Today’s global software-as-a-service (SaaS) industry generates about $209 billion in revenue. The core concept of online service applications which inspired early SaaS companies, began in 1961 by a computing pioneer better known as a founding father of artificial intelligence: John McCarthy.
Researching at MIT, McCarthy officially unveiled the idea at MIT’s centennial in 1961, foreshadowing the future of cloud-based services:
“If computers of the kind I have advocated become the computers of the future, then computing may someday be organized as a public utility just as the telephone system. The computer utility could become the basis of a new and important industry.”
IBM offered rudimentary cloud services in the ’60s, but the trend failed to catch fire until the late ‘90s.
Startups like USI, Futurelink Corporation, and Salesforce recognized significant benefits from service models, but it provided enormous challenges for established retail software giants, requiring new infrastructure, accounting models, customer relationship management, and more.
However, many leaders of today’s SaaS industry are former retail software giants. How did they survive while others failed? To find out, we looked at three leading pre-SaaS software providers that made the jump early and became successful SaaS companies that are still household names today.
Intuit paved the way for SaaS financial model
Intuit founded one of the oldest still-used software packages today—Quickbooks— in 1983, for DOS. Its success can be attributed to the company’s ability to adapt to major technological shifts in the computer age.
The enterprise software provider isn’t a SaaS newcomer, though. After bringing the industry-leading TurboTax to the Cloud, the company released Quickbooks Online in the early aughts.
It wasn’t until a company-wide shift to SaaS products, the purchase of the personal finance application Mint, and two major Quickbooks Online product updates to see the accounting software’s adoption rise.
What made it successful?
It has to do with generally accepted accounting principles that dominated early software development.
Ordinarily, developers built software as products, meaning they’re designed specifically to derive revenues from one-time sales.
This approach leads to some less-than ideal incentives for software development, including lengthy development periods that produced rigid products with limited post-release support.
The alternative Intuit pursued is known as ratable accounting, which shows revenue accrued for services—not physical or digital products—over a longer stretch of time. In developing a software service, they released a more initially limited offering and gave ongoing support and enhancements over the product’s lifespan.
Quickbooks Online, for example, took advantage of this format to release major updates. One of which, nicknamed Harmony, helped drive adoption from 516,000 in FY 2014 to about 1.2 million in Q2 of FY 2016.
“Before Harmony, if you wanted to setup QuickBooks you had to set a charter of accounts… things many small-business owners didn’t really want to do,” Intuit CFO Neil Williams said to Business Insider.
“If you go into QuickBooks today and launch it, it will ask you what business you are in and where you are located. If you are a florist in San Francisco, it will tell you we have 600 other florists in San Francisco, and this is how they set it up.”