A lot of SaaS products are making money hand over fist yet they seem easily replicable. Furthermore, most SaaS companies don't seem to have network effects or any particularly large switching costs. Given these dynamics, why haven't we seen a race to rock bottom SaaS prices in and around $1 like we did with games and paid apps?
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The older and more experienced I get at building things and solving hard problems, the more convinced I am that the "magic" part is in the selling, the convincing, the communicating, the getting someone to pay money for this stuff.
(and if anyone reading this now or in the future is good at that second half, email me, let's be friends and make money)
Hence B2C sales cycles below a certain dollar amount are compressed to: "I want this" + "Can I afford it?" + "I've bought this"
That lowers costs of switching, creating a more competitive marketplace, leading to price as the primary differentiator, leading to the bottom.
B2B differs in a lot of aspects.
With software at least for me I can say give me $100k/year and let me work for 2 years and I will have 80-90% of Atlassian jira.
I don’t think anyone at this point in time can make dozen or so F500 companies to use what I did.
But atlassian has them as customers.
Switching cost is more than you think. For example, I don't like Zendesk it's expensive and over-engineered. But I stick to it because I know how hard it is to port my docs over and re-setup the live chat. It's half a day work. To save $50/mo, it's not worth my time. My focus is growing my company, not to save $50/mo.
I run SaaS and spent alot in SaaS products.
There is enough business churn that switching costs for a going concern alone don't explain a lack of competition if there are wide margins (and thus, lots of room for price conpetition.)
1) SaaS has a running cost; servers, support, devops, and so on You generally have a minimum cost to run a SaaS business. It's significantly less than it used to be, but it's still there. You have to run servers, unlike iPhone Apps that run on the consumers device.
2) The iPhone and Android App Stores were one of the purest environments for Revenue Management experiments we've ever witnessed.
By way of my background, I worked for a while in the transport industry a few years back, and was responsible for the platforms that sold over 4 million tickets online per year. I worked with revenue management teams, so have some experience in this area. And at the time we would discuss the App Store and pricing trends.
My experience does not grant me authority, these are just my observations and opinions :-)
So back to Revenue Management: The market for smartphones and customers for the App Stores kept growing and the distribution model of the App Stores meant it was easy to run global experiments on pricing.
App Developers quickly realised that their Revenue Management graphs showed increased Revenue and Profit when they lowered the price due to the never-before-seen size of the smartphone market. Suddenly software developers had access to millions of customers around the world who would pay 0.99c for an App.
You could entice new customer with low prices, and at the time it seemed like there was a limitless supply of new customers who would pay 0.99c. So as a business you kept on generating more and more revenue.
You could scale out your business to millions of customers at almost zero additional cost. As long as you didnt care about providing any support of course.
Later everyone realised that Advertisers would pay more, and we ended up with trash Adware Apps.
At a former job, we had a rule that if someone claimed something was easy or trivial or the like, they were assigned to accomplish it.
My dad doesn't own a screwdriver.
He was an English teacher but he should have been a software developer, given his ability to estimate project deadlines.
I've been working solo on a SaaS of my own and I've been 1 month away from launch since December 2022. It looked so trivial when I had the brilliant idea, now I'm so deep I might as well take it to completion. Hopefully next month.
Never again will I forget that ideas in a vacuum are worthless compared to the blood, sweat and tears of running a business.
Best way to do this is a pure commodity play. Like something totally replaceable where the cheapest possible option that works is good. I’ve seen many Indian and Eastern European teams try this. Just google “[Some SaaS] vs” and see the products pop up. It’s possible but it isn’t as easy as it sounds.
Furthermore there are a lot of edge cases and special features you don’t see. Special flags they turn on for customers with some special need, or in some industry. Closing enormous b2b enterprise deals often includes a good amount of custom logic and integration that no one else understands.
Most SaaS is B2B, where software is doing real work of some value, and needs are dramatically more complex, but the addressable market is much smaller. In this environment, contrary to your assertion, adoption and switching costs are significant. While there still may be some network effects, much more dominant is general inertia in business where people just want to get their work done and have little tolerance for change. SaaS takes advantage of these dynamics by handling operations and providing ever more features, capabilities and integrations that cement the software's position inside client companies. At some point it becomes almost impossible to change, even for a software that 80% of the users would prefer, because of some un-handled use cases, or minority of internal stakeholders that would stage a revolt.
Like others have also said, trust plays a key role. Companies usually like to stick with a tool that already works and where they know what they're going to get vs taking a risk on a copy-cat to save a few bucks.
Only if you're thinking of the HN/SV bubble. Many, many businesses exist that aren't startups and aren't VC funded, including many software SaaS businesses.
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If your market is businesses with employees, the difference between $1/month and $100/month for a piece of software is a rounding error. This means even something that only saves the business an hour each month, is worth it for $100. Even if you buy 100 of these apps, it’s still cheaper than the all-in cost of a single employee.
Conversely, you could ask the same question about anything. For example:
A lot of [employees] are making money hand over fist yet they seem easily replaceable. Furthermore most [employees] don’t have network effects or large switching costs. Given these dynamics, why haven’t we seen a race to rock bottom in [employee] prices?
Either the market is persistently inefficient for some reason (usually isn’t the case) or there’s something you’re not accounting for in your assumptions.
If you’re one of the people who say things like "Intercom? Pffft! I could spin up a clone in a weekend!," I would say you're in the latter.