Ask HN: Why haven't we seen a race to the bottom in SaaS pricing?

"seem easily replicable."

Replicate what? The code ? May be. The entire business? Not that easy. Running a saas is lot more then writing code.

Have you ever tried switching project management apps?

"they seem easily replicable"

It is all about the upfront costs and maintenance.

It takes some serious capital and talent to build a high-availablility data center that SaaS run on.

The software is just icing on the cake. You did not include the cake, the plate the cake is on, the table the plate is on, the chair at the table, and the roof overhead. All of those other components are needed and they have costs which must be paid for everything else to work so well and be so easy to use.

"SaaS" is a pretty wide label. Can you be more specific? Are we talking about, say, PeopleSoft and SAP and that sort of thing? Or some other category?

When I'm shopping for a SaaS product one of the most important factors for me is trust.

Can I trust the product I'm using to stick around, to be secure, to not jack up prices?

If the product is clearly a clone of an existing product I'm much less likely to trust it - my very first introduction to them was through an action that doesn't inspire me to trust them!

High switching costs internally in terms of tooling and processes.

Also businesses recognize, broadly, that when vendors offer something for nothing, the value is commensurate with the price.

"Everything is worth what people are willing to pay for it"

Unless you're in a communist country and all.

Curious what other people think but I’d bet it has more to do with the prices that the market will bear rather than competition between products, and there’s a huge difference between consumer and business prices generally for this reason. This is reflected in consumer vs business SaaS tools, e.g. compare pricing of Apple’s iCloud vs Box pricing. Another factor is that for many services, there isn’t a clear marketplace as there is for consumer apps, and SaaS tools often grow via outbound sales, so the market is less efficient essentially.

Go try and replicate one. Get the team and the capital, build all the features, get all the certificates, get an enterprise sales team, and do all of this to… build a clone of an existing product? And what’s to stop them from cutting their prices until you bleed to death?

Best way to do this is a pure commodity play. Like something totally replaceable where the cheapest possible option that works is good. I’ve seen many Indian and Eastern European teams try this. Just google “[Some SaaS] vs” and see the products pop up. It’s possible but it isn’t as easy as it sounds.

Furthermore there are a lot of edge cases and special features you don’t see. Special flags they turn on for customers with some special need, or in some industry. Closing enormous b2b enterprise deals often includes a good amount of custom logic and integration that no one else understands.

SaaS is like a subscription for a multiplayer game. Did Xbox gold dropped or world of warcraft monthly price? Afaik no.

Because business owners don't have the time and resources to keep changing vendors to save 10% costs. Time is money.

Switching cost is more than you think. For example, I don't like Zendesk it's expensive and over-engineered. But I stick to it because I know how hard it is to port my docs over and re-setup the live chat. It's half a day work. To save $50/mo, it's not worth my time. My focus is growing my company, not to save $50/mo.

I run SaaS and spent alot in SaaS products.

The main thing SaaS companies do is navigate the politics of selling into businesses. The software is an implementation detail. So you can replicate the product, but you still have to do the (much harder) work of selling.

I question the "making money hand over fist" notion. Aren't the vast majority of SaaS companies burning VC money to stay afloat?

Like others have also said, trust plays a key role. Companies usually like to stick with a tool that already works and where they know what they're going to get vs taking a risk on a copy-cat to save a few bucks.

Marketing cost increase with competition. Usually a SaaS starts at loss, then when competition increase it make loss because higher cost per acquisition.

> yet they seem easily replicable

At a former job, we had a rule that if someone claimed something was easy or trivial or the like, they were assigned to accomplish it.

Because most Saas products are much harder to replicate than you think, and the market for Saas is 95% B2B where cost to acquire a customer is insanely high.

If your market is businesses with employees, the difference between $1/month and $100/month for a piece of software is a rounding error. This means even something that only saves the business an hour each month, is worth it for $100. Even if you buy 100 of these apps, it’s still cheaper than the all-in cost of a single employee.

Conversely, you could ask the same question about anything. For example:

A lot of [employees] are making money hand over fist yet they seem easily replaceable. Furthermore most [employees] don’t have network effects or large switching costs. Given these dynamics, why haven’t we seen a race to rock bottom in [employee] prices?

Either the market is persistently inefficient for some reason (usually isn’t the case) or there’s something you’re not accounting for in your assumptions.

If you’re one of the people who say things like "Intercom? Pffft! I could spin up a clone in a weekend!," I would say you're in the latter.

We've seen some in shared web hosting for example. Where switch is easy costs go down.

Better question. Why haven't prices for everything dropped?

Being SaaS seems to have already selected for the customers who are less price sensitive and/or willing to trade off price for convenience.

