Revenue Modeling for Software as a Service

The difference between Software as a Service (SaaS) and packaged software goes beyond the method of distribution. Obviously, SaaS is delivered over the internet on-demand, and packaged software is installed on user computers (desktops or servers). However, SaaS enables a whole variety of revenue streams that need to be considered carefully when determining its revenue model.

Sixteen Ventures web site has a presentation titled SaaS Revenue Modeling: Details of the 7 Revenue Streams. The authors classify revenue streams into two:


Scalable Revenue Streams
These revenue streams can scale significantly with the growth of the SaaS venture. Four such streams are identified:

1. Recurring: This type of revenue comes from site subscriptions. 
2. Ecosystem: The SaaS vendor realizes revenue by providing APIs to other players providing complementary offerings
3. Ancillary: Revenue coming for ancillary fees such as setup fee
4. Network: Anonymized and aggregated data from SaaS users is provided to those who will pay for it. This leverages the multi-tenancy of SaaS ventures.

Non-Scalable Revenue Streams
These are useful revenue streams but harder and sometimes impossible to scale. Three such streams are identified:

1. Products: Units that are shipped to users of SaaS - these could be devices and gadgets of sorts
2. Services: Setup, configuration, content development, software development, training
3. Advertising: Monetizes site by displaying advertisements alongside SaaS user interface

The presentation can be found on Sixteen Ventures site.