In today’s tough economic scene where cash is king, everyone is being driven to conserve cash. As a result, buyers are asking for discounts from their vendors, converting from CAPEX to OPEX or license optimization or a combination of these. Any of these mechanisms can reduce revenue for the ISV. CAPEX to OPEX movement is of specific interest recently as this usually leads to discussions on pay-per-use and/or subscription pricing models. ISV’s typically think of migrating into SaaS offerings when they consider offering these new pricing models. Offering SaaS has its own set of challenges including requiring a hosting infrastructure, collecting payments, R&D efforts to build the new SaaS platform and its impact on current product roadmaps.

It would be nice if ISV’s could offer the new pricing model without having to invest in SaaS R&D. The ability to do this is what I refer to as “Virtual SaaS”.

“Virtual SaaS” is a holy grail quest of sorts for ISV’s who on one hand have almost all of their current revenue coming from perpetual license sales but are being asked about their SaaS story. Consider the situation of an ISV –  either they have to split their current R&D budget to fund the SaaS development and take a hit on the product roadmap (either in terms of feature scope or timelines or both) or they have to increase their R&D budget to fund the SaaS development. Both of these options are usually not amenable to the ISV and makes them apprehensive on any viable strategy around pay-per-use and subscription pricing models.

However, technology currently exists that allows ISV’s to deliver the same software packages that can be sold in perpetual pricing models,  in pay-per-use models, and/or subscription pricing models, hence facilitating “Virtual SaaS”.   This gives the customer a SaaS pricing model experience while maintaining their software on-premise.

The disadvantage to this model is relatively clear – the end customer still needs to install and manage the product at its end.

It does however come with numerous advantages:

  • Allows ISV to test the market appetite for pay-per-use and subscription pricing models without getting ahead of themselves
  • Allows the end customer who is not ready to move completely to the cloud to keep all the data locally/in-house
  • Allows the end customer to have the application running locally

Depending upon what your market is asking for, you may be better off taking an intermediate step to “Virtual SaaS” rather than going directly to SaaS.