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The Value of SaaS Isn't Just Lower Cost

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As a graduate student in foreign affairs in the late 1970s, in the midst of the Cold War, I took a required course, The Balance of Strategic Forces. It was about the strength of the nuclear arsenal of the United States relative to that of the Soviet Union.

I haven't had much occasion to use nuclear-armament knowledge in my marketing career, and much of it is out-of-date... fortunately.

But at least one lesson (about the strategic "nuclear triad") applies to marketing as much as it does to nuclear defense:

Three legs are better than one

During the course, officers from each branch of the military lectured us on the virtues of their particular contribution to mutually assured destruction (MAD).

  1. The Navy explained that it protected us on the seven-eighth's of the world's surface covered by water.
  2. The Army, with responsibility for land forces, reminded us that all the earth's human population lived on land.
  3. And the Air Force's claim rested on the fact that 100% of the earth is surrounded by air.

The main takeaway for me was a good understanding of the "nuclear triad"—the combination of long-range bombers, land-based missiles, and submarines—that composed the US strategic defense arsenal.

Despite its terrifying capabilities, it was colloquially referred to as the "three-legged stool."

Don't build a one-legged stool

There's a temptation for marketers to build the case for their product or service that rests largely on its cost advantages over alternatives. That is especially true of software as a service (SaaS) providers; they are inclined to compare the cost of their solution to on-premises applications. The one-legged case, however, makes for a wobbly value proposition.

For several years, analysts and vendors have been pulling at the threads of a discussion on the cost of SaaS solutions vs. on-premises applications, some arguing that although SaaS may offer a cost advantage over the first two years, the total cost of ownership (TCO) advantage may dissipate over five years.

For one thing, I have suspicions about TCO calculations, and return on investment (ROI) calculators, in particular. Their apparent precision can be used to obscure fundamental flaws in logic.

If you're encountering objections from prospective customers about TCO or ROI, and claims that your SaaS solution is actually more costly than an on-premises application, I'd suggest you carefully examine their calculators.

You may well find implicit assumptions, intentional or otherwise, that will skew the results. For example, they may be excluding the costs of IT specialists required to deploy and maintain on-premises applications.

Along with such considerations about TCO and ROI calculators, when presenting the value of your SaaS solution be careful not to rely too heavily on the advantages of lower cost. They can be elusive. As you learned in Marketing 101 (4 Ps, etc.), price is often the easiest element for competitors to match, at least in the short run.

Marketers need a multilegged stool

SaaS vendors may be able to build a more sustainable case over on-premises solutions by touting other advantages:

  • Greater flexibility to meet fluctuating demand, particularly for applications that have high peaks in usage followed by relative quiet
  • Better access to the application for remote workers
  • Lower risk of a failed or delayed deployment
  • Instant access to the latest product enhancements and assurance that all users are on the same version

When building the value proposition for your SaaS solution, use those other advantages, if they apply. Don't rely exclusively on a cost advantage.

It's hard to sit on a one-legged stool. You're better off building a value proposition for your SaaS solution that's supported by multiple legs, because there's danger in relying on a single strategic advantage over your competitors.


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Peter A. Cohen is managing partner of SaaS Marketing Strategy Advisors (www.saasmarketingstrategy.com), an advisory-services firm. He can be reached at peter.cohen@saasmarketingstrategy.com.

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