Over the years, the face of things has changed, but only on the surface. We have always, as far as recent memory is concerned, had subscription-based services. In the past, it was magazines, the book of the month, and other such services. These services gave way to subscription platforms like Netflix. On the consumer side of things, these services are very good, and most drawbacks aren’t worth complaining too much about because of the low price.
More and more companies are heading toward the SaaS (Software as a Service) style model for at least part, if not all of their business. What started off as a somewhat rare occurrence has grown and is taking over the world. From movies and tv, gaming, business software, audio editing tools, to anything. Under the impossibly huge umbrella of SaaS, it seems that anything is possible.
SaaS is evolving and is already the elephant in the room. Before too long, that elephant might just destroy the room. And that’s why I ask the question “what comes after SaaS?”.
There are different types of SaaS payment models. You can read Zal Bilimoria’s article for more information on the topic, but I will give you a basic run-down. There are just a few basic types:
This is where Instagram, Facebook, YouTube, and Twitter fit in. These types of software generally make their money through digital ads.
This type of software includes things such as good video games and paid mobile apps. Unfortunately, pay once and done software aren’t as available as they once were.
Pay Per Use
These software include services such as Uber, and food delivery services.
The set-and-forget method of software service. This is one of the most attractive models for consumers. Not only is it an easy away around ad revenue, but it also allows a business to benefit from a potentially high monthly recurring revenue. Companies such as Amazon and Netflix use this model.
We all saw it coming, with the rise of digital ads, and their subsequent partial fall, something had to fill in the gaps. Platforms such as Spotify offer “premium” memberships that cancel ads. Similar “services” are also offered on YouTube. But there is one glaring flaw with these types of services. The “convenience”.
Convenience is the ultimate goal of seemingly everything we as humans do. We adapt and innovate to make things easier, but that comes at a cost, and under the SaaS umbrella, those costs are increasing. When Netflix first began to become mainstream in Canada, in the days of BlockBuster and the corner video store, it was around $8 per month. At the time it was a very good deal, but now the price has nearly doubled. So that begs the question of how expensive these types of services will get before we all say “no more”.
And then what comes after?
To answer that we have to look backward. The automotive industry is a good example. In the beginning, anyone who had the know-how could make their own car, register it, and put it on the road. Don’t believe it? Watch this video from Jay Leno’s Garage where he covers the history of one such vehicle. With the availability of more affordable goods and services, the need to do-it-yourself quickly diminished. And with new regulations on driver safety, it became ever more difficult to do-it-yourself. Now, only a small group of individuals do. It seems like these companies are working very hard to make everything better on paper, but is it really better? In the case of the automotive industry, the competition is fierce. Companies are pressured to innovate almost on a daily basis. With the startup craze hitting full swing, companies like Tesla and Rivian can make waves in a very stiff industry, but then what happens?
Let’s go back to Netflix and other streaming services. In the ’90s, BlockBuster was in every city, and everyone used their service until something faster came along. BlockBuster struggled until it finally collapsed. Retail is another example, and online shopping has forever changed the way we consume. In just a few short years, eCommerce has taken over, and big-box stores and shopping malls do not have long. And don’t forget, every retail store has an online shopping service.
As more and more companies jump on the bandwagon, large issues that are inherent with SaaS are cropping up. A perfect example can be found in the gaming industry. Certain large gaming companies such as 2K Gaming and Electronic Arts employ a chance-based loot box system. A loot box is a chance-based in-game mechanic that randomly gives players in-game items in exchange for in-game currency. However, an in-game currency often needs to be purchased with real-world money. These systems can be addictive, and in some areas of the world, they are being banned. For more information, this article on gameranx.com covers these boxes being used by a popular game, Counter-Strike Go. The problem is so severe that these mechanics were outright banned in the Netherlands.
So that brings us back to what happens next. Regulations.
As we’ve seen in the automotive industry, regulations are put in place that change the face of the industry. In the 70s it was emissions controls that cut sales on American cars, allowing for the large influx of Asian vehicles that we see today. We are seeing regulations being placed on certain aspects of SaaS, as with loot boxes in CS: GO, but will this effect be seen in other markets? It’s possible.
The regulation of SaaS is inevitable, for more reasons that price. In most countries, it is actually illegal to hold a monopoly on industries like communication. So what does this mean for SaaS companies like Amazon? So far, Amazon has been dodging the bullet, but it’s coming. As they drive brick and mortar retail out of business and continue to grow, they very may well start to hold a monopoly on the industry. The worrying thing is, that if it were ever true, we as consumers may not even be aware of it. Large SaaS companies actually do practice employ some practices that could be viewed as illegal if it weren’t for a few technicalities. One of the main points in this is “Price Discrimination”. Price discrimination is selling similar goods to buyers at different prices. We can see these types of practices in SaaS platforms. You can subscribe to a membership service, and receive discounted prices on the same products that others can buy without the membership. But the price of the item doesn’t necessarily change, although the shipping costs and lead time to process your order definitely will.
Will this ever be regulated? Only time will tell, but it isn’t a far stretch to predict it. But what happens after regulation? The same thing happens in every industry. Plateau. And then something new will come along, which will follow the same path as automotive and SaaS. Will SaaS ever die out? Probably not, it's too convenient and prevalent to be forgotten. The benefits still outweigh the drawbacks, and hey, it’s not that bad, right?