VPN Industry

VPN Industry: SaaS or E-commerce

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PureVPN UpdatesVPN Industry: SaaS or E-commerce

Jump contests, shake contests, and WTF contests are the new normal. Really! Even qualified morons get surprised sometimes but they do participate in BS contests to prove being socially active.

One such contest we’ve seen is called “catch the tail.” An animal lies behind a curtain and a “daredevil” has to catch its tail. No one knows what the animal is and that is the surprise element! Catch it if you can! The challenge starts, and along comes an intelligent participant. A 150-pound face with a sly smile moves forward with Herculean steps. He reaches at the curtain and looks at the crowd with an “I can do it” impression. Then, he just does it.

Yup, he catches it! The crowd goes wild, he shouts “I have done it! YES!” to celebrate his accomplishment. Then, the curtain is removed and it is revealed the animal is a donkey. The macho contestant was really holding something in his hand, but it most certainly is not the tail of the donkey. OOPS!

The live crowd laughs, and a video is recorded and goes viral in no time. A royal embarrassment becomes part of history. With a heavy heart, the ridiculed “winner” walks along the river, devastated, thinking about ending it all, but then realizes that the water is not deep enough to vanish him. He then removes himself from those negative thoughts, and starts thinking positively to figure out what went wrong.

He mumbles, “Had I known its donkey, I would have changed direction of the approach or explored it at different heights or this or that….. Someone consoles him and says “come on, it’s done now. Don’t dwell too much and be ready for the next contest.”

Do business chiefs misjudge a donkey tail? Quiet often. Unlike social media, its news doesn’t go viral instantly but runs like a slow poison, and such judgmental errors can kill businesses. When the distance is narrow, the chances of the mistake are higher. In online businesses, ecommerce and SaaS are two business models which managers must be aware of so that right buttons are pressed and levers are pulled with honor to ensure business growth.

Mapping the difference:

Comparison E-Commerce ( Retail)SaaS
Stands forElectronic CommerceSoftware as a Service
Simple definitionOnline shop to sell productsOnline Software to solve a problem
Product typeSellingSubscription 
Transaction typeOne-Time (by design. Rest is luck)Monthly recurring subscriptions
Customer Acquisition Cost(CPA)LowHigh
Transactions volumeHighLow
Comparative No. of customersHighLow
Customer Retention %Low (customer is not hooked)High
Returning Customers %High-Purchased once, may returnLow-Left once , asks refund
Major consumersB2C and some B2BB2B and some B2C
Profit MarginLowHigh
Business RisksModerateHigh
Business GrowthLinearYou wonder!
Product variationsHighLow
Product Virility chancesLowHigh- Positive or negative
General business valuationLowHigh- T&Cs apply

Is the VPN Industry SaaS or E-commerce?

VPN Industry SaaS or E-commerce

Interesting question! Let me think for a moment!

On its birth certificate, a VPN is SaaS. As time passed, its technology became common and the number of service providers increased. This industry became commoditized because too many suppliers began targeting the same customer segment. To capture market share, a battle of price and long term plans offering started. Recurring billing subscriptions were replaced by one-time plans with hefty discounts which drifted this SaaS towards ecommerce.

In VPNs, the customer acquisition costs grow constantly, prices decrease, and margins deplete. Lower net cash flows decrease R&D costs and deteriorate general product quality. Generally, SaaS products grow in the B2B segment, but VPN providers focused more on the B2C segment due to that it lost its appeal for the B2B market which expects customized solutions, more stable products and attractive prices for bulk users based on actual usage rather than the fixed monthly bill.

Lets add a consumer behaviour perspective. There are multiple use cases of VPNs, and so are its user types. Security and Entertainment are major personas with respect to B2C VPN usage. 

Security conscious consumers tend to stay longer→ SaaS behaviour

Entertainment oriented consumer are seasonal→ ecommerce behaviour 

Within these broad categories, there are subcategories as well, like a traveler seeking online security with short term VPN needs. A sports and entertainment freak who needs to access global content will have long term VPN needs. Then there are B2B consumers, who prefer using a VPN mostly for security and remote access. These individuals tend to stay online longer but still some B2B clients who need remote access via VPN for temporary projects.

It’s hard to prove a point in this statistical era without a % of %. No matter how subjective is the subject topic, numbers do matter. With a colorful presentation slide, pumped up shoulders, and confident tone it can be said that the VPN industry is hybrid; 49.19% SaaS,  42.12% ecommerce, and 8.69% is still unknown to date. Ask me about the data source, I will simply run away with a 404 error. 🙂 

Why does this analysis matter?

If a business chief (not chef) of ecommerce confuses its business with SaaS, then s/he might overspend on customer acquisition, underspend on after sale service and have unrealistic growth expectations which results in catastrophic business cash flow forecasts. On the other end, if a SaaS Chef cooks a growth plan with an ecommerce recipe and then underspends on CPA, research & development, risk management, product virility, he’ll ultimately run out of any ingredients and materials in the kitchen. 

Each VPN business aspiring to excel has custom shades of SaaS and e-commerce which triggers the challenge of becoming the best. As such, try to figure out the animal behind your curtain, focus on appropriate KPIs, have the right direction, and catch the tail to be a winner.

K.K. Buksh K.K. Buksh does something at PureVPN. At the age of 40, he is half financial analyst. He projects that after 40 years he will become a finance guru.

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