From Perpetual to SaaS — Transforming Your Hardware Business
By Burak Cakmak, with Todd Huckabone 5 Minute Read
Are you worried your perpetual hardware business is becoming obsolete?
You’re not alone.
In many cases specialized computing hardware devices like servers and gateways have largely become commoditized, now seen as interchangeable. Commercial Off-The-Shelf (COTS) hardware is a viable, cost-effective alternative for customers, signalling a need for existing perpetual-model hardware companies to re-invent themselves to stay competitive.
Enter SaaS
The current expectation/need for constant monitoring is rendering autonomous hardware undesirable. Asking customers to send back hardware to have problems diagnosed or, even worse, having to send your team onsite to perform these tasks, is a dealbreaker. The need to pivot from the perpetual model has never been more critical. And the option of breathing new life into your hardware business by transforming to a hardware-empowered SaaS model has never been easier when using a proven, enhanced infrastructure platform on which to build your application.
How?
By separating the use of embedded software from your hardware, you can create software that is now seen as a viable standalone, always-up-to-date product packed with extra features and provided to your customers on a subscription basis. And by using an enhanced infrastructure platform to build your application, you will enjoy faster time-to-market, and a sustainable, scalable business with recurring revenue.
Why?
Benefits for your business
Transforming your business from perpetual to SaaS means transforming your revenue stream from perpetual to recurring — increasing its lifetime value (LTV), and resulting in your customers ultimately spending more for your services in the long run. This ongoing relationship will give you a better understanding of your customers’ needs by providing you with feedback, both directly and from continuous logs and telemetry. This valuable customer input will help you refine your product, and the constant connection may also provide you with upsell opportunities.
And if you plan wisely and use a proven platform for your application, the challenges of software and deployment capacity will be handled for you.
Benefits for your customers
By transforming to a SaaS model, you can provide your customers with peace of mind through use of self-managed, self-healing, always-up-to-date hardware.
And you can save them money too; especially if you build on a platform that lets you tie their costs to usage. Moreover, less up-front costs compared to the perpetual model means a more manageable operational cost, instead of your customers having to spend asset acquisition money.
You also help your customers avoid tech FOMO — fear of missing out. With updates and new features rolled out automatically, they will be using the latest version of your product.
Benefits for your investors
Transforming your business from a perpetual to SaaS model will both please your current investors and help you attract new ones. Your business will now enjoy higher enterprise valuations for several reasons: more predictable earnings based on defined pricing tiers, higher customer lifetime value from long-term contracts, and most importantly, the recurring revenue stream from subscription/recurring fees. Simply put, this “gift that keeps on giving” is enticing to investors.
Here are two well-known examples which illustrate how important recurring fees have become to a business’s bottom line:
· In fiscal 2021 Apple reported that combined services such as Apple Music and the App Store generated approximately $68 billion in revenue. And in fiscal 2022, Apple services revenue jumped up another $10 billion for a total of $78 billion.
· Since it began focussing on selling subscriptions in 2013, Adobe went from an annual recurring revenue of $200 million to a recent record-setting $4.43 billion in Q3 of 2022 alone.
The importance of recurring revenue cannot be overstated. As reported by Aaron Hoddinott for Capitalist Creations, “When raising capital, a SaaS business can receive 4–5X the valuation a strictly tech hardware company will get, even if their growth rates, top, and bottom lines are identical.”
Face the Future
Transforming your perpetual hardware business to a subscription-based SaaS model is not only something to consider for your business’s survival, but also an important move to ensure a thriving future. Making this move doesn’t have to be intimidating with proper planning. And by building your SaaS application on a proven, enhanced infrastructure platform you can bring value quickly and effectively to your business, impress your customers, and satisfy your investors.
Explore the possibilities at edgesignal.ai and revolutionize your edge AI development journey today!
