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SaaS and The Long Tail

For those not familiar, The Long Tail was originally a statistics phrase used to describe distribution patterns and typically represented with an XY based graph that resembled about half of a bell curve.

The Long Tail

However, in 2004 Wired magazine Editor Chris Anderson used the phrase to describe how e-tailers such as Amazon, Barnsandnoble.com or NetFlix could maximize their distribution power by promoting small volume hard to find items presumably at higher margins than easy to find, mass merchandised items. There's much more on this topic at Chris' blog.

SaaS offers an ideal platform for promoting The Long Tail as a business model. Vertical market, industry specific or specialized software applications, particularly business software applications, represent a fraction of the horizontal application software market primarily because the costs related to sales and distribution of far more narrow systems are less favorable than mass merchandising costs related to horizontal systems. For example, the largest application software manufacturers are SAP, Oracle, Sage, Microsoft and Infor. While these vendors have verticalized their horizontal programs to a degree, they are all clearly horizontal players who cater to every industry possible and make the majority of their company revenues from the same non-industry specific business software solutions.

SaaS business solutions know no boundary for customer acquisition or fulfillment. SaaS offers the opportunity to lower the cost of marketing, sale, distribution and support and thereby capitalize on the long tail of distribution fulfillment to an undeserved market place. The SaaS business model is huge. With many industries, and certainly with business software solutions, the long tail offers more market share potential that can be garnered if the distribution economies can be conquered. Further, once the customer acquisition costs are resolved, the margins and profit potential (sometimes called a profitability mine) are superior when compared to horizontal software products.

Today, industry SaaS solutions and the long tail for these industries are only potential markets. While I believe vertically focused SaaS solutions are inevitable, I also recognize they will largely only evolve after the horizontal solutions are more plentiful, stable and adopted.

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January 30, 2007 at 12:48 PM in SaaS Strategy | Permalink | Comments (0) | TrackBack (0)

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This blog is focused on hosted, on-demand or software as a service (collectively SAAS) business solutions. To qualify as a SaaS solution, the service should be offered on a subscription (pay as you go) purchase price, housed in a multi-tenant data center and delivered remotely over the Web to web browsers. Business applications include about any front office or back office business system. Frequently cited business applications include Customer Relationship Management (CRM) systems, Sales Force Automation (SFA) systems, Enterprise Resource Planning(ERP) systems, Supply Chain Management (SCM) systems, Manufacturing Systems and Human Resource (HR) systems.