This series of blogs describes considerations for Software as a Service (SaaS) vendors to expand their sales and channels outside their home countries. It discusses SaaS developed for businesses with more than 5 people, which is distinct from software intended for consumers and businesses with 5 people or less. Sometimes, the kind of software discussed in this article is referred to as business-to-business (B2B) software or enterprise software.
SaaS Worldwide Potential and Advantages
Software is uncommonly easy to distribute globally with only minor changes for local markets, in many cases only local language translation. As many software vendors know, local language translation is less challenging for software developed with modern application development tools such as .NET from Microsoft. The main reason software is so appealing for markets all over the world is that customers in countries such as Korea, Luxembourg or Mexico have the same needs and demand the same features for spreadsheets or customer relationship management (CRM) software for sales automation. Note how few products are so easily adaptable worldwide; watches or books are other examples, but there are very few products as easily adaptable as software. Too see how readily adaptable and easily exportable software is for worldwide markets, compare the ease of a customer using a web browser to sign up for a SaaS subscription from anywhere in the world to the barriers and distribution challenges of importing food, packaged goods or automobiles.
There is great potential for SaaS vendors to expand their sales around the world because of the ubiquity of the internet and the “instant” distribution of SaaS products. However, many SaaS vendors don’t know where to begin, have not initiated sales outside their home countries or suffer from unprofitable international operations. There are several key issues SaaS companies should explore to plan and implement a winning international distribution and support strategy. These are detailed below.
For software vendors, SaaS products have significant advantages over traditional on-premise software:
- No physical distribution or installation at customer sites;
- Lower risk of intellectual property (IP) theft of software source code.
SaaS customers also benefit from the inherent advantages of no physical distribution and no hardware deployment. This results in faster ROI as compared to traditional on-premise enterprise software, which requires on-site installation and implementation. The primary reasons SaaS users experience faster ROI are: (1) lower total cost of ownership (2) rapid deployment (3) no hardware required, even as the usage of the application expands across the enterprise.
IP protection for any software company is a crucial business consideration, as the source code is the salient “hard” asset. According to The Global Information Technology Report 2010-2011, published by the World Economic forum and Inseaed, the rate of packaged software that is stolen or pirated still exceeds 70% in some of the world’s fastest-growing markets such as India and China. Software source code from SaaS products accessed over the internet with a web browser are easier to protect than software installed at client sites. Finally, it is also easier to ensure SaaS usage is authorized.
International opportunities for SaaS might seem easily attainable because of no delivery and its rapid acceptance, but there are new challenges for SaaS vendors and sales barriers to overcome:
- Developing a successful licensing strategy and maximizing cash-flow, since payment is spread over the life of the contract on a usage basis;
- Overcoming customer fear of corporate data residing outside the customer’s network;
- Integration with existing applications;
- The customer not controlling application downtime.
To exploit the potential of SaaS internationally requires a new business model to support widely dispersed customers and overcome the new hurdles of the SaaS paradigm. To help SaaS vendors think through the business considerations, some general approaches will be outlined in the next blog post in the series.
The next blog, "Which Territories to Consider for International Expansion" discusses the largest markets for SaaS software.
About the Author
Jay Greenwald is the Managing Partner for International Revenue ACCELERATION, a consultancy that helps on-premise enterprise, SaaS and Cloud software vendors expand their sales, channels and go-to-market capabilities outside their home countries. His enterprise software sales, product and M&A experience spans the U.S. and 65 countries.
Mr. Greenwald has published International Markets for Enterprise Software Vendors: Europe, East Asia, Latin America, Rest of World. You can find this book on Amazon by searching for “Jay B. Greenwald” on Amazon or at this URL.
Mr. Greenwald earned his MBA from Harvard Business School.