The Cat is Out of the Bag (Again): The Hidden (?) Business Model in SaaS

Forget software: it’s all about (your) data.

Hyper-growing Financial Management system  provider and Quicken / MS Money challenger Mint recently raised eyebrows announcing their plan to sell anonymized aggregate customer data.  Some reviewers were screaming, we saw bombastic titles like Personal Finance Startup Mint Wants To Sell Your Money Trail – but in reality the news wasn’t earth shattering. You don’t really believe your spending patterns are not dissected – aggregated – analyzed in every possible way and sold by your bank and credit card company, do you? 

So nothing new – but a good opportunity to discuss the role of user data in SaaS business models – and there is more than outright sale of data.

I used the “cat out of the bag” line was almost three years ago, when FreshBooks’s CEO, Mike McDerment literally dropped a bomb in the last 20 seconds of his Office 2.0 Conference presentation: the Software as a Service model allows them to  aggregate all customers’ data, categorize it by industry, size ..etc – once they do all that processing, why not turn it into a new service?

They soon did, launching their benchmarking service, which for the first time gave small businesses the insight needed for comparative analysis.  Benchmarking has long been a lucrative business, practiced by research firms like Forrester, Hoovers, Dunn and Bradstreet, as well as specialized shops like the Hackett group – none of which were affordable to small businesses. More importantly, all previous benchmarking efforts were hampered by the quality of source data, which, with systems behind firewalls was at least questionable. Now that SaaS providers  have access to the most authentic data ever, they can aggregate and process it, producing the most reliable industry metrics and benchmarking.

A good while ago CRM provider Salesforce.com launched a new service called Salesforce to Salesforce (S2S) to facilitate sharing of contact data between customers. 

Freshbook’s recent initiative, Software as a Network goes a step further, it allows the sharing of transactional data, albeit limited to invoicing.  But what if the more complete business suites, like NetSuite, or when (if?)  it really kicks in, SAP’s Business ByDesign follow suit?  Procurement, manufacturing, inventory, resources…etc data – can you envision the improvements in Supply Chain visibility?

Now clearly there’s a whole world of difference between selling aggregate customer data to advertisers, benchmarking, or sharing transactional data within your supply chain, but let’s now focus on what’s common in all these cases: new business models  emerge, not simply representing additional revenue sources for the SaaS vendors, but also enabling them to deliver enhanced services to their customers, services that were simply not possible in the previous, behind-the-firewall fragmented data model.  

Yes, this raises a number of serious questions: How far can SaaS vendors go? What are the security / confidentiality / privacy implications?  Are they reselling data, or services based on data that the customer owns in the first place? If the customer owned the core data, who owns the aggregate? And just what is “aggregate enough” and  “anonym enough”?  The industry needs to address these issues as a first step towards a paradigm-shift: while current concerns about SaaS mostly focus on the security, privacy, and consequently isolation of business data, eventually a culture of controlled sharing for business benefits should develop.

That is, after all the real promise of SaaS: not just porting apps to the web and delivering services at lower TCO, but creating new brand new services, business opportunities that could not have existed in the pre-SaaS era.