An insightful post over here that plots the cost of acquiring extra revenue for SaaS businesses. In essence Bob has found through a statistical analysis that once SaaS businesses hit around USD20m-USD50m, they reach a critical mass at which point the cost to acquire extra business falls rapidly.
A similar plotting of traditional players shows the majority of them having points to the right of the SaaS best fit curve – that is it costs them more per extra dollar of sales than it does for SaaS businesses.
The issue then, in terms of profitability, is that SaaS players are all young and in growth and development phases while traditional players are more mature and have already expended significantly on development.
Bottom line…. once SaaS players mature they should be more profitable per dollar of sales than traditional players.
The question that still remains however, and that Bob’s analysis did not broach, is the volatility of the revenue for SaaS players as opposed to traditional players. My view is that a purely SaaS/s play will be sufficiently volatile as to risk never achieving the EBIT plateau. Once again justification for a SaaS/v play
