• cloud
• sales process
• servitization
• software as a service
• software business

The software industry has been in a transition towards a software as a service (SaaS) business model since the evolution of cloud computing. There are growing amounts of SaaS solutions on the market and traditional perpetual software license sales are facing uncertainty with pressure raising from the competition, customers’ expectations, and the business environment. Competition is forcing traditional software companies to transform their way of working and look for a new business model that forms partnerships with a focus on service rather than a past product-feature approach.

The software as a service market is expected to grow from USD 130.69 billion in 2021 to USD 716.52 billion in 2028 at a CAGR of 27.5% during forecast period.

This increase is up to fivefold. A change of this magnitude for companies is never a simple undertaking. Companies need to consider a multitude of aspects when they change their role toward their existing customers and become service providers. For existing software vendors, success is dependent on finding a balance of positively moving the customers towards the service-based offerings, while ultimately retaining their customer base.

Software as a service business model

Cloud computing has enabled software companies to offer their solutions in a service-based model. SaaS is an embodiment of servitization in the software industry. Servitization of software offerings allows software vendors to expand their business opportunities (Ojala, 2018) and make them more flexible (Green et al., 2017) shifting the product into service focus.

The service-based business model enables software companies to advance their understanding of customers and gain a competitive advantage. Service-dominant logic is behind the SaaS business model and at its heart, the identification of service, the application of resources for the benefit of others, as the common denominator of economic exchange (Vargo et al., 2017.). Companies looking for successful service-dominant logic-based strategies are dependent on their ability to develop relationships that enable the integration of resources.

Looking at SaaS from the business model perspective, the underlying concept provides customers with the services necessary for using the software like installation, operation, and maintenance from the software vendor for one recurring fee (Nurkka, 2018). Although, most customers nowadays are relying on out-sourced models where they have similar services provided by partners, which in practice share a lot of similarities to a typical software vendors’ SaaS provided approach. However, the competitiveness of software vendors is often enabled through resource optimization, being able to provide benefits from economies of scale when delivering services to a multitude of customers. One of the consequences of the SaaS model is to enable customers to shift their focus and resources to core business operations. For the software company, adapting to customers’ requirements becomes a clear necessity, as the service value needs to be constantly ensured or customers may stop renewing their contracts and look for alternatives.

Sales in service-based business model

Sales represent key actors and practice in implementing a service-based business model. Sales are shaping customer preferences, and thus advancing servitization. Knowing the customers’ needs and requirements and having ideas on how to facilitate and create value is an important asset. (Palo et al., 2019) Value-based nature of service sales processes demand very specific skills and competencies of individual salespersons (Raddats et al., 2019). Typically, sales teams are much wider on SaaS due to the multitude of discussions involved, but this may also vary depending on the complexity of the solution and service offered.

When selling value, commonly crafting the value propositions requires organizational input and is the responsibility of the company, not of any individual salesperson (Kienzler et al., 2019). However, value may be subjective, and value delivered within the SaaS business model can depend on pricing strategies, organizational aspects, and other elements (Simonsson et al., 2021). Due to resource-intensive sales motion recognizing the customers’ readiness is a key consideration in where to spend the sales effort. Sales are also often incentive driven and having the right targets can make a difference for a company looking to drive a SaaS approach.

Changing the solution from the traditional model is prone to have a fundamental impact on the customer organization, especially in IT, and understanding the potential detractors and influencers can help to steer the sales effort in the right direction. This means that the sales team needs to broaden its approach and having a dialog with the business stakeholders becomes more important.

Customers considerations – why change the (working) model?

There is quite a list of elements that customers are considering as part of the SaaS model. However, as each customer is coming from different background, they may be valuing different elements. Typically, customers consider four key elements such as 1) service quality, 2) costs, 3) technical limitations and 4) cloud characteristics (Kinnunen, 2022). In practice, customers are often having requirements (in sales language barriers), that the SaaS vendors need to at minimum match and often surpass.

Seeking to lift the discussion from pure cost to value-based is often necessary, however, the visibility of value can sometimes be difficult to articulate and require a deeper understanding of the business impacts. Suppliers on one hand often employ customer testimonials as proof of their ability to meet the customers’ requirements.

