Thank you for your comment. The SaaS model itself is certainly no guarantee of quality or a shortcut to success. We have discussed this topic in our SaaS-themed podcast, among other places. As you aptly write, in the SaaS model, the competitiveness of the product against other solutions is highly essential.
However, we believe that software companies operating with a SaaS model are significantly more interesting than so-called traditional software companies because the demand for SaaS-based software solutions is growing strongly, the SaaS business model is inherently more scalable than the traditional software business model (higher profitability potential), SaaS businesses capture a larger share of the value associated with software, and SaaS businesses are most often based on continuous, long-term contracts and customer relationships, as well as steady, highly predictable cash flow.
You mentioned Efecte as an example of a company that would be under pressure from intense price competition. In our assessment, the opposite is true, as Efecte’s competitiveness is precisely based on a combination of significantly lower total cost, higher flexibility, and a high-quality product from the customer’s perspective compared to competing solutions. That is why Efecte’s product competitiveness is strong, especially in mid-sized European customer accounts. For example, Efecte’s direct competitor, ServiceNow, typically does not even target mid-sized customer accounts due to the relatively high implementation costs of its product, but instead focuses on the largest companies. In global large accounts, factors such as a global delivery, service, and support network are crucial, which is naturally not a strength of Efecte, which is focused on Northern Europe. Furthermore, Efecte’s competitiveness against the largest global players is weakened by, for example, the narrowness of its distribution channel and sales resources, which means that the company’s brand awareness is not very broad. The company aims to address this through growth investments and focus.
The SaaS market is very much a winner-takes-all type of market, where the so-called first-mover gains a significant advantage over others. When investing in SaaS companies, it is therefore important to ascertain that the company’s product is competitive in its target market and that customer churn is as low as possible. In our assessment, both Efecte and Admicom among the publicly listed SaaS companies meet these conditions. For example, Heeroksen faces significantly tougher competition and a more mature market, which has reduced the company’s attractiveness.
Sincerely,
Petri Aho
