Selling software, either as a service or as a product, involves assuming development costs up front. However, unlike traditional brick and mortar businesses, once development is done, serving one more customer or selling one more piece of software has near-zero marginal costs and near-zero distribution costs. This allows for high gross margins1.
37signals, the company behind Basecamp, has launched an initiative called Once, questioning the Software as a Service (SaaS) model. The argument is as follows:
Today, most software is a service. Not owned, but rented. Buying it enters you into a perpetual landlord–tenant agreement. Every month you pay for essentially the same thing you had last month. And if you stop paying, the software stops working. Boom, you’re evicted.
For nearly two decades, the SaaS model benefitted landlords handsomely. With routine prayers — and payers — to the Church of Recurring Revenue, valuations shot to the moon on the backs of businesses subscribed at luxury prices for commodity services they had little control over.
Once upon a time you owned what you paid for, you controlled what you depended on, and your privacy and security were your own business. We think it’s that time again.
I’m eager to see what product 37signals launches at the end of 2023. But specially, I’m interested to see what pricing model they settle for.
That is, unless you are selling at a price that doesn’t cover the variable costs of delivering the service. If that is the case, the more items you sell the more money you loose. May seem obvious but many companies fall into this trap. ↩︎