Sequencing Business Models: Can That SAAS Business Turn Into a Marketplace?

Sequencing Business Models: Can That SAAS Business Turn Into a Marketplace?

In today's digital age, businesses are constantly looking for new ways to innovate and grow. One strategy that has gained popularity is the transition from a Software as a Service (SAAS) business model to a marketplace model. But is this transition possible? Can a SAAS business successfully become a marketplace? In this article, we will explore the potential challenges and opportunities of this transition.

First, let's define what a SAAS business and a marketplace are. SAAS refers to software that businesses access online and purchase via a subscription. Examples of SAAS companies include Slack, Adobe, and Atlassian. On the other hand, a marketplace is a platform where sellers provide their services to attract additional buyers. Buyers come to the marketplace to seek out these services and find new suppliers. Marketplaces commonly process transactions and charge a commission or lead generation fee.

When a SAAS company considers transitioning into a marketplace, it usually means that they want to help their existing customers attract more buyers by aggregating buyers on their platform and aiding in their discovery of the businesses the company currently serves. This transition can be seen as a way to solve the second most important problem for their customers – customer acquisition.

One common trend among marketplaces is vertical integration. Take Zillow, for example. Zillow started as a SAAS company providing real estate information. Over time, they expanded into a marketplace where buyers and sellers can connect directly. This trend towards vertical integration suggests that as SAAS companies move into niche verticals, the opportunities for extension platforms may dry up, leading them to explore consumer marketplaces as a potential growth lever.

However, transitioning from a SAAS business to a marketplace is not without its challenges. Founders need to tackle three key requirements to increase the chances of success:

1. Change the incentive structure: Founders must make the entire company's growth revolve around the new marketplace initiative. This can be achieved by creating a separate team with separate goals and reporting lines. Pinterest, for example, successfully shifted its focus towards international growth by aligning the entire company's efforts towards this new initiative.

2. Shepherd the right resources: Transitioning the company culture and resources to embrace the new business model is crucial. This often requires bringing in new talent with consumer product development backgrounds. Leaders with heavy consumer backgrounds can lead teams focused on the marketplace transition and recruit employees who are passionate about the opportunity.

3. Confirm demand and align business models: One major reason why marketplace transitions fail is the lack of demand on the marketplace side. SAAS customers may not have a business model that relies on selling something people want to buy and find more. Additionally, the marketplace opportunity may only be to find a vendor once on the demand side. It is essential to confirm that there is a demand side to the market and that the engagement aligns with both the company and its customers' business models.

To ensure the success of the SAAS to marketplace transition, it is crucial to consider the characteristics of other successful marketplaces. Most marketplaces are built on top of under-utilized fixed assets. It is important to hit the minimum scope for the demand side and have a good answer for it. Additionally, adding a SAAS component to the marketplace model eventually can provide added value to customers.

In conclusion, while the transition from a SAAS business to a marketplace can be challenging, it is not impossible. By addressing the key requirements of changing the incentive structure, shepherding the right resources, and confirming demand and alignment with business models, companies can increase their chances of success. The marketplace model offers new growth opportunities and the potential to solve the customer acquisition problem for SAAS companies. By embracing innovation and adapting to new business models, companies can position themselves for long-term success in the evolving digital landscape.