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SaaS: The Cat is Out of the Bag

I’m sitting at the Office 2.0 conference watching a barrage of 5-minute product demos. FreshBooks‘s CEO just dropped a bomb at the last 20 seconds in his presentation: being software as as service, they can aggregate customers’ data, categorize it by industry, size ..etc, and once they do that, why not turn it into a product?

Customers can receive generalized metrics as well as benchmark themselves against their peers.

Stop here. Think about it. This is big. It’s not about FreshBooks. It’s *the* hidden business model enabled by SaaS. It is so logical, we all had to know it would be coming – but carefully avoids talking about it. No wonder… SaaS adoption is growing but still at an early stage, and security, trust concerns are huge. The last thing software vendors want is to feed those concerns, i.e get their customers worried about the competition accessing their data.

The benefits are obvious: all previous benchmarking efforts were hampered by the quality of source data, which, with all systems behind firewalls was at least questionable. SaaS providers will have access to the most authentic data ever, aggregation if which leads to the most reliable industry metrics and benchmarking. Yet it raises a number of serious questions: How far can they go? What are the security / confidentiality / privacy implications? Are they reselling data that the customer owns in the first place? If the customer owned the core data, who owns the aggregate?

The business of metrics, benchmarking is potentially huge, but it can’t take off until the industry, along with customers, can answer these questions – and more.

Update (10/16): I’ve just checked who else talks about this Unheralded SaaS benefit, and voila! Two posts from fellow Enterprise Irregulars, ex-Gartner Vinnie Mirchandani and Yankee Group’s Jason Costello.

Update (10/30): Read Dennis on Valuing Data and on Freshbooks.

Comments

  1. Dharmesh Shah says:

    I think Michael McDerment (CEO of FreshBooks) is brilliant. I interviewed him for my MIT graduate thesis on startups.

    You are dead on around the importance of aggregate data collection as a component of the SaaS business model. One could argue that a large part of Google’s value is the “data” assets they have built up around consumer behavior and trends. In a small (but meaningful) way, SaaS vendors can craete something similar by providing useful benchmarks across specific industry segments.

    Coincidentlaly, this particular concept came up in a strategy meeting I was involved in earlier this week.

  2. Brian Solis says:

    Zoli, you’re spot on! I spoke to him about this several times over the past week. It’s not unlike the package I was able to help productize for Websidestory and NetApplications. There’s value there beyond the existing subscriber-base. SaaS creates an unforeseen market opportunity for many providers.

  3. Tamas Hevizi says:

    This is definitely huge!!! Great insight!

    As most industries get more commoditized and the list of differentiating processes gets shorter Saas based benchmarking could and should be part of the on-demand value proposition. There is no reason why backoffice functions cannot be benchmarked. Companies do this routinely and there is no competitive advantage there it is a cost and efficiency game. Since benchmark metrics are fairly standardized in these areas there isn’t much of an IP issue either.

  4. Paul Brown says:

    Believe it or not, this has been a Holy Grail in health care IT for a while. Think about all of the information (drugs, treatments, outcomes) that flows through a company like MedQuist or Spheris, and you’ll get the idea.

  5. Dennis Howlett says:

    Blimey – quite seperately I’ve been writing about Exploring Enron and have raised almost exactly the self same concerns but from an internal business perspective.

  6. Generic says:

    Paul, MedQuist delivers personalized medical transcription and healthcare services documentation management through its nationwide client service centers, and has an excellent reputation. What do you base your statements on? — norvasc generic

  7. Anonymous says:

    Being pioneers always carries a risk, and clearly, Freshbooks will have to keep an eye on their customers feedback. There may be a backlash due to data privacy/ownership concerns; some customers will not opt in, they may even lose some customers entirely. But I believe the majority will see the light and benefit from the service.

    Small Business Funding

  8. Rupen Chauhan says:

    Hi

    I’m just catching on to the concept of SaaS. My main question is as to who owns the data and what data infringement implications will this have?

Trackbacks

  1. […] The cat is out of the bag – was my first reaction when FreshBooks announced the launch of their new benchmarking service in October 2006.  Then, and later I called it the hidden business model in SaaS: He basically announced the hidden value proposition enabled by SaaS: competitive benchmarking. All previous benchmarking efforts were hampered by the quality of source data, which, with all systems behind firewalls was at least questionable. SaaS providers will have access to the most authentic data ever, aggregation if which leads to the most reliable industry metrics and benchmarking. […]

  2. […] used the “cat out of the bag” line was almost three years ago, when FreshBooks’s CEO, Mike McDerment literally dropped a […]

  3. […] such essay is Insight as a Service.  It’s about what I called the “hidden business model enabled by SaaS” in 2006: using aggregated data for benchmarking.  Four years later it’s […]

  4. […] such essay is Insight as a Service.  It’s about what I called the “hidden business model enabled by SaaS” in 2006: using aggregated data for benchmarking.  Four years later it’s no […]

  5. […] such essay is Insight as a Service.  It’s about what I called the “hidden business model enabled by SaaS” in 2006: using aggregated data for benchmarking.  Four years later it’s no […]

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