of additional features and software upgrades.

Few dominant players

There are currently a few dominant players in the SaaS landscape today. Most internet savvy people have now recognized Salesforce and Netsuite as two of the most recognizable SaaS companies. To get a perspective of some of the numbers, the most recent tally on the Salesforce website claims they currently have 47,700 users, Xero recently reached approximately 3000 users, and Freshbooks have reached a whopping 500,000 users. In terms of the capturing the small business market, none of these SaaS players can claim that they have captured significant market share amongst the 20 million small businesses in the US alone.

What matters is how you use it…

It is unclear at this point if any SaaS player will ever reach significant market share in their target market. Probably not in the way Intuit (creator of Quickbooks) can capture 90% of the US market share in the small to medium sized accounting software space. Interestingly enough, even Quickbooks Online struggles to get the kind of market share in the SaaS business accounting space, reaching 100,000 users online in 2007. This is nowhere near the numbers they are used to in comparison to their offline distribution.

Consumers are increasingly looking for SaaS solutions that can precisely meet their needs. One great example is Freshbooks – and online invoicing software that began by addressing only the pain of invoicing. They have attracted more than 500,000 users worldwide. While there have been some grumbles within their online forum for them to add additional features to become an accounting software, it seems like Freshbooks is sticking to their plan of being the best online invoicing software possible for the time being.

It really seems like the most successful SaaS players are the ones who take on one or two pains and address them extremely well. Companies who create SaaS solutions with more features do not seem to win over those who focus on just a few features.

The future of SaaS is “integration”

I have seen this as an increasing trend in the SaaS market place. In fact, our online accounting software has been approached by many of our customers and SaaS vendors to consider “integrating” with other SaaS applications. We couldn’t agree more. It doesn’t serve us or our clients for us to be the “jack of all trades and master of none”. It would be a lot better if we can just focus on what we do best and let others focus on what they do best. At the end of the day, we all win when customers get the best of all worlds.

The SaaS market provides consumers with more choices than ever before. Consumers can now pick and choose from a wide variety of products and services that can specifically address their needs instead of being forced to consider a few one size fits all solutions. The combination of applying consumer feedback quickly and the ability for SaaS applications to integrate with other applications with a workable API is creating whole new ways products and services are delivered.