As a follow up to the earlier article on the IaaS business model, here is a high level overview of the SaaS provider business model and some of the strategic options that are in there.
Business Model Canvas
The business model canvas has nine basic building blocks and specific relations between those building blocks.
As examples in this article I consider two hypothetical SaaS providers. The first one delivers bookkeeping software, the second one delivers a project collaboration platform.
Customer segments (CS)
In the Business Model Canvas, “Customer Segments” are the groups of customers that the company ultimately serves, i.e. the ones that consume and pay for the services. It is characteristic of the SaaS model that this could basically be anybody, not just IT people. Let us just remind ourselves that customers here are the ones that use the service to get their business done, or get their personal lives in order. In a business context we often also have to distinguish between the user and the organization that purchases the solution. This is very likely true in the case of our bookkeeping software company.
Value Propositions (VP)
The value propositions reflect the customer problems and needs. This is the central element that describes why the customer would ultimately pay for the product or service.
The essential characteristics of cloud computing may or may not relate directly to the core value proposition of the software application. The core value proposition in our first example, automated bookkeeping, is unrelated to cloud computing. Of course cloud computing’s characteristics give the SaaS proposition an edge above its direct on-premise alternatives even if the functionality would be the same. Self-service provisioning leads to quicker time to deploy, more scalability in usage (whether accounts or transactions), lower investments or commitments, and potentially lower cost.