The change from hardware to software and how consumers access applications has evolved new ways of doing business. Not only does SaaS make the consumer’s lives easier, but investors can now see predictable revenue streams in startups allowing their decision-making process to be much easier. SaaS has brought with it a new business and pricing model which then allows founders and investors to conveniently see where their business is headed.
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It stands for software as a service, but what does that mean? People use it in different forms and functions but it’s simply a way in which software is delivered. SaaS represents an application that you’d access via a web portal or an internet browser. It’s distributed and available wherever you have internet access. In the old days licensed software was stored in a data center which you couldn’t access anywhere you had internet. Nowadays we have the internet basically everywhere which is why SaaS products are so prominent.
With how accessible SaaS has become, the business model and pricing model is unique. A company offers an application that has expenses to run, tweak, and continuously maintain which makes it available to users 24/7. When a customer pays for a SaaS product, it isn’t bought all at once, it is purchased monthly. The application will get updated and become better and better continuously which allows you to pay on a monthly basis.
Some examples of successful SaaS companies are Salesforce or Workday. Because they are SaaS companies they have predictable revenue streams due to the way they distribute their software. They have high multiples and valuations because of how predictable the revenue streams are along with KPI metrics. Bottom line is that SaaS can be used as a very good indicator of how well a business is doing.