For Initial Users: Sell User License or make it into SaaS?

SaaS. Always.

I am a founder of a Startup about to launch our first product (mobile app). We looked at this very question. In the end we looked at the impact the decision would have on our company's valuation. Based on my initial, informal discussions with funders in my area (Canadian Atlantic Region) with single point of sale revenue a healthy technical start up is worth approximately 4-6X annual revenue whereas the same company with a subscription or SAAS model is worth 10x and up.

Always default to SaaS and only offer one-off licenses in exceptional circumstances.

Is your product for individuals, SMB's or larger enterprise?

I've spoken with many entrepreneurs who have sold products on a per-license and all of them are either in the process of transitioning to, or are already, selling their product under a new SaaS model.

The cloud infrastructures in place today make launching a SaaS product much, much easier for the average developer. The common term for these is "PaaS" or "Platform As A Service" and they vary from very 'generic & flexible' cloud platforms like Amazon Web Services (AWS) or Digital Ocean, to more specialised services like Heroku (Ruby on Rails), MongoHQ (MongoDB databases), PagadoBox (PHP).

All of these services have some kind of free tier for getting a new app started and for development, and then have very granular pricing for slowly scaling the cost of your cloud hosting with the size of your offering.

Nearly all platforms offer redundancy once you're on a paid tier, meaning if their physical hardware has a failure, your app will automagically be moved to a new piece of phsyical hardware and thus you'll have minimal/zero downtime. As you scale up, you can make this even more sophisticated with the right sys admin team working on it for you.

If you're launching a pretty simple B2B SaaS app like a project management or invoicing app, then your hosting costs will be negligible compared to your scale & revenue (excluding employee cost to manage). If you're launching something that involves media (pictures, videos, MP3's) then even on cloud PaaS, your hosting costs will still be quite significant, and you should have a chat with someone to estimate your costs first.

I built a SaaS product (KeepMeBooked) which was specifically targeted at people using traditional installed software (owners of guesthouses and B&Bs using Outlook or some other old-school calendar system installed on their PC to manage their guests and reservations).

It sounds like you are considering this problem from the point of view of what’s best/easiest for you. Might I suggest that you look at it from the customer’s point of view?

For the customer, is your product more useful as an on-premise installed product, or as SaaS tool?

(I’m assuming, by the way, that when you say ‘individual user licence’ you mean the user installs and hosts the software on their own computer(s). So we are comparing SaaS with on-premise software here, is that right?)

In my experience, almost all software solutions work better for the customer if they are SaaS: no installation issues; access from any internet-connected computer; everything safely backed up in enterprise-grade data centre; no version control problems; etc.

The few exceptions to this are typically where you need fast data-entry and rapid processing. For example, I use Google Spreadsheets for simple little spreadsheets, but go back to Excel if I need some hard-core number-crunching. Waiting a few milliseconds after each action in Google Spreadsheets slows things down too much for me.

Or where the customer is extremely sensitive about their data and won’t countenance it being controlled by someone else, however safely and carefully you look after it.

So, I’d suggest, you outline how a SaaS solution for your product would work and talk to your customers about whether it will solve their problem better than an installed product. They might not know, of course, so you’ll have to ask some careful and probing questions. As Henry Ford said, if you ask the customer what they want they’ll tell you to build a faster horse.

You’ll need to find out if accessing the product from any computer is useful to them, for example (do your customers work from an office and from home? Do they often change / upgrade their computers?) And what backup solution do they have with your installed product? Is that backup solution safe and reliable? Would your SaaS solution be better from that point of view? And so on.

If it turns out that a SaaS solution would be better for your customer, then it “just” comes down to you figuring out how to implement it.

Hosting and bandwidth shouldn’t be too much of an issue these days. There are plenty of wel-established cloud platforms (like Amazon EC2 and Heroku) where you just pay for the computing power and bandwidth as you need it, and you don’t worry about the details of the physical infrastructure. I’m no sysadmin expert, so can’t really advise on pros and cons of having your own hardware in Rackspace compared to running a load of EC2 instances. But I’m sure you can find someone on Clarity who is. In my businesses we’ve used BrightBox (a managed hosting provider in the UK), Amazon and Heroku, all of which were excellent. We also used NewRelic and Pingdom to keep an eye on everything 24/7 and troubleshoot performance / availability issues.

Hope that helps. Happy to take a call if you'd like to speak further.