First time reading? Sign up here.

🍿 Quick Snack

🍔 The Full Meal

The Commoditization of SaaS

Many believe that SaaS has become a commoditized industry, meaning that its products/services are widely available and seldom different from one to another.

There are arguments for both sides of the spectrum:

1) Software is about to become more competitive as an industry.

• Not only will cheaper alternatives for virtually any solution become available, but they will be built VERY fast.

• Case in point: Carta. The company recently got into trouble due to allegations that it had tried to trade customer's shares without their consent. In a matter of two days, an open-source solution was developed.

2) Not everything in Software will be easy to displace. 

• The key word here is "system," which means "a set of principles or procedures according to which something is done."

• People like to use systems to achieve outcomes. So, the good news for SaaS founders is that they can build a defensible business by focusing on outcome-driven solutions. And the harder it is to build or integrate a particular system, the better.

But let's assume commoditization in software is or could be a thing. What is going to happen?

The good news is that "commodity" markets are nothing new, so we can learn from them. In particular, we can learn a lot from milk farmers.

Lesson #1 - 'Value' is a non-negotiable.

• Dairy, as an industry, has existed for centuries, and as such, even though it is a commoditized industry, it does not mean it is not worth participating in.

• However, milk is a product many deem "essential," meaning it delivers a certain value (i.e., there is a willingness to pay). That is why it is a product that continues to exist.

• SaaS products should not be any different. The more value they provide and the more "essential" they become to a customer or process, the better.

• There is only one way to deliver value as a commodity or a differentiated product: by addressing customer's needs.

• Too many founders focus on irrelevant functionality (see graph below).

Lesson #2 - In a crowded market, 'brand' is everything.

• Dairy farmers, for the most part, compete with other local farmers, and there is virtually no opportunity for differentiation. Milk is milk.

• The opposite is true for SaaS. Software products are not bound by geography, meaning competition can arise from anywhere, irrespective of the market you serve.

• When you're competing for demand, all else being equal, 'brand' is their ultimate differentiator.

• There is a reason why you're likely to think of these companies more often than their competition:

  • Airbnb - "Experiential travel at an affordable cost."

    • Competition: Vrbo, Wimdu, Sonder, Homestay

  • YouTube - "Give everyone a voice and show them the world."

    • Competition: Vimeo, Dailymotion, PeerTube, Veoh

  • Spotify - "Unlock the potential of human creativity."

    • Competition: Tidal, Deezer, Pandora, Soundcloud, Gaana, Napster, Apple Music, Amazon Music, Youtube Music

  • Shopify - "From Hello World to IPO"

    • Competition: BigCommerce, Squarespace, Wix, Ecwid, WooCommerce

• To be noticed in a crowd, you NEED to stand out. Period.

Case Study: The $1.5 Billion Screen Recorder

I found this excellent case study on branding from Harry Dry. Here's an abbreviated version 👇

When Loom launched in 2016, it was called OpenVid, and it was just another "easy-to-use screen recorder."

One day, Loom came up with a few observations:

1. The way remote teams communicate sucks.

2. Meetings are boring. Calls drag on. Email lacks personality.

3. The solution? Async video messaging.

The result? A new category was created: "video messaging for work."

Thanks to one simple branding trick, Loom is now valued at $1.5 billion.

🍟 Extra Fries