“Service as a Software”

As an investor, I’ve run across a species of startup — and sometimes even more than startup — that acts as if it were a technology-powered platform of one sort or another, but is in fact a group of staffers frantically updating, tweaking, massaging, typing in commands, etc. behind the scenes.

I’ve started calling this kind of a company “service as a software”.

There’s some reason to do so.  SaaS companies are famous for having revenue leverage; once you’ve signed up subscribers (and provided they don’t churn) your revenues from them recur without any new cost or effort on your part.

Service-as-a-software companies are just the opposite: you never get out of the customer-acquisition cost, because keeping customers going requires labor power every step of the way.  Instead of recurring revenue, these businesses have “recurring CAC”.

Write in with your favorite examples of “service-as-software”…

2 thoughts on ““Service as a Software””

  1. Interesting

    Isn’t this a good “lean startup” strategy? (Do it manually until you validate market and have time to automate.)

    Failing that, isn’t this the “services offered” model of service delivery? (We do X things, where X small, and customer can buy by the drink. Internet PR firms seem to be like this. And Cybersecurity firms.)

    I don’t see how this model has any more CAC than any other. Wouldn’t that be determined by the type of service sold (onetime use versus longer-term, subscription use)? However, leverage is low because cost is predominantly variable cost.

    Wouldn’t it be cool to discover a business that works this way, but uses MechTurk or eLance or oDesk on the back end?

    1. I was being a bit poetic with “CAC”, but surely the cost of delivering the service, which in a business of this kind is ongoing and neverending, is part of the CAC. It’s why such businesses are low-margin (and why their owners want to pretend that they’re really software businesses).

      But you make a great point about MechTurk etc.-backed businesses. There’s something there.

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