It is important to acknowledge that the service-based model entails quite a different operative model on the customer side as well. There may be existing arrangements to replace, such as partners providing a set of services sharing similarities to the software vendors offering. This can provide the customer with both an opportunity and a challenge to change the organization and current way of working.

Enabling the Transition

An organization’s success in a strategic move towards a service-oriented organization is based on all the actors, including employees, partners, and customers. Employees and customers need to be viewed as partners in service exchanges, relationships become more critical, and the role of bonding and community becomes more important (Greer et al., 2016). This can be achieved by having an organization that pushes for the same goal and that can get the customer to join this journey and understands customers’ requirements.

The organization in service-based business model is proven to be much wider than in the traditional license-based model, due to the larger scope of services being provided. Companies aiming for a SaaS business model need to ensure that the organization’s development matches customers’ needs with the expertise required.

Having a sales team that understands the objective and believes in the strategy is paramount to success. A company employing SaaS based business model will change its relationship with its customers, and it is necessary to ensure the team it has at its disposal exercises the right targets and has the right expertise. Knowing to overcome customers barriers such as switching costs is essential. Additionally, understanding customers starting points and being able to educate customers on all aspects of the new offering are equally important.

References

• Fortune Business Insights. (2022). Software as a Service (SaaS) Market. https://www.fortunebusinessinsights.com/software-as-a-service-saas-market102222
• Green, M.H., Davies, P., and Ng, I.C.L. (2017). Two strands of servitization: A thematic analysis of traditional and customer co-created servitization and future research directions. International Journal of Production Economics, Vol. 192, pp. 40–53. http://dx.doi.org/10.1016/j.ijpe.2017.01.009
• Greer, C.R., Lusch, R.F., and Vargo, S.L. (2016). A service perspective: Key managerial insights from service-dominant (S-D) logic. Organizational Dynamics, Vol 45. pp. 28–38. http://dx.doi.org/10.1016/j.orgdyn.2015.12.004
• Kienzler, M., Kindström, D., and Brashear-Alejandro, T. (2019). Value-based selling: a multi-component exploration. Journal of Business & Industrial Marketing, Vol. 34, No. 2, pp. 360–373. http://dx.doi.org/10.1108/JBIM-02-2017-0037
• Kinnunen, J. (2022). ERP as Software-as-a-Service: Factors Depicting Large Enterprises Cloud Adoption. CloudComp 2021. Lecture Notes of the Institute for Computer Sciences, Social Informatics and Telecommunications Engineering, Vol. 430, pp. 123–142. Springer, Cham. https://doi.org/10.1007/978-3-030-99191-3_10
• Nurkka, J. (2018). Market reactions to the servitization of product offerings – An event study on the software as a service model. Junior Management Science, Vol. 3, No. 2, pp. 121–150. https://doi.org/10.5282/jums/v3i2pp121-150
• Ojala, A. (2016). Adjusting software revenue and pricing strategies in the era of cloud computing. The Journal of Systems and Software, Vol. 122, pp. 40–51. http://dx.doi.org/10.1016/j.jss.2016.08.070
• Palo, T., Åkesson, M., and Löfberg, N. (2019). Servitization as business model contestation: A practice approach. Journal of Business Research, Vol. 104, pp. 486–496. https://doi.org/10.1016/j.jbusres.2018.10.037
• Raddats, C., Kowalkowski, C., Benedettini, O., Burton, J., and Gebauer, H. (2019). Servitization: A contemporary thematic review of four major research streams. Industrial Marketing Management, Vol. 83, pp. 207–223. https://doi.org/10.1016/j.indmarman.2019.03.015
• Simonsson, J., and Agarwal, G. (2021). Perception of value delivered in digital servitization. Industrial Marketing Management, Vol. 99, pp. 167–174. https://doi.org/10.1016/j.indmarman.2021.10.011
• Vargo, S.L., and Lusch, R.F. (2017). Service-dominant logic 2025. International Journal of Research in Marketing, Vol. 34, pp. 46–67. http://dx.doi.org/10.1016/j.ijresmar.2016.11.001