SAAS Bubble: Disproportionate Pricing

I believe we’re experiencing a significant bubble in software as a service (SAAS). Software as a service is essentially cloud based software. Rather than buying a program to install on your local PC, you buy access to a program which runs on the cloud (in your web browser), so you get access to it from every PC, and it constantly improves and updates.

I use a lot of SAAS in running my business. For example, we use Xero to manage our bookkeeping, Geckoboard to run our KPI dashboards, Dropbox to sync and backup our files, Google Apps to manage our email, Yammer for internal communication, Trello for task management etc etc. It’s fair to say that we’re dependent on SAAS solutions to do business in the way that we work.

However, what I notice most about the market is the disproportionate pricing models that are currently being used. For example we get Google Apps, Trello, Yammer for free, Dropbox for £62 a year, but Geckoboard costs us £142 a year and Xero costs us £264 a year. Google Apps is arguably the most important, Dropbox is pretty important, Xero is as well – but it’s hard to put an exact figure on that. Could we live without any of them – sure, but we choose to use them because they are good for our business.

However, the one that really stands out is Geckoboard at £142. Geckoboard is a dashboard service. We pull into it our most important data, and it displays it nicely on a single screen, or set of screens. Pretty mundane task, but not cheap at £142 a year.

Is it worth it – yeah maybe, it certainly adds value. However, Microsoft Office, which is arguably more important to businesses, costs £100-450 one off fee. At the low end of the market, Geckoboard costs 1.4x as much as Office, but you don’t keep the product forever for that, you need to pay that every year! In fact, as soon as you stop paying, you lose everything – it’s a service.

I believe this is down to ease of access, and somewhat disguised pricing. It’s so easy to sign up for the 1 month free trial, stick in your credit card details at the end of the process, because it’s only $19 a month – $19 isn’t that much is it?

We become fixated on the monthly cost and make our purchase decision based on that. However, if the signup page said “this service will cost you £710 over the next 5 years”, you probably won’t bother going much further.

I see this all over. For example, OrderPipe which does something like Geckoboard but only for ecommerce sales has two plans $19 a month and $199 a month! MixPanel an online analytics app wants $350 a month if you have more than 10,000 users a month! If that’s ecommerce, and you get a conversion rate of 2%, that’s 200 sales a month, or 6 a day – a decent little business. Is $350 a month, or £2,625 a year really a reasonable price for analytics software!?

I believe that this disproportionate pricing is pretty widespread as new companies emerge into industries which they may even be defining as they grow. However, as competition increases, and people start to realise the true cost of running these services, I believe that things will start to change. Our SAAS bill will be around £3,000 this year. £3,000 on software a year is really pretty crazy for a business our size when you consider none of it actually improves sales directly.

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