What Is SaaS? Software As A Service Explained (In 9 Minutes)

About this video

Martell, who says he has been building SaaS companies for 23 years and created SaaS Academy, explains what SaaS means after his friend Marty asked him. SaaS stands for software as a service: software delivered over the internet through a web interface or mobile app, not installed on local servers or client-server terminals. He traces the shift from buying servers and licences and installing them in a server room, through ASPs (application service providers) who hosted software for others, to SaaS where one company hosts a single multitenant codebase and charges a monthly, metered subscription — pay by the drink rather than buying the jug. He says SaaS is preferred for four reasons tied to Opex versus Capex and tax write-offs, time value of money (avoiding a $2-3 million upfront ERP investment), speed of deployment (starting a trial and going live the same hour), and because success with the software shifts onto the creator, driving better interfaces and 7, 14 or 30-day trials. He cites Marc Andreessen’s line that software is eating the world, gives Canva as an example at $10 or $15 a month, and claims the industry grows 40% year on year, SaaS valuations are five to 10 times top-line revenue versus one times for restaurants and 0.7 for services, and the average SaaS business makes 87% gross margin. He closes by offering his free idea to exit mini course on identifying, pre-selling and prototyping a SaaS.

Key takeaways

• SaaS is software delivered over the internet by subscription, not any subscription product — it has to be a software tool
• SaaS replaced buying servers and licences and the ASP hosting model with one hosted, multitenant codebase and metered monthly pricing
• Buyers prefer SaaS for Opex tax treatment, time value of money, speed of deployment, and because product success becomes the creator’s responsibility
• Martell claims SaaS grows 40% year on year, trades at five to 10 times top-line revenue, and averages 87% gross margin
• Subscription economics require creating so much value each month that customers renew and refer others, funding reinvestment in the product

Episode details: published February 15, 2021 · 11:07 long. Summary written by Self Growth Videos from the episode itself. Business results and any income figures mentioned are Dan Martell’s own claims, shared for education — they are not typical or guaranteed.

← Previous: How To Retain Loyal Customers with Wes Bush @ Product-Led - Escape Velocity Show #47 · Next: How To Raise Successful Kids To Be Winners →

All Dan Martell videos · Dan Martell profile · Dan Martell (official site)