Futureproof your business by modernizing with SaaS

In this article, I explore how digital businesses can create long term customer value and recurring revenue streams by modernizing from monolithic to as a Service constructs. I will also provide a basic, customizable framework to help shape modernization efforts for your business and technical transformation to accelerate time to market for your products and services.

Why did the world of services move to SaaS?

Remember when Microsoft’s suite of offerings was offered as a one-time purchase? Consumers would typically get these on a disk with purchase of a computing device, and that was their only engagement with Microsoft, unless the product needed troubleshooting. Companies did not have any insights on how their product was used, and had no quality control once these products were shipped. The advent of cloud technology empowered software providers to offer digital updates, faster iterations and bug-fixes over the air, revolutionizing how companies and consumers engaged with software products. For Microsoft, this change in business model began with the launch of Office 365 in 2011, marking their leap into the Software as a Service or SaaS world. For Windows itself, Microsoft began moving towards a SaaS model with Windows 10, announced in 2015. Windows 10 was described as “Windows as a Service,” with regular cloud-based updates rather than traditional major releases. By 2017, revenue from Office 365 (SaaS model) had overtaken conventional license sales, indicating a significant shift in Microsoft’s business model towards SaaS. With SaaS, companies provide their services (or products) as a license for their customers to use. Customers agree to a fixed or variable payment structure, avoiding high upfront capital expenditure, and providers agree to update and maintain the code, offer upgrades and ensure data security within their product. Customers get the flexibility to scale, adding or removing licensed users as needed, without the sunk cost of software development and hardware maintenance.

The advent, and rapid adoption of Cloud technologies

Software providers today have the power of large cloud providers like Google, Microsoft and Amazon Web Services, and access to over 4000 unique cloud-based services, to build differentiated offerings that can create a market niche. Many of these services are fully-managed, allowing companies to offload the undifferentiated heavy lift of managing resources, and focus solely on creating the best product and unique customer experiences. In 2022, the top SaaS businesses grew 62%, and the growth was even crazier in 2020 (93.4%) and 2021 (78.9%) , largely as a result of the emergence of remote work after the Covid-19 pandemic (Link) , but more on that later. Despite the more than 70,000 SaaS businesses worldwide, and an industry valuation of $195 Billion, there are several businesses, especially in the Small & Medium Business (SMB) category, that remain monoliths, due to simplicity in development, deployment, and testing. Monolithic systems are characterized by tightly coupled components that operate as a single unit. While these architectures were effective in earlier computing eras, they lack the flexibility and scalability required in today’s dynamic business environment. SaaS, on the other hand, provides modularity, agility, and cost-efficiency by delivering software over the internet via subscription-based models.

In this article, I want to talk about why it is strategically imperative for modern businesses to transform from monoliths to SaaS, while addressing the considerations and challenges of the conversion. I’ll also review an often-ignored consideration- the operation lift, shift, and sometimes, transformation required to ensure minimal drop-off in revenue and customer experience.

Business has always benefited from advances in technology, and the Internet revolution is no different from the Industrial revolution in how we achieved scale. Now, with the advent and rapid growth in adoption of Cloud services, businesses have the means to break the barriers of physical space constraints. Globally, organizations have provided a resounding acceptance of cloud technologies, even as the number of cloud services grow from mere storage, to databases, advanced compute and machine learning. According to Gartner’s forecast from 2022, global end-user spending on public cloud services was expected to reach $494.7 billion in 2022, with SaaS representing the largest market segment. Second, is the change in how we work. After the Covid-19 pandemic, the software industry was among the top ones to notice dynamic changes to their revenues and business models. Companies soon realized they could work with remote employees, and the need for collaboration created a market of offerings that empowered remote employees. Video calling, white-boarding, massive webinar platforms, digital design, electronic documentation and verification, and other such tools saw prolific adoption, and enterprises started packaging their tools into product suites with per-user licensing fees to be paid by other enterprises. Salesforce, Workday, Zoom, Microsoft teams, and others are prefect examples of this. According to a report from 2022, the SaaS market generated $145.5 billion in revenue in 2021, constituting two-thirds of the total public cloud services market revenue.

