Why SAAS and on-premise solutions cannot co-exist?

Number of traditional software companies like Adobe, Intuit, Oracle, SAP are struggling whether and how to get on the SAAS train. And more often than not, they are reluctant to bite the bullet and go total SAAS. It is hard to burn the boats.. However, being in two boats is even worse - you are not doing justice to even one. Here I list some of the reasons why this is the sure path to slow death.

The biggest one is day to day operations of the company. In the on-premise world, it is about closing the deal. On the other hand, SAAS is all about the ongoing happy customer. The closed deal is just the beginning,  it is keeping the customer happy and engaged year on year. This means that all layers of the org have to change, starting from sales to product development to customer support.

In the on-premise world, "hunter" sales folks rule the world and one deal can make or break a quarter. In the SAAS world, if the churn rate is less than 10% which is the case with most successful SAAS companies, over 85% of the forward revenue is already baked in. So Sales  is compensated for their quota, but there is an ever increasing focus on making sure the "current accounts" are happy. 

This means customer support & operations are very important groups in the online world. The servers need to be up 24 hours and customer support ready to resolve issues. User analytics and big data can give you a lot of insight into whether the customer is using the systems and to what extent.  This also means the ability to know beforehand  your red accounts and be able to manage them so they do not fall off the cliff is ultra important. No wonder, more and more companies have C level customer success VP's and Operations.

As all of us know, a company only has finite resources - the challenge becomes where would you want to put your best and brightest resources and how would you create the incentive structure. Putting some in both, does not cut it. It is like having a cash cow subsidizing a fast growing start-up. With complementary products, which is often the case, SAAS is often seen to cannibalize the growth of on-premise solution. This creates an interesting dynamic not only in the sales group but also product development. The answer as to where product development needs to focus it's energy  - should it have two code bases or which feature enhancement should go in SAAS vs desktop brings very interesting dynamics to the table.

One of the ways some of the companies have tried doing this - Oracle incentivizes its sales folks double the quota for a SAAS product than for the on-premise solution. Adobe & others put all the new features in their online solution and so customers who want the latest and greatest features are incentivized to buy the SAAS solution.