Running Costs and Revenue Management is why:

1) SaaS has a running cost; servers, support, devops, and so on You generally have a minimum cost to run a SaaS business. It's significantly less than it used to be, but it's still there. You have to run servers, unlike iPhone Apps that run on the consumers device.

2) The iPhone and Android App Stores were one of the purest environments for Revenue Management experiments we've ever witnessed.

By way of my background, I worked for a while in the transport industry a few years back, and was responsible for the platforms that sold over 4 million tickets online per year. I worked with revenue management teams, so have some experience in this area. And at the time we would discuss the App Store and pricing trends.

My experience does not grant me authority, these are just my observations and opinions :-)

So back to Revenue Management: The market for smartphones and customers for the App Stores kept growing and the distribution model of the App Stores meant it was easy to run global experiments on pricing.

App Developers quickly realised that their Revenue Management graphs showed increased Revenue and Profit when they lowered the price due to the never-before-seen size of the smartphone market. Suddenly software developers had access to millions of customers around the world who would pay 0.99c for an App.

You could entice new customer with low prices, and at the time it seemed like there was a limitless supply of new customers who would pay 0.99c. So as a business you kept on generating more and more revenue.

You could scale out your business to millions of customers at almost zero additional cost. As long as you didnt care about providing any support of course.

Later everyone realised that Advertisers would pay more, and we ended up with trash Adware Apps.

It’s a race to the bottom until someone has a durable competitive advantage: it’s usually a market based advantage or a technical advantage. The best companies achieve and maintain both.

When we are talking about medium to large enterprise customers, there is significant costs of switching a SaaS provider.

Vendor assessment, legal concerns, data privacy concerns, talks about SLA guarantees, talks about 24/7 support plans and much more. There will likely be several departments involved. Technical folks, legal people, data privacy experts etc.

That new deal could pass easily thru 50 peoples desk before getting signed eventually. For what? A 15% saving that could be wiped out with the next round of price adjustments from the new vendor? Simply not worth it. That is why SaaS revenue tends to be so sticky.

Every online service works to make sure their service is "sticky" and make switching difficult/expensive (no data export, etc.).

Tell me you have never run a SAAS business without telling me you have never run a SAAS business. Forget SAAS. RUnning a successful company is a lot more than building the product/writing code. You seem to suggest that it is "replicable" and I assume you mean the product/features. What you are not seeing is everything else that goes in running a company. Sales, Marketing, Customer Support, Team/Recruiting, Conflicts, Changing landscape, Competitors, Need to innovate with time, not running out of money and many more.

> A lot of SaaS products are making money hand over fist yet they seem easily replicable.

They aren't, though.

> Furthermore, most SaaS companies don't seem to have network effects or any particularly large switching costs.

On the contrary, switching costs is a big part of what they optimize for.

> Given these dynamics, why haven't we seen a race to rock bottom SaaS prices in and around $1 like we did with games and paid apps?

Games and paid apps that aren't shovelware shit don't cost $1 either (if they do, they're screwing you over with some combination of IAP, ads, and embedded surveillance frameworks).

My take: software resists commoditization. On top of that, SaaS is the ultimate attempt to ensure your software is not a commodity.

Think of it this way: is Netflix a competitor to Disney+? To HBO Max? To YouTube Premium? Only to the extend their catalogues overlap. Which, unsurprisingly, they don't. Since movies/shows aren't good substitutes - e.g. if I want to watch Star Trek, neither Star Wars nor Friends are actual alternatives - this means I have to pay for all of them[0].

It's obvious in case of video streaming, but you can extend this argument to any SaaS. Even for SaaS in ostensibly the same market, they tend to not have full feature overlap, and always find a way to make sure costs of switching are big. No common import/export format. Getting you used to a idiosyncratic workflow, or an interface. Unique integrations. Etc.

Think about a person working in Google's office suite collaborating with a person working in Microsoft Office. It's a painful, uphill battle unless both of them learn both systems and then pick either. But they still need to know both, because they're very much not equivalent and strongly non-overlapping in features.

In similar ways, they're protected from competition. Take Spotify. The streaming music player part is trivial to replicate these days[1] - but this fact doesn't spawn millions of competitors, because music player is not the valuable part of that SaaS. The deals with record labels are, and good luck getting those. Little competition -> not much pressure to lower prices.

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[0] - Which, in practice, means paying for one or two, and then sailing the high seas for the rest, because ain't anyone has time or patience to deal with half-assed enshittified webshit chrome around a semi-broken in-browser video player. But that's orthogonal to the topic at hand.

[1] - In fact, Spotify has been innovating hard over the last decade to make their player as annoying to use as possible - you really can't make something this anti-ergonomic on your first try.