Hardware Enabled SaaS : Next generation of SaaS companies
(In this multi-part series we are doing a deep dive into the world of hardware enabled SaaS companies and see how this model is being used by startups in the real world to build tommorrow’s businesses)
Part 1 — The Context
There is no denying that we live in the age of subscriptions. Looking around we find everything from content to cars, from sofas to servers being offered to customers wrapped in a subscription model. Softwares is one such domain where the subscription model has majorly, if not entirely, replaced an outright sales model to the point that the word ‘SaaS’ has entered our day-to-day vocabulary. The growth that SaaS model has seen in the past few years is nothing short of remarkable. Garter estimates that Saas revenues for 2019 would be around $85 billion worldwide and would clock double digit annual growth in the years to come and if a wider definition of SaaS is used, these numbers are bound to be higher. But while these growth numbers are impressive, they might not be telling the entire story when it comes to the challenges that many early stage pure play SaaS startups are facing at the moment.
One of the factors causing these challenges is that it has never been easier to build a generic SaaS product. Cloud services have made setting up your own servers obsolete for almost all early and mid stage companies reducing barriers to entry. Talent to build such products is more easily available, which with each passing day is making it harder for companies to retain an edge on the basis of superior human resource. Such factors also reduce the capital requirements to reach MVP stage, which along with the availability of capital leads to number of SaaS startups growing much faster than the market, leading to overcrowding.
Even startups that are managing to differentiate themselves from the crowd and gain good initial traction are running into the problems of commodification of their product if there is a lack of defensible IPs or if it is not a technically complicated and hard to engineer product. Commodification risk for such startups is infact two-fold, first from newer startups that can move quickly to copy their market validated product and potentially undercut them. Secondly from bigger more established cash rich companies that, if they choose to not acquire, can leverage their established channels and brand value to rapidly capture the market.
This is why we believe that Hardware enabled SaaS (HeSaaS), a model where hardware is an integral part of the SaaS offering, can be a logical evolution of the pure play SaaS model for many industries and use cases. HeSaaS manages to circumvent or minimize many challenges faced by SaaS startups. The hardware element acts as an anchor, helping in reducing customer churn by reducing the possibility of customers migrating away to a marginally cheaper or marginally better SaaS. HeSaaS startups doing outright hardware sales are further able to magnify the Lock In Effect. Talent to work on specialized hardware design is also tougher to find, which along with defensible IPs makes it tougher to directly copy the product and greatly reduces commodification risk. HeSaaS model also opens up new or untapped niche markets that couldn’t have been effectively served by a SaaS only model. Hence there has been a lot of interest in this space in recent years.
In the next parts of this series we would be looking at how HeSaaS companies from different industries are operating in the real world and what makes them tick.
Part 2 — Open App : A 21st century solution to a millennia old problem
Part 3 — NeuroEquillibrim : Helping you find your balance
Part 4 — PerFit : Future of 3D scanning
(We at Unicorn India Ventures are always striving to uncover different perspectives in life. We would love to hear your thoughts in the comments below. To hear more from us, follow @unicornIndia on twitter and follow our company page on Linkedin)
