Software as a Service (SaaS) has been touted for several years now as the promise land for software companies due to rapid application deployment, consistent cash flow, and market growth prospects. Recently, the jargon has changed to be cloud computing but the general idea remains: SaaS is a multi-tenant applications hosted remotely and accessed through the web.
Now, for traditional software vendors making the transition, or new companies, SaaS has some hidden challenges that should be considered. Let’s look at a few of them now:
- Multi-tenant applications are more complicated than single tenant applications (multi-tenant means multiple customers share the same application and database)
- Applications need to be monitored 24/7 requiring more labor
- Choosing the wrong hosting provider, or a hosting provider that goes down regularly, reflects poorly on you and customers don’t care if the downtime isn’t your fault
- Billing is complicated — billing schedules, up-sells, credit cards, etc require a fair amount of work to maintain
- Growing the business is more capital intensive as customers are essentially financed over the life of their involvement since they don’t pay for everything up front
I recommend evaluating these hidden challenges when evaluating the creation of a SaaS business.
David Cummings on Startups 
Hey David,
These are excellent points. My company is currently trying to get an SaaS product off the ground. Would you like to grab lunch one of these days? We’re looking for some guidance, and I think you might find our ideas interesting.
Feel free to email me at justin at justinratner dot com.
-Justin
Thanks Justin. Send me a note on Twitter and let’s set up a time to talk.