Introduction to SaaS Business Models

What is Saas?

Software as a Service (SaaS) is the business model of today. According to a study by Virayo, over 80% of businesses use some SaaS application. SaaS applications run in the cloud, and they are often accessible both through a web interface and desktop and mobile apps (as needed).

End users and their leadership teams gain access to these powerful online tools in return for a recurring monthly fee. SaaS companies benefit from the recurring revenue and can roll out new features as soon as they’re ready.

What’s a SaaS Business model?

Many companies provide their software as a service (“SaaS”).

The SaaS business model is often based on a combination of free and paid proprietary software. SaaS open-source companies sell solutions using a free and open distribution strategy. Developers can download our software directly from our website. Some features of our software can be downloaded and used free of charge. Others are only available through paid subscriptions, including proprietary features and support. These paid features can be unlocked without the need to redeploy the software. There is no free subscription tier in our cloud offerings, where all subscriptions are paid.

Some open-source companies build a separate enterprise version of an original open-source project or offer professional services to help users get the most out of it.

How do they develop it?

All open-source companies develop and test a robust codebase over which they maintain control. They believe that maintaining complete control over the source code enables them to create better products for our users and customers. But that doesn’t mean it’s restrictive. Often, a community of developers and engineers helps improve the source code.

Many open-source companies also generate revenue from sales of subscriptions above their “free” version. They offer various paid subscription tiers that provide different levels of rights to use proprietary features and access to support.

How do they support it?

In many cases, open-source companies do not sell support separately. Their subscription agreements for self-managed and cloud deployments typically have terms of one to three years, and they usually bill for them annually in advance. Their customers may also purchase subscriptions on a month-to-month basis without a commitment, with usage billed at the end of each month.

How do they sell it?

A Saas Company’s sales and marketing efforts start with developers and users who have already adopted their software and then evolve to departmental decision-makers and senior executives with broad purchasing power in their organizations. These actions help many open-source companies build a powerful commercial business model. Open-source customers often significantly expand their usage of these open-source products over time and become quite passionate about the software and the projects to support that software over time.

How do SaaS companies grow?

Customer expansion includes increasing the number of developers using their products, increasing the utilization of their products for a particular use case, and applying their products to new use cases. Open-source companies often have a sales force that focuses some of their direct sales efforts on encouraging expansion within their customer base.

Updated on June 27, 2023

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