C.K. Prahalad articulated N=1 and R=G strategy. CK, as he is known, is a great thinker, strategist and evangelist for technology that drives value. R=G is intuitive, resources (R) are global (G) and hence SaaS vendors seek resourcing globally to build SaaS technologies. Evidence of R=G is clear. Outsourcing is the norm with most Fortune 1000 firms. If you take the IT perspective, even Small to Mid-Sized Businesses (SMBs) are gaining momentum by taking advantage of IT project outsourcing to emerging markets.
N=1 is more intriguing. It implies that each instance is customized to each and every individual user. This requires more thought. One of the larger SaaS installations (salesforce.com) achieves N=1 is achieved by a product rich with user-customization capabilities. USourceIT built Assess OnDemand and Source OnDemand platforms with exactly N=1 in mind using on-site resources to identify the customer requirements and an off-shore team to develop and maintain the applications, and a Remote Infrastructure Management (RIM) team to maintain the delivery platforms based in the U.S. Both the applications team and the RIM team were based in India.
Outsourcing SaaS development actually makes sense. The primary reason is that SaaS installations require constant improvements to ensure that customers can adapt the use of the SaaS product to changing business conditions. This requires on-going infrastructure upgrades, application upgrades, data migration, performance testing and regression tests. These can be extremely expensive. By carefully developing an on-site/off-shore blended resource model, SaaS product vendors can reap huge savings, while continuously improving the product to the end-users. Savings of 40-60% are not uncommon.