Introduction to Software-as-a-Service (SaaS) Product Management

In 2011, I led a session at ProductCamp Austin called SaaS Product Management. A poll revealed that the majority of the audience were managing traditional on-premises products and just beginning to evaluate SaaS as a delivery/business model. Here is a background on SaaS and some of the ideas we discussed in the session:

A Brief History of Innovation Leading to SaaS

In the late 1980s, software was packaged in boxes or installed onto hardware which was subsequently shipped. At IBM, where I worked, software was not valued much beyond its role of making the hardware function. Customers purchased a few software packages and made as many copies as they needed for all their PCs. This wasn't regarded as wrong - the term "software piracy" had yet to be invented.

All that changed with the realization that the profit margins on PCs were modest. Something had to cover the costs of developing the software. A succession of mechanisms were invented to control the copies and these, in turn, gave rise to software licensing. Product Managers, like myself, making the transition from shipped software to software licensing, began to appreciate how much easier it was to send software updates and license keys than manage the logistics of physical products.

Meanwhile, a second component leading to the proliferation of SaaS was emerging. The Worldwide Web (WWW), first conceived in 1990, gave rise to the first e-commerce operations in 1994.

We all know companies like Amazon that were there at the beginning. One less famous company, Software.net, was one of the first companies to sell and license software over the Internet. Their concept for an online shopping cart was so popular that it spawned a second company, CyberSource (now part of Visa), that provided e-commerce payment tools to other companies aspiring to do business online.

By 1999, a number of Application Service Providers (ASPs) were providing networked access to applications by subscription. According to Wikipedia, the SaaS acronym was first used in an article called "Strategic Backgrounder: Software as a Service" published in February 2001 by the Software & Information Industry's (SIIA) eBusiness Division. My work with ASPs and SaaS products began in 1999 and has continued to evolve through advancements of internet accessibility, cloud computing, and Agile/Lean development methodologies.

The Impact of SaaS on Product Management

There are substantial differences between successful management of SaaS versus downloaded or packaged software products.

Market intelligence for traditional software and hardware products are typically gathered through customer site visits and surveys. SaaS Product Managers are more likely to utilize online communities and web/service analytics. Top SaaS Product Managers take on public roles as thought leaders for their products and industry.

All the ramifications of packaging, manufacturing, warehousing, transport and display of physical goods goes away with the move to SaaS. In place of these concerns and logistical skills, a SaaS Product Manager must master an extremely transactional marketplace that includes on-demand subscriptions.

Pricing for traditional products typically assumes an upfront payment with opportunities to adjust pricing and support over the life of the product line. Pricing for SaaS is based on volume and lifecycle projections that are inherently uncertain. Payment for SaaS is distributed over time and is at the month-to-month discretion of customers subscribed to the product. Adjustments to SaaS pricing and support must be handled carefully as they can have immediate and disasterous effects on demand.

SaaS often operates in a crowded field of competitive offerings. When product differentiation becomes too difficult to maintain, SaaS Product Managers must find other ways to create stickiness. Driving customer identification with their product and brand is a critical factor in extending the lifecycle of mature SaaS products.

Lastly, the success of SaaS is more closely tied to the SaaS company's ongoing operations and support. This has given rise to the DevOps role as well as a broader Product Management scope to manage the gaps between software development and support for the SaaS infrastructure, customer onboarding and hosting.