Now, I want to walk business and product leaders on the advantages of converting from Monoliths to SaaS.

Why change?

SaaS solutions offer unparalleled scalability through cloud bursting, a technique used in hybrid cloud deployments that involves using public cloud resources as supplements to private cloud resources during periods of peak usage. This elasticity is particularly advantageous for companies experiencing rapid growth or seasonal fluctuations in their operations.

The second advantage is obvious. By adopting a SaaS model, businesses can significantly reduce their upfront capital expenditures on hardware and software licenses. The consumption-based pricing model of SaaS allows for better budget predictability and aligns costs with actual usage.

SaaS providers can typically offer regular updates and new features, ensuring that businesses always have access to the latest technologies without the need for manual upgrades or system downtime. This is particularly crucial for product managers who need to stay competitive in rapidly evolving markets.

Cloud-based SaaS solutions enable seamless collaboration among team members, regardless of their physical location. This feature has become increasingly important in the era of remote work and distributed teams. For example, tools like Google Workspace or Microsoft 365 demonstrate how SaaS can facilitate real-time collaboration and improve productivity.

SaaS providers deliver standardized software solutions over the internet on a subscription basis. These solutions are typically multi-tenant, meaning multiple customers share the same infrastructure, with data segregation ensuring security and privacy. For instance, Salesforce CRM is a prime example of a true SaaS solution that serves multiple clients from a single codebase. This allows SaaS providers to further optimize their cloud resource utilization to stay competitive. This is also one of the reasons, why cloud technology has become an equalizer, allowing companies to compete for the same markets, regardless of their size. As long as they can create attractive products, they can scale their business and costs in accordance with growth. The ability to trade capital expenditure for operational expenditure is a powerful tool when you are a small firm, backed by outside funding, and seeking to deliver an impactful product to the market, fast!

The advantages above do come with their own set of considerations and challenges. As a business modernization strategy leader at AWS, I have worked with hundreds of companies that, despite successful migration to the cloud from on-premise infrastructure, struggle to take the next step in their modernization journey. Simply adopting a cloud-based technical architecture doesn’t modernize your business. It has to be a deliberate business decision that entails changes across your business model, from resourcing to operations to marketing, channel partnerships and sales. I have had the privilege of working with numerous SMBs and the lessons learnt are worth sharing with the community. Next, I will speak to some considerations and challenges of modernizing from a monolith to SaaS.

Considerations before you embark on transformation

Integrating SaaS solutions with existing systems and workflows can be complex. Application Programming Interfaces (APIs) play a crucial role in this process, acting as intermediaries between different software systems. Additionally, the level of customization available in SaaS solutions may be limited compared to traditional on-premises software.

Businesses should be aware of potential vendor lock-in when adopting SaaS solutions. Ensuring data portability and having clear exit strategies are crucial considerations. Product managers should evaluate the ease of data migration and the availability of export tools when selecting a SaaS provider.

The transition to a SaaS model often involves a shift from upfront license fees to recurring subscription revenue. This change can initially impact a company’s financial statements, potentially showing a temporary decrease in revenue as the business moves from one-time sales to a subscription model. This is called the Hockey stick curve, as the potential ultimate growth in revenue realization far outweighs the initial reduction in revenue.

As I mentioned before, all facets of business, not just the technical, need to align for successful transformation.

First, Product owners/managers should work closely with marketing, partners and sales teams to map the desired customer journey to a relevant customer experience. There has to be a relentless focus on customer onboarding, and product teams need to create a seamless first-time user experience in a way that quickly demonstrates the product’s value. Alongside offering minimal adoption friction with “freemium” models, companies need to implement a Continuous Integration/development (CI/CD) mechanism to push improvements to a Minimum Viable Product (MVP) achieving both speed to market, and a reputation for prioritizing customer feedback. Such a customer success framework tailored to a SaaS model can drive incremental gains for businesses.

