Venture Capitalist at Theory

About / Categories / Subscribe / Twitter

3 minute read / Aug 23, 2017 /

Has SaaS Become Commodified?

A founder asked me if we had reached the point that SaaS is commodified. “Can you build a venture scale SaaS company anymore?” He made three key points to support the argument.

First, the technology barriers to starting a SaaS company continue to fall. Amazon, Google and Microsoft provide sophisticated, scalable, and easy to use infrastructure as a service. Next-generation machine learning tools are also available by API and improving all the time.

Second, the customer acquisition playbook is well known. Whether it’s Predictable Revenue written by Aaron Ross or Mark Roberge’s The Sales Acceleration Formula, or others, authoritative texts describe step by step how to structure, manage and measure a SaaS sales team. Consequently, this go to market model is no longer a differentiator in the market.

Third, the costs of customer acquisition have risen. Whether it’s Facebook ads, LinkedIn ads, Google search engine marketing and retargeting, email marketing, or outbound calling, all of these channels bear some hallmarks of saturation. Response rates are declining, depressing conversion rates, and raising the cost of customer acquisition. The surge of venture capital in the last five years worsens this predicament.

These three points are all true. I will add another. The sheer number of vendors overwhelms potential buyers. Distinguishing one from another is hard. Marketing messages overlap, sales pitches sound similar, and buyers must use the products in order to truly understand the nuances among them.

This shouldn’t depress you, but exhilarate you. Here’s why.

A product that is hard to sell isn’t the right product. Product market fit hasn’t been established or the product simply isn’t differentiated enough from the rest of the market. As the number of SaaS businesses serving sales and marketing has grown from 500 to more than 4000 over the last few years, saturation is inevitable. So are copycats. If no entrant in a particular category has established product market fit, and budget exists, there must exist an opportunity for a new startup to develop the right product.

Also, if everyone is using the same go to market playbook, there’s an opportunity to develop a new one. Inside sales models. Inbound lead generation through content marketing. Mobile app distribution. Advertising on consumer platforms to drive B2B sales. All of these are advances that go to market teams have developed in the last 10 years. We will see many more. I don’t know what they will look like. Perhaps they will be channel based. Perhaps they will leverage virality and word-of-mouth. I don’t know. But I do know, this is the moment, when everyone else is following the same playbook, to develop a new play.

Both of these statements are simple statements but they are hard. It is hard to find product market fit. Most startups fail because they don’t. Developing a new customer acquisition channel might sound simple, but it’s rare. Regardless, a collection of founders will do exactly both of those things, and in so doing, evolve the software world one more time.

Read More:

The Volatility of Multiples in the Public SaaS Market