David Cummings on Startups

The Three Stages of Evolution for SaaS Markets

Written by

David Cummings

in

,

After watching the email marketing world for over a decade now, I’ve come to identify three stages of market evolution. These stages are applicable to other Software-as-a-Service (SaaS) markets as well but email marketing is uniquely suited since the market grew up with the Internet and didn’t have an installed software background like others (e.g. accounting software).

Here are the three stages of evolution for SaaS markets:

  1. Broad, enterprise-strength products. Think Responsys where you have a high-end, infinitely flexible product that’s a private Oracle database instance combined with a powerful front-end. The product does its job well and is very complex.
  2. Turn-key, fairly easy to use products. Think Mailchimp where you have an affordable, straightforward product that’s a magnitude less expensive than the incumbents while still meeting the needs of most businesses.
  3. Vertical-specific, specialized products. Think Sailthru where you have a product that is tailored for the publishing industry with a heavy emphasis on personalization and delivering content to users based on their previous engagement.

This evolution makes sense as the early startups invent the market and thus go to the large companies, which are willing to pay the most money for the technology. After the market is more defined and well understood, new entrants emerge and take advantage of technological enhancements that have gone on in parallel (e.g. open source, processing power, cloud computing, etc) to deliver a similar service with a better experience at a lower price. Finally, with the generic technology mainstream, in this example email marketing, nuances and applications that are vertical specific get applied to add even more value in a more specialized segment of the market.

SaaS markets for many applications beyond email marketing are maturing and I believe we’ll see more vertical-specific applications as a result.

What else? What are your thoughts on the three stages of evolution for SaaS markets?

Comments

3 responses to “The Three Stages of Evolution for SaaS Markets”

  1. Adam Avatar
    Adam

    Geoffrey Moore describes this well in “Inside the Tornado.”

    – Crossing the chasm. Take a vertical approach and build a beachhead.
    – Mainstream: Once you’ve found product-market fit, make the product general and sell to as many different industries as possible.
    – Defensive: As the market matures and competition begins to encroach, hunker down and defend your specific verticals with +1 solutions.

    It’s a good read.

    Reply
  2. rkischuk Avatar
    rkischuk

    This is super-interesting. From a web and social perspective, we’ve thought of Microsoft FrontPage as the v1 of web publishing, and lots of interesting stuff came after that. WordPress, Magento, etc.

    From a social perspective, Buddy Media, Vitrue, etc look like v1. Hootsuite looks like the slimmed down, easy to use and cheap v2. We’re building the 3rd generation with Badgy – honed social tools to meet the specific needs of ecommerce marketers. It’s early. The leading social media provider to Internet Retailer 1000 companies is Buddy Media, a 1st generation vendor, and they only have 4 customers in the top 1000.

    Reply
  3. Robert “kebernet” Cooper Avatar
    Robert “kebernet” Cooper

    Sorry, I just don’t buy this tier system at all.

    “Broad, enterprise-strength products.”

    Maybe in the most narrowest of scopes. However, much like Windows NT ate the bottom out of Netware, SaaS in a lot of organization starts from the bottom up. Dropbox, depending on your perspective, Gmail, even smaller things like Slideshare or Smartsheet start as bottom feeders: eating the smallest of the SMB market, then slowly gather steam and features until they are (gawd I hate the term) “Enterprise” ready.

    On the other end. vertical applications spawn fully formed and they make or break on their own, in a lot of ways, independent of the common feature set of a class. My previous employer, Reach Health, has a pretty killer product… now. But they hobbled along with a horrible vertical product for conferencing and data sharing for *years* before they got their act together, and are dominant in a number of markets because one integrated solution, no matter how bad, for a vertical is better than a cobble together solution.

    This tiering works pretty well if the first “S” in “SaaS” is something big and expensive and highly customized. If you are talking about something either “basic as plumbing” or “cross domain” at all, it crumbles pretty fast.

    Reply

Leave a comment

This site uses Akismet to reduce spam. Learn how your comment data is processed.

More posts