In their article, “The Leadership Implications of SaaS”, by Tania L. Binder & Lucinda G. Stewart, the authors highlight the qualities a leader needs to develop to support their organization’s modernization efforts, and it starts and ends with relentless customer obsession. Visionary leaders are adept at leveraging data, anecdotes and market information to determine the timing, speed and resourcing required for digital transformation. Line of Business (LOB) leaders can support modernization by providing a clear strategic vision that is aligned with the company’s mission, allocate necessary resources while taking the tough calls on resource re-allocation, foster collaboration and support data-backed decision making. A great leader champions customer obsession, thereby helping product owners prioritize roadmaps, and motivates sales, marketing and channel partners to realize the product’s vision. Ultimately, it is the LOB leaders that have to manage stakeholder expectations on revenue trends, capital and operational expenditure as well as product adoption.

The transformation blueprint

Based on this, businesses can broadly segregate modernization across 3 pillars- Operations, Finance and People. Though the individual journeys are unique and dependent on existing models, I note here my basic framework for advancing all 3 of these pillars to achieve digital modernization and ensure a successful transformation that will allow companies to compete in all markets and create sustainable revenue streams for their differentiated offerings.

Operations

Start backwards from your business goals. Is the goal to modernize and reach previously untapped markets, increase revenue, diversify revenue streams, de-risk the business or increase profit margins. The ultimate goal will drive the design and timelines for the move to SaaS, and enables businesses to introduce relevant checks and balances, and define objective key results (OKRs) and the key performance indicators (KPIs) that are needed to drive them. The optimal approach to do this is by templatizing information gathering across the key decision makers in the company. Next comes ruthless prioritization. Here is where the business needs to decide the top 2 to 3 issues that should be addressed by the SaaS transformation.

The operations of a company relate to the processes that guide business flow. It starts with a well-laid customer journey. Let’s discuss Spotify, whose customer journey map focused on tracking touchpoints- how people find and interact with the application, for their music-sharing feature via third-party apps. The product managers and marketing teams spent months defining the ideal user experience across touchpoints and included several key elements such as clearly defined user personas, key areas of customer engagement and user emotions and thoughts at the various steps of the journey. The journey map revealed important insights: about a significant pain point related to users’ fear of being judged for their music taste, which could prevent them from sharing music, and an awareness gap where some users were unaware that the music-sharing feature even existed! By creating this detailed customer journey map, Spotify was able to improve their user interface (UI), enhance in-app flows, streamline the overall customer experience and make touchpoints more relevant to real customer usage patterns. This example demonstrates the value of focusing on a specific feature or aspect of a SaaS product when mapping the customer journey. By doing so, Spotify gained actionable insights that led to tangible improvements in their product and user experience (link). Spotify’s example is relevant as it displays the power of prioritizing goals, and mapping it to customer experience. On identifying the features that need building or enhancement, the next crucial step is to identify the process alignment. Questions to ask include, do we have the right development lifecycle to develop said feature, is it already part of a planned release, what other priorities need de-prioritizing if we develop said feature and if current customer experience changes in any way? This helps align teams accordingly. Next, is alignment with teams that help develop, market and sell the product. Questions to ask include, does this feature help existing customers, new customers, or both? Does the feature cater to a previously untapped market segment? Are internal teams aligned with the product vision after incorporating the new feature? These questions help understand the cross-team efforts required to align resources and drive product development. Customer journey dictates product development roadmap which informs marketing about the messaging and market segments. This ultimately helps develop sales guidelines, and channel strategy.

Lastly, businesses decide the outcomes they consider successful and map the input behaviors required to drive those outputs at this stage. For example, an output goal can be to add a hundred thousand users to the daily active user base. Based on the steps above, this output behavior can be mapped to relevant input behaviors like number of impressions created for the product via third party stores, number of roadshows conducted to evangelize the product, etc.

