If You Understand Netflix, You Already Understand SaaS

 

The use of Netflix gives us at least part of an idea for understanding the SaaS Model (Software as a Service). So, to illustrate how tech companies like Techvizor attempt to educate non-tech people about complicated technology, they often point out how Netflix operates in much the same way that SaaS companies provide consumers with software products today.

After you make the connection between how Netflix provides movies and shows to you through a subscription service on a monthly basis, it is easy to see how software is being provided to you by SaaS companies. While the technology may be complicated, you can see how the two are alike, regardless of your level of knowledge regarding the technical aspects of these services.

SaaS (Software as a Service) is a delivery model based on a subscription. Users pay for access to SaaS Software by making monthly or annual payments instead of purchasing an application once and having it installed permanently. Think about applications like a customer relationship management tools, accounting apps, and project management apps… You don’t own the application. You just have access to it and use it as needed.

Similar to Netflix, SaaS companies now have a subscription model that allows you to stream unlimited movies for an annual fee with no more purchasing them one-by-one (as they used to). By implementing the shift in thinking from owning to having access (i.e. from subscription to purchase), we are seeing an explosive growth in companies utilizing the SaaS model.

Like many traditional businesses, such as Netflix’s subscription, these SaaS companies have predictable recurring revenues from their ongoing subscriptions with all of their customers. This allows both the company and all of its users to plan better financially and also to increase the value of their respective businesses. In addition, because of this recurring revenue model, these SaaS companies can provide their customers with much lower upfront costs than traditional businesses (as they don’t have to “invest” in purchasing movies).

The method for cloud delivery is another area that has a strong parallel in both cases. With Netflix, you are streaming video via the internet, and similarly, with SaaS, you have access to software via the internet. You do not need to install or manually update any programs or apps, because they all run online, so they are accessible from anywhere. Because of this ease of use, the popularity of SaaS tools has increased significantly since remote work and the push for digital transformation have accelerated across the globe.

Consider a simple real-world example: traditional accounting software costs 10,000 rupees and requires you to buy it, install it on your computer, and then pay for any updates that may be necessary if there is a bug. In comparison, a SaaS accounting tool costs 499 rupees per month, updates automatically, can work on multiple devices, and has customer support included in the subscription price. Therefore, most modern companies would choose the SaaS accounting application because it is more scalable, flexible, and similar to Netflix rather than purchasing DVDs.

SaaS also has a strong emphasis on customer retention (like Netflix) where revenue comes from subscriptions. Thus always adding value for customers is vital through things such as: Enhancing usability of software by consistently updating features or providing excellent support when it’s needed, etc., creates an obligation to actually keep customers because if they’re ever unhappy with a service they will be able (and often have the option) to cancel at any time; therefore, creating an immense amount of pressure for the company to continue maintaining a customer-first mentality something that is advantageous within this type of business model.

For entrepreneurs and investors interested in how the Netflix subscription model applies to SaaS growth strategies, there are generally three primary areas that successful SaaS companies target: How effectively to acquire new users; how to minimize churn; and, ultimately, how to maximize the lifetime value of each customer. Since Netflix executes all three areas extremely well, it has established itself as one of the most successful companies in the world within the subscription entertainment industry.

For those running businesses, developing marketing strategies, or launching ventures there is one important message. There will soon be a trend toward the use of an access based model. From software to education to exercise to real estate there will begin to be many companies creating subscription models. Those companies that embrace this early will be able to create stable and predictable revenue sources.

Finally SaaS can be simple when looking at how companies bill each month to give their users all of the content available. If you understand how Netflix bills you per month for providing you with unlimited access to all their content then you can understand the heart of SaaS. Companies like Techvizor can use this powerful model of generating scalable growth, greater customer satisfaction, and continued profitability. The subscription economy is becoming an established model; however, the question is how long it takes for you to adapt and be part of this trend.