I just recently got back from the 2007 SWsoft Hosting Summit. There was a general theme at this year’s conference, Software as a Service or “SaaS”. The idea behind SaaS comes from the “ASP” model ( Application Service Provider ) businesses like Hosted Exchange, Salesforce.com, etc. SaaS offers a more customer needs driven solution rather than a provider offered solution as was the case with the legacy ASP model. As SaaS involves web-native customer driven software, it is often referred to as Web 2.0. Isabel Wang spoke at the conference about traditional hosting models ( we give you more and more while you pay less and less ), or the idea that a company offers massive amounts of online storage and monthly data transfer for rock-bottom prices. Offering the customer more and more for less is not a new concept. Telephone companies have been offering so-called no-limit plans for quite some time. The VoiP mogul Vonage, currently offers unlimited U.S. and Canada talk time for $24.99 per month. It’s a dirty numbers game that would destroy most providers if their customers actually used even close to what is being offered to them. Many providers hide actual limits within the fine-print of their TOS policies in order to protect themselves in the event a customer does actually try to take them up on their offer.
SaaS is about catering to the needs of the customer. Let’s use an example customer, we’ll call him Mike. Mike owns a small business offering specialty wines. Mike decides that he wants to begin selling his products on the internet and thus begins researching web hosting options. Mike knows he needs a web site enabled with e-commerce and will need to interface with his credit card processing company in order to accept credit card payments on his web site. Mike narrows his search down to 2 hosting companies, however, these hosting companies are very different in their product offerings. Hosting Company A offers a conventional shared hosting package enabled with unlimited domains, 100GB of storage, 1TB of monthly transfer, a web site building application and a shopping cart application for 7.95/mo. Hosting Company B offers a shared hosting package catered to small businesses looking to bring their retail stores to the web. With Hosting Company B, Mike can use a point and click interface to configure his store, his credit card processing, his products and can choose from several off-the-shelf web site templates or create his own web site and easily integrate with the online store. He can track sales, generate reports, create a mailing list to communicate with his customers and more. Hosting Company B does not advertise any storage or transfer limits and does not make promises it cannot keep, grossly overselling its resources while including actual resource limitations and policies in its terms of service. Hosting Company B charges 59.95/mo for their service.
Hosting Company B offers a customized solution, catered to the specific needs of the customer. They charge nearly 8 times what Hosting Company A charges for what might seem like the same service, however, with Hosting Company B, all the customers needs are satisfied and everything is setup and easy to configure. Our example, Mike, can be setup and running with his online store in just 1 day by choosing Hosting Company B. He also receives 24 hour support from Hosting Company B who is trained in supporting the specific software suites being offered. More importantly, Hosting Company B is trained in supporting the applications they offer as an entire solution, rather than as standalone products. Hosting Company B is not just offering web hosting, they are offering a web hosting solution. Mike actually saves a lot of money by choosing the higher priced Hosting Company B who can cater to all of his needs under one roof. They provide a way for Mike to focus on his business of selling wines, rather than worrying about his web site, meanwhile, generating nearly 8 times the revenue on customer accounts like Mike’s.
Web 2.0 applications enable hosting companies to offer powerful solutions that cater to the specific needs of the customer while generating significantly higher per-plan revenues. While there will always be hosting companies offering web hosting plans with basic conventional features, ambitious companies who wish to compete in the changing market will adopt SaaS style business models offering a range of different hosting solutions.