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Most software companies built today leverage the SaaS business model. SaaS’ impact on a company’s business can be profound, and it is something that any savvy investor must be aware of. (4) Less upfront fees means it is easier for users to try the product. In turn, users receive continuous support for the product and pay less upfront costs. (3) This continuous payment aligns the incentives of the users and software makers: since software makers are receiving the revenue from sales on an on going basis, they are incentivized to continue to update and develop the product. (2) Users have to pay a subscription fee to access the software. This has several massive implications: (1) Since the software lives in the cloud, it can be updated in real time and is impossible to pirate. The software and data are hosted in the cloud, which is accessible via the internet browser. In the SaaS model, users do not even download the software (software is no longer stored in a local computer). Over time, this digital delivery method evolved into what we know today as Software as a Service (SaaS). This resolved a lot of the challenges that physical retail posed, but still, the sale process is transactional. Users paid upon download and installation on a local computer. With the advent of zero marginal cost internet distribution, software makers began to transition away from physical distribution to digital distribution. This meant that many softwares eventually were running with severe security holes that never got updated. Furthermore, developers often stopped updating old softwares as there was no monetary incentive to do so. This model made it difficult to patch security issues, fix bugs and add additional features. This meant that software was dependent on physical distribution, and that the sale process was transactional – users only paid once during the sale, and developers never knew when users would purchase the next iteration of the software. In the olden days, software was stored in physical media (CD/DVD), packaged in a box and delivered through retail.
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