SaaS companies like Snowflake, Databricks, Confluent, and Elastic offer high-quality solutions that work well. However, these services are hosted on different cloud vendors, which can be problematic. Cloud vendors have their own alternative solutions, such as Redshift, BigQuery, PubSub, Kinesis, and OpenSearch, which can make it difficult for SaaS companies to compete.
Typically, SaaS companies keep an 80% margin, while cloud vendors keep another 60-70% margin (approximately 65%). So, if you spend $100, $80 goes to the SaaS company, and $13 goes to the cloud vendor, which means only $7 is spent on actual hardware.
My hypothesis is that if a cloud vendor were to develop a similar service, such as AWS OpenSearch (an Elastic fork), and offer it at an 80% margin, the cloud vendor solution would cost only $7/.2 = $35, which is one-third the cost of the SaaS service. Additionally, the cloud vendor solution would be better integrated with other vendor services, reducing infrastructure management toil.
This creates a challenging situation for SaaS companies. To compete with cloud vendors, SaaS solutions would need to be at least 2x better, which is a daunting task given that both SaaS and cloud vendors often use different flavors of open source.
My questions for the community members are:
1. Do you agree with my hypothesis?
2. If my hypothesis is correct, do you think SaaS companies will be able to survive the tough competition from cloud vendors?
Typically, SaaS companies keep an 80% margin, while cloud vendors keep another 60-70% margin (approximately 65%). So, if you spend $100, $80 goes to the SaaS company, and $13 goes to the cloud vendor, which means only $7 is spent on actual hardware.
My hypothesis is that if a cloud vendor were to develop a similar service, such as AWS OpenSearch (an Elastic fork), and offer it at an 80% margin, the cloud vendor solution would cost only $7/.2 = $35, which is one-third the cost of the SaaS service. Additionally, the cloud vendor solution would be better integrated with other vendor services, reducing infrastructure management toil.
This creates a challenging situation for SaaS companies. To compete with cloud vendors, SaaS solutions would need to be at least 2x better, which is a daunting task given that both SaaS and cloud vendors often use different flavors of open source.
My questions for the community members are:
1. Do you agree with my hypothesis? 2. If my hypothesis is correct, do you think SaaS companies will be able to survive the tough competition from cloud vendors?