David Cummings on Startups

The Massive Differences Between Installed Software and Cloud Startups

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David Cummings

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Being in the installed enterprise software world for a decade and the cloud/SaaS world for over five years now, there are massive internal differences between these two types of startups. The business models are inherently different, and should be viewed as such, even though both are full scale software companies.

Here are some of the massive differences between installed software and cloud/SaaS startups:

  • Installed software companies typically provide releases every 3 – 18 months whereas cloud/SaaS startups push releases multiple times per day creating a different dynamic around time-to-market and scope of functionality
  • 10% – 20% of engineering efforts for installed software companies are for debugging issues that are network or environment specific compared to cloud/SaaS companies that control all aspects of the data center hardware
  • Installed software vendors often have more lock-in and higher switching costs compared to cloud/SaaS vendors  due to the heavy customization and internally managed servers
  • Getting the majority of the lifetime value of the customer up-front with installed software makes it easier to cross the desert to profitability, but creates lumpier quarterly revenue and predictability compared to cloud/SaaS startups with recurring revenue

Installed software and cloud/SaaS startups have massive differences, and startups should think through the pros and cons of each.

What else? What are some other differences between installed software and cloud/SaaS startups?

Comments

2 responses to “The Massive Differences Between Installed Software and Cloud Startups”

  1. Mark Travis Avatar
    Mark Travis

    David, what is your experience with companies who offer the same product as installed software as well as hosting a SaaS service?

    I’m currently developing an HTML based statistical analysis package that I’d originally planned to offer only as a SaaS offering, however, some larger customers want to install in-house. So, it looks like I may serve small and medium sized customers with a SaaS offering, and larger customers with an installed version.

    I see my potential obstacles as:
    1) Potential to have to maintain multiple release versions
    2) Fragmented support structure – one way for SaaS and another for installed

    The other is pricing. With SaaS, it’s a subscription model. With installed software, it’s usually a large up-front investment with maintenance fees in the 15% to 25% range in the out years for dot releases and a bit more for full releases.

    Any other gotchas or words of wisdom?

    Reply
    1. David Cummings Avatar
      David Cummings

      Great question Mark. I don’t have any experience offering both. My guess is that you’d revert to the installed software as driving the ship since it is more cumbersome and your SaaS offering wouldn’t be able to move as fast.

      Reply

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