SaaS — instantly delivered, subscription-based software — has officially taken over our professional lives. But it’s also well on its way to now taking over our personal lives.
It’s no secret that subscriptions have been around for decades. Remember milkmen, magazines, and marmalade-of-the-month clubs? Today, it’s software products like Netflix, Pandora, and even Xbox Live. However, with the smartphone at the center of our lives–and the ability to transmit credit cards securely via SSL and conveniently via mobile–we are now able to frictionlessly consume such products. And we’re even coming full circle here because it’s not only “bits” being delivered in the form of digital products such as video, music, and games but also “atoms” in the form of physical products (think PillPack for prescriptions, Soylent for food, or Bevel for shaving) and services (like AltSchool for education, Campus for housing, or ClassPass for fitness).
Some might think of all this as just subscriptions, but it’s actually more like SaaS (software as a service) than many realize because you can acquire users just once and retain them for the long haul. That’s why SaaS on the consumer side — what I call “Mass SaaS” — is useful to understand.
Consumer Business Models
Most consumer business models can be broken down into the following three categories (or some combination of them):
Free. This is how we access much of the web today. Think Google, YouTube, Imgur, and Buzzfeed–mostly powered by ads, for better or worse.
Purchase. This is simply buy once and use forever. Think shrink-wrapped software such as the Microsoft Windows boxes we saw on Best Buy shelves or paid mobile apps like Minecraft or Dark Sky.
Transactional. This is buy as you go: a ride to the airport (Lyft), your groceries (Instacart), a call to the doctor when you can’t leave your house just yet (Doctor-on-Demand); or even the digital version of tokens at an arcade (aka in-app purchases).
But why be limited to just these three models? In this age of recurring services, can’t we just get the things we use — the things we want — without having to think about it every time? For startups, it’s ideal when consumers think this way because it means not having to keep “selling” to those customers over and over and over again. Instead, convince the buyers once … and keep them for years.
And that’s where “Mass SaaS” comes in. Buy once; pay routinely (sometimes even subconsciously). Consumers love it because they can set it and forget it. Founders love it because they can acquire users once and get predictable revenue in exchange, as long as they can retain those users by improving the product, delivering stellar customer service, and/or by simply offering more for the money.
Amazon Prime is perhaps the ultimate — and most successful — example of this. Once you realize that Amazon can be your one-stop shop for everything, you’re willing to pay nearly a hundred dollars upfront for the service of unlimited delivery. Then, by continually improving the members-only offering by adding services such as streaming video (Prime Video), ebook checkouts (Kindle Unlimited), and one-touch buying of physical goods as you run out of them (the upcoming Dash), Amazon keeps users hooked via these retention drivers, despite increasing the price of Prime from $72 to $99 a year.
Amazon is basically an all-you-can-eat buffet of services both digital and physical, delivered via Mass SaaS. There are now over 40 million estimated customers who do less comparison-shopping and more purchasing via Prime compared to competitors who don’t take advantage of the Mass SaaS approach. This is probably why eBay and Wal-Mart announced their own loyalty programs as well; clearly, they too see the value in adding a Mass SaaS component to their business models.
Making Mass SaaS Work
Mass SaaS seems to work best when consumers can: plan their frequentconsumption ahead of time and enjoy a bundled set of tiered offerings, all at fixed prices. That’s a lot, so let’s break down each of those:
Planned: In an effort to save money–and make fewer incremental decisions–consumers are increasingly planning ahead by doing the math, figuring out how many times they might actually use a product in a given period. For example, instead of paying Instacart for every weekly grocery delivery in a year ($3.99 x 52 = $207.48), a consumer can instead opt to pay $99 a year for unlimited deliveries with Instacart Express.
Frequent: Predicting one’s frequency of use for a particular product or service is an exercise that some of us can do well and others can’t. But that’s actually something founders can count on. In fact, under-utilization of an offering–which is very common–helps increase profitability (especially for Mass SaaS businesses that require labor to fulfill physical delivery).
Bundled: The ability to choose from a bundled set of options within a single product is a powerful retention driver. It acts as a one-stop shop for all options in a category–whether those options are comprehensive (like Amazon’s “everything store” or Netflix’s nearly 10,000 titles) or curated (like Gobble’s pre-selected menu items or Peek’s high-quality activities).
Tiered: Presenting specific pricing tiers gives consumers more flexibility, just as in a cell-phone service: If you consume more data than your current tier allows, then upgrade to the next level. With Netflix, families can upgrade from two to four concurrent screens (at $7.99 to $11.99 a month, respectively) with a single click. The simple ability to move up or down the “all-you-can-eat” stack anytime you want lets customers more easily consume Mass SaaS products.
Fixed price: The psychology of small, recurring payments–automatically billed monthly or even annually–is powerful. Founders clearly benefit from that predictable future revenue stream in the form of annual recurring revenue (ARR). But consumers also find it more palatable as they’re able to count on a preset price appearing on their monthly credit card bills, allowing households to better manage their budgets without surprises.
Perhaps every business should have an ARR component.
All of the above is just like SaaS in the enterprise, but applied more rigorously to the consumer world. Bottom line, SaaS may prove to be a mutually beneficial model for both founders and customers. I think that intersection–enterprise SaaS products with a consumer slant or consumer products with an enterprise SaaS slant–is very interesting.
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The entire world is clearly going subscription-crazy. Which begs the question: which other consumer products could benefit from Mass SaaS? What if YouTube does, in fact, move ahead with its rumored $10 a month offering? What if Starbucks took its card to the next level and launched a full-fledged subscription along with their recently announced delivery service, courtesy of Postmates? Starbucks’ auto-reload feature would be a good foundation from which to start. And many people can’t wait to see what Apple has in store for us as they embrace the move from the more “transactional” iTunes to the Mass SaaS-like Apple Music service.
Mass SaaS is merely a logical step in a world where our subscription and delivery behaviors are all facilitated by the smartphone. But integrating SaaS into a consumer business isn’t a magic bullet; businesses will face challenges as they still need to constantly improve products, operations, and overall offerings. Customer acquisition is important of course, but as all good enterprise SaaS founders know, customer success becomes the top priority because it’s significantly easier to retain a customer than to acquire a new one. Likewise, customers still need to feel they’re getting a positive return on their investment. Otherwise, they’ll churn. Period.
As Larry Gadea from Envoy recently told me: “When people give you money regularly to use your product, that means they really love what you’re doing. And that’s everything.”
This article originally appeared in Inc.