I'm considering developing a freemium SaaS application starting with one paid tier at $1 per computer per month. There are already SaaS products in the market that don't have my product's specific feature set, but if they wanted to, they could easily add it. I can envision future paid tiers at higher levels, and also this product might help sell my firm's consulting services. How do I evaluate whether this is a worthwhile pursuit?
Product designer for 10 years. Chief Product Officer for 4. I've done lots of MVPs and market tests.
Read the book "Lean Startup"
You want to get your idea in front of customers with as little sunk cost (usually hours of dev) as possible. So mock it up, make a presentation, maybe create static UI pages, create a landing page, etc. Whatever you need to convince a potential customer that it is real.
Then go meet with potential customers. Pitch them the product and the price and ask them to buy or switch. You can ask for several "real" things with a fake product:
• Time to meet / discuss (time is valuable)
• Money (position it as a pre-order to be top of the list).
• Reputation (ask them to refer you to another customer).
They'll probably say no, but through that process you'll learn more about your customers, their priorities, their perceptions around pricing and competitors.
Related – $1/computer is dead cheap. If this is in-fact a beachhead for your consulting service – consider giving it away for free. Or raise the price :)
You answered the question yourself. Preexistence of similar product is an indication of the demand. Given that your product have some additional feature, you should try to leverage the same and gain first mover advantage. Once you hit the tarmac you'll see other ideas evolving within yourself to maintain that advantage.
Secondly, there's nothing called good or bad idea. What fails an idea is absence of optimum planning and poor execution. Make sure you plan your road ahead into small achievable milestones.
Hope above should be of some help!!
One element of your question would concern me; if an incumbent sees your success, they could easily add your unique feature. If it really is just that simple, it seems like a risky project.
On the other hand, if you also have a lower margin business model that your competitors can't easily match then that risk is mitigated. For example, you launch with free base product and $1+/month for extra features whereas they are $10/month basic. It's hard for a company to come down in price like that (see Innovator's Dilemma).
Of course there are other factors, but that one stood out.
