Strategies for Converting to SaaS

Most software businesses thinking of converting to SaaS do not have the “luxury” or opportunity of starting from scratch as a start-up business. This of course has the advantage of having a baseline revenue and customers. However, it complicates the conversion to a SaaS business. There are five approaches you can use if you currently have a software business and want to convert to SaaS.

First, and I think the most ideal way, is to develop a separate business, ideally with a different or at least separate technology stack, which is targeted toward a different but related market. The most typical example of this is an enterprise software business which targets small and medium businesses with an offer with more limited functionality. This has the advantages of being a separate business which can be managed and measured separately and should result in increased revenue and customers without cannibalizing the base business.

Second, you can redo your software so that it is multi-tenant and incorporates other SaaS friendly features to support billing, support, and data integration. This is an expensive approach which takes time. There is also the question of how you deal with the legacy software and customers. If executed well there may be some long-term flexibility to have both on-premise and SaaS versions of the software.

Third, and this is a more short-term solution, you can individually host your software for customers. This has the advantage of being quick to market but has a higher operational cost structure than other alternatives.

Fourth, if your software will perform and run successfully in this environment you can run it on a virtual infrastructure of some type such as a public or private cloud. The cost structure is better than the third alternative but there are still challenges such as version management.

Fifth, you can adapt your software to run as part of a larger application such as Salesforce.com. Other software providers have similar marketplaces to Salesforce’s AppExchange. The adaption may be simple depending on the technology or it could be as complex as a total rewrite. The advantage to this approach is that you may not have to cannibalize your current market and you have a channel for your new offer.

None of the approaches are perfect but any of them can be successful in the right situation. One common thread through all successful conversions is that planning and executing a conversion to the SaaS business model can be complex and requires a lot of work to be successful.

Paul

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