The Two Unconventional Growth Areas for B2B Cloud Software Vendors— Explore BPaaS and DAOs!

It’s 2023. The stock market is still down and big tech announces lay-off after lay-off e.g the latest with Salesforce of around 18.000 employees. For sure this hurts, but also shows that tech companies are not operating in a vacuum of global economic challenges.

The two options for enterprise SaaS to stay profitable and keep the market valuation are to cut down expenses or open up new high-margin revenue streams. Many companies are taking the cut-expense route after years of opening new units, taking acquisitions, and loose marketing spending.

But are there options for enterprise SaaS to generate new, incremental, and high-margin revenue streams?

Fundamentals: How to enter new business models?

Entering new adjacent markets is difficult. There are multiple options that are easy to google or get taught at MBA programs. Find the following ones:

• Open up new geography (More countries, etc.)
• Open up a new distribution channel (Social Media, E-Commerce, etc.)
• Open up new customer segments (micro-segment, underserved segments, etc. )
• Open up new products and services (new products, bundles, etc. )
• New Business Models (Advertisement, Value-added-Services, etc. )
• New value chain steps (Forward integration, backward integration, etc)

The easier route to find adjacent opportunities is to ask the following questions:

• Which problem can I solve for my existing customer base where there is no current product or service available? (Product Development)
• Where can I find new customers with the same business problem, that I’m already solving successfully? (Market Development)

Problem: Where is the enterprise cloud stuck specifically?

The major issue for B2B cloud vendors is the current profitability and intense competition in the space. Growth, market share, and revenue have been prioritized over hard profit during a time when funding was unlimited and the economy booming.

In addition, the competition in the cloud playing field (Infrastructure as a Service, Platform as a Service, and Software as a Service) has intensified with big corporations like Google moving into the space heavily with Google Cloud or Venture Capitalist funding the new disruptors.

This means any new revenue and profit stream for an existing enterprise cloud player should be:

• high margin to generate profits on a < 3-year time horizon
• low incremental investment to go after this opportunity
• lower competition to safeguard the current moat
• leverage existing customer relationships and resources

Move-the-stack-upward: Business Process as a Service

As you might know, I’m passionate about Business Process as a Service (BPaaS). And especially for one following reason. It’s BPO in the cloud. The current BPO market is approximately at a market size of $251 Billion. And still growing. In addition, this offers customer much more benefits as they can use business processes only when they need them and let the vendor manage the whole process lifecycle.

The benefits of moving the stack upwards and offering BPaaS to the existing customer base are the following:

• Leverage existing customer relationships and knowledge about the customer IT landscape. Makes it easier to position outcome-oriented software like BPaaS.
• Most cloud players have already SaaS offerings. Taking this content, adding a process layer, and selling this is easier while leveraging existing resources and know-how that went into e.g. developing the CRM.
• BPaaS solutions can be sold at higher-margin. On the average cloud, players can achieve a margin between 60–80% with SaaS, PaaS, and IaaS. BPaaS on average achieves >80%.
• The space is underfunded and less competitive than the regular cloud categories (SaaS, PaaS, IaaS).

The pre-requisites to becoming a BPaaS player are the following:

• Common understanding and taxonomy for enterprise architecture in development, sales, and on the customer side.
• Business process insights into the customer landscape and outcomes the customer wants to drive.
• Your software should already be micro-service oriented as such you are able to re-package those services into “composable business capabilities”.
• The commercial model in place that fits BPaaS e.g. per transaction or per outcome.

On a side note. Moving into BPaaS needs investment. And if any company does want to come out as a leader, it’s not a small sum. But the price of high-margin profit and extending the customer lifetime value of enterprise customers is promising.

Move-the-stack-sideway: Web3 and DAOs

Web3 offers exciting opportunities to rethink business processes. The part I’m most excited about is Decentralized Autonomous Organizations (DAOs). DAOs are a new form of organization. And organizations need business processes to run e.g. incentive structures, payroll for tasks completed, onboarding, etc.

There is already a vivid landscape of DAO tools to offer certain processes. Great blog on this by Nichanan Kesonpat. But what if this is a new space for established cloud companies?

The benefits of moving the stack sideways and offering software for DAOs:

• Web3 is a high-growth space. It’s still small but growing astonishingly.
• Web3 offers new opportunities to rethink processes based on native capabilities e.g. with smart contracts and tokens. It's easy to design and develop a 10x product that customer love. With the know-how of customer processes, this becomes an even great advantage.
• You can circumvent the innovator's dilemma as you are already looking into the new market categories, which now seem uninteresting from a market size perspective.

The pre-requisites to becoming a DAO player are the following:

• Understanding of the Web3 and Crypto space. DAOs are an organization but a new type of organization. Understand this customer segment well before pitching solutions for them. Understand Web3 well before entering this as the dynamics are far more different then in Web2.
• Moving from Web2 (Cloud) to Web3 (Crypto) is the perfect innovator dilemma as explored by Clayton Christensen. Cloud players have a lot of resources but harden processes and understanding around the cloud. This is hard to change immediatly. One recommendation is to establish an independent subsidiary or to buy an established player and let them do their thing. By the time the market is mature, the organization has learned and mastered this market and customer segment.
• The DAO community relies often on open-source software to run their operations. You need to have the right commercials in place to take this opportunity.

In conclusion, I believe that BPaaS is the near-term opportunity every cloud vendor should focus on. It’s already a larger market (compared to Web3) that offers high growth opportunities and provides value to the existing customer base. Nevertheless, Web3 and DAOs will not vanish. Hence, it’s now the time to prepare a strategy for how to overcome the innovator's dilemma for this space.

Thanks for reading! Provide your thoughts or comments. Happy to receive feedback or help you with your Web3 strategy.

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• Medium https://medium.com/@simonengel
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Do you want to learn more about BPaaS? Have a look at my PDF:

• Business Process as a Service — An introduction to the next evolution of B2B Cloud Computing