Value-added SaaS: Is this SaaS 2.0?

June 9, 2008
By Joshua Greenbaum

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These are just two examples of value-added SaaS among a growing list, a list that will get bigger and bigger as the value of enhancing pure-play SaaS becomes better understood.

Of course, the concept of value-added SaaS doesn’t invalidate the existing non-value-added SaaS vendors, no more than commoditization invalidates any vendor. What value-added SaaS does invalidate are vendor business models, supported by premium pricing schemas, that are predicated on a non-value-added offering.

In other words, pure-play SaaS will succumb to commodity pricing models as value-added offerings soak up more of the innovation spend.

We’re seeing some beginnings to this commoditization threat in the relative cost structures of vendors like Zoho and Microsoft CRM versus high-priced Salesforce.com, even before the value-added effect takes hold. Interestingly, I’ve yet to see a pure play CRM SaaS offering that has this value-added component, though if anyone out there knows of one I’d be very interested in hearing about it.

So is this SaaS 2.0? I think so, in the true sense that value-added SaaS represents a next-generation refinement on what is becoming a tried and true commodity play. The notion of adding value based on a network effect isn’t new, but doing so in a low TCO play like SaaS makes it doubly attractive.

The next five years or so will solidify this shift, and put some valuable perspective on the idea that all a vendor needs to do to succeed at SaaS is do on-premise with a lower TCO.

Innovation above and beyond on-premise will define the next generation of SaaS offerings, and their presence will add tremendous value to the market, and to the customers and partners who help make the network effect possible. Value-added SaaS is going to benefit everyone, except maybe the poor pure-play SaaS – and on-premise – vendors stuck trying to compete against it.