Can you spare $500 to find out? If so, do this:

1. Get an adwords account. 2. Research keywords with their keyword research tool. Are people searching for what you're building? How much advertiser competition is there? This will give you some idea of demand (this part is free-- or $5 for the account setup). 3. Build a landing page that explains your value prop as best you can and your pricing. Have a sign-up button that is BIG at the bottom that goes to a "we're in private beta right now" page with a "give us your email address to get an exclusive invite". 4. measure how many people click on the ad. Then measure what percentage click on the signup button. That's a pretty good indication of demand and pricing sensitivity. The email is a bonus-- if you dash someone's hopes and they still are eager enough that they give you an email addy, then there might be some classic "hair on fire" problems that your purporting to solve.

Oh, and +1 for businesses. I've heard 37s say that the vast majority of their revenue comes from biz accounts.

Businesses are different. If they need to solve a problem (to make or save a significant amount of money) and the choice is between paying one of their developers $10k+ in salary to build it or paying you $80/mo to have it instantly there's not much of a decision there. You just need to make sure that you're solving a problem that thousands of businesses have and then push it really hard. A simple formula that's really hard work to actually do, but quite likely to succeed.

It often seems that these regular expenses from magazine subscriptions to car loans are what get people into trouble, so they avoid them. Businesses on the other hand have different issues. Small businesses have cash flow issues & limited credit lines. These are (seem) easier to solve with payment products as services. larger ones have

Larger businesses have different issues. People within them may not want to be responsible for am irreversible mistake. Others may need SaaS to get around some budgeting issue, decision making process or department (bypassing IT seems fashionable).

I actually think you don't need to be in a huge market to be hugely successful. We serve a niche market (professional photographers) and, by most accounts, are successful with strong growth.

We have 2 main products/services that have a monthly fee. The first isn't a true SaaS (it's more Saas+web hosting), but we have several thousand customers paying monthly.

Our most recent product (nextproof.com) is a true SaaS and is also doing well. We launched in June and should hit the 1,000 account mark early next year.

The thing I like about being in a smaller/niche market is that it's easier to find and present to your target market. If you're product is good, it will sell–you just need to make them aware.

Here's some things I would suggest based on experience:

* Find some "connectors" in your market and partner with them. Give them free accounts and VIP treatment in exchange for referrals * If you need some cash up front, consider selling a limited amount of "lifetime" accounts. They pay $500 (or whatever) and get an account for life. We've done this and people jumped all over it. * Explore the possibility of tweaking your app for even a smaller niche market.

I've got lots more ideas ... but that's where I'd start. But, yes, I'm a firm believer that it can work.

My original blog post is here: http://blog.jedchristiansen.com/2008/02/25/37signals-is-one-...

You can play around with the spreadsheet I created, though I hope to update it soon.

I think it's absolutely easy to see that you can get 5000 users paying $20/month if you provide $20/month of value to your customers! Are you saving them that much per month in other costs, or generating new revenue through your software?

After trying the subscription model, and noting the pains the users would go through to NOT have to pay a subscription fee, I switched to a fixed one-time fee.

It makes you work harder to have something new each time, so that the users go through the upgrade cycle.

The question you need to answer is "how big the opportunity is for your application?" The number of paying customers at other SaaS companies is irrelevant unless you're playing in the same market and you expect to steal their customers. Which by the way should be a valid strategy if you believe that your application is going to be better.

Figure out what you're replacing, guess the % of that market that you can own and decide if it's big enough for you to survive and thrive in.

HUBSPOT has over 700, my guess is close to 800 and they charge like $200 per month (~$140-160k per month)

LEADS360 was doing like $400k in rev per month in late 2007.

37SIGNALS obviously, is doing well, I'm guesstimating $10 mill, at least.

ZOHO is doing like $40 million a year.

CONSTANTCONTACT is doing $50+mill a year.

Then of course, there is SALESFORCE.

I think the biggest benefit of Saas is that it matches the incentives of the vendor and customer far more closely than traditional packaged software. Rather than the sell and run approach of packaged business process software you focus on getting successful deployments and making sure the customer stays happy and around for a long time i.e. low churn rate.

A lot of subscription businesses are slow growth and high churn. Your market expands slowly as the people who will pay for your services find you and you get better at marketing to them. Unless you have a really killer service, large advertising budget or the media at your beck and call, I think it will be tough to grow to that subscriber level overnight.

http://venturebeat.com/2008/11/03/weebly-scores-1-million-us...

Typically you'll have a tough time convincing individuals to part with $20 per month and typically there's a free alternative.

It's much easier to convince businesses to spend the same amount and, as a bonus, many will be suspicious of free offerings. In fact, others will subscript to a higher premium tier purely to "buy the best for my business."

I always refer people to this StartupSchool talk by DHH of 37signals which outlines their business model, and explains their focus on small businesses: http://www.omnisio.com/startupschool08/david-heinemeier-hans...

Someone mentioned Salesforce - also check out Netsuite.

You should determine if you're 100% pay (with maybe a 30-day free trial) and primarily directed towards SMBs or freemium model directed to users and businesses. If freemium you can expect a 1-5% uptake on the paid services.

Cheers

I don't understand what you're asking. Whether or not people pay for anything you create? That heavily depends on what you're offering and what value it's adding to your customers. It depends much less on the model; much more on your product.

And I think 37signals have _way_ more than 2,000 paying users.

I wrote a bit about SAAS and the design decisions you should take into account here: http://www.maximise.dk/blog/2007/01/moving-applications-to-w...

It may help to think of SaaS as a part of a larger context. Over the past 20 years or so, many 'product companies' have become 'service companies.' Aircraft tyres is a popular business school case study. In many countries where company owned cars are the norm, leasing companies are the primary providers of cars (+ petrol + insurance + washing + servicing + all other issues). Office hardware is another good example.

If it helps, those are all X as a Service business models & I believe they do quite well compared to their industries. But note that most of them targeted mature customers.

There are quite a few software segments where SaaS is or is becoming the norm: Live chat customer support, Web Analytics, CRM.

if you are selling primarily to online companies, there is no doubt that these people will buy your service, as they are used to doing business online (unlike yourself).

how old are? if you are under 30, and you feel reluctant to pay for stuff online, then you are a minority. most teens and young adults spend their money online, with growing numbers.

right now, the economy is tough, so it's hard to say exactly how your business will fair, given most companies are cutting spending (less trade).

This is a Seattle company that does other stuff, but is at heart mostly a SaaS company and they're doing well. Really well actually, from what I can tell.