A note on channel strategy- Sales channels, when deployed correctly, open up untapped markets and educate product roadmap beyond just creating additional revenue streams. System Integrators (SIs), Managed Service Providers (MSPs), and other Independent Software Vendors (ISVs) can all be effective partners in expanding the product.

Finance

This pillar defines the cost aspect of transformation to SaaS, with many decisions impacting the product roadmap, feature prioritization, investment in resources, capital and operational expenditure allocation. It is best to calculate or gather existing estimates for a few basic items prior to project commencement. Full-time employee (FTE) costs across functions such as engineering, user interface design, marketing, sales and product management is a major expense. Even if companies can allocate existing resources to new feature development, allocating this cost is a necessary step in cost attribution. Any software licenses, cloud expenses for storage, compute or other services add to the total cost of user experience. The next step is to define the cost of customer acquisition by adding the user experience cost to the cost of sales- not just resources hired for sales, but also the web strategy cost of landing eyeballs on the product. The customer acquisition and product development costs form the basis of defining the sale price, which should then be adjusted to reflect market competition and the value customers can derive from use of the product. A best practice is to determine the cost basis (people, development, sales) per x users per month, as this allows you to develop various pricing tiers for customers of various sizes, and allows flexibility in your pricing strategy. Every business is unique and the cost basis can vary widely across a spectrum depending on the product being developed, so it is important to always allocate hidden expenses as a percentage of the calculated cost basis, to avoid any future stress on pricing. Rule of thumb dictates that price of services should go down with scale, so increasing the price later is not customer obsessed and causes lost trust.

People

Perhaps the most important pillar of the SaaS transformation project is the people pillar. Across the 2 pillars described above, it requires leaders from lines of business, and functional leaders to align on vision, mission and the path forward. Technical leaders need to understand the importance of customer needs, communicated in actionable format by marketing and product teams, and business leaders need to understand the feasibility of developing products in a timely and cost-efficient manner. Most importantly, leaders need to take a step back and estimate the impact of the product decisions beyond their immediate teams, to determine what is good for the business as a whole. A good example of this is product cannibalization, where sometimes companies need to develop a new product similar to an old offering while keeping both alive, and ultimately deciding to cut the old product in favor of the new, once it has reached feature parity while providing tangible advantages in terms of customer experience and internal operations.

All 3 of these pillars have to work in unison, and the steps are never linear, but what is important is that path forward is clear across the company and all levels of staff, with clearly laid out paths, project plans and success measurements.

The Bottom line

The conversion from monolithic architectures to SaaS models represents a pivotal opportunity for product managers and technical decision-makers seeking agility, cost efficiency, and innovation in today’s competitive markets. While challenges such as integration complexity or vendor lock-in exist, careful planning—coupled with thorough vendor evaluation—can mitigate risks effectively. As organizations increasingly prioritize digital transformation initiatives post-pandemic, those embracing modern cloud-native paradigms like SaaS will be better positioned not only for operational resilience but also sustained growth in an era defined by rapid technological change.

About the Author

Karan Jain leads the Modernization & Digital transformation Strategy practice for the US SMB segment at Amazon Web Services. In his role, he has developed a segment-first program to help SMBs modernize their business architectures in under 6 weeks, with a combination of business strategy, technical guidance, funding and expert support. A Computer Engineering graduate, Karan has held several leadership roles across Marketing, Business Development and Sales in a career spanning over 10 years. His close work with Small & Medium Businesses (SMBs) across continents, and extensive market research for industries such as energy and banking, give him a unique perspective on the challenges faced by SMBs in growing and scaling their business.

Karan also served as the Medium Business Go-To-Market leader for Dell Technologies, to ensure companies had access to the best devices and deals to scale their business cost-effectively. In his role with the US SMB team at AWS, Karan supports customers that are not resource rich compared to enterprises. He strives to help SMBs compete on a level playing field by bringing their product to market in a timely and cost-effective manner. He serves as a strategic advisor to the segment leadership team on identifying market signals, building relevant and impactful solutions and effective messaging.