SaaS Business Models Keys to Success

Logi Analytics Powering embedded analytics inside software applications

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From 2014 State of Embedded Analytics Report

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Deployment model:

52% of software providers say

transitioning to a SaaS model

is an important priority

Speakers

Rich Mironov

• Veteran product manager/executive/strategist

• 6 startups, including as CEO/founder

• “The Art of Product Management”

• Founded Product Camp

Alvin Wong

• Product Marketing Manager, Logi Analytics

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Service Model Thinking

• Many of us grew up as

“on-premise” product managers

– Shipping media = revenue

• SaaS changes business models,

not just hosting locations

– Trial, upsell, segmentation,

success metrics

• Vendors now responsible for

user’s positive experience

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On-Premise Software

• …is like delivering groceries

• User (or IT) is responsible for

• Choosing the right items

• Combining them correctly

• Updates, patches, fixes

• Managing hours and uptime

• Serving/helping users

• Producing tasty results

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SaaS: Software-as-a-Service

• …is like running a restaurant

• Serving complete meals

• Many customers

• Hours and availability

• End users interact directly

• Attracting repeat buyers

• One bad experience is

never forgotten

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SaaS is Default Delivery Model

• Consumer migration from desktop to mobile

• Companies closing IT-run data centers

• 10x less expensive to deliver

• “Software is eating the world”

• Strategic reasons for on-premise software – Embedded in hardware (e.g. routers)

– Data security (military)

– Adjacent systems

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At All Software Layers

• Infrastructure as a Service

– Rackspace (VMware)

• Platform/API as a Service

– Amazon AWS/EC2, SalesForce

AppExchange, Google App Engine,

Heroku…

• Application as a Service

– Twitter, Gmail, SalesForce,

DropBox, Flickr, NetLedger…

• Most new software is (X)aaS

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Many Business (Pricing) Models

• Subscriptions

– Music streaming, surveys, data

storage, CRM, domain registration

• Transactions

– Per click, per download, per stock trade,

per movie ticket, per VM, per tax return

• Freemium

• End user app vs. API

– Systems can access systems directly

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SaaS Pricing Tiers

• Bundles of features/services/benefits

– Simplify choices for mass audience

– 3 or 4 tiers, no “specials”

• Entry tier must be more than viable

– Basic/trial: entice user to purchase

– Freemium: drive usage for vast majority

• One or two major reasons for upsell

• Requires that you really understand

distinct needs of customer segments

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Service Tiers/Bundles

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Basic

Expanded

Advanced

Core feature #1 √ √ √

Core feature #2 √ √ √

Core feature #3 √ √ √

Baseline support √ √ √

Baseline capacity √ √ √

Monthly newsletter √ √ √

Major upgrade feature √ √

Cool feature √ √

Capacity update √ √

Support upgrade √ √

Professional feature √

Tons of capacity √

Concierge service √

CEO welcome letter √

Markets, Not Developers, Define Tiers

• Basic product must impress new (trial) users

– A few cool features, trivially easy to demonstrate value

– Low-end segments with reasonable end-to-end use cases

• Upselling is really segmentation

– What usage scenarios match your upsell customer base?

– What features will next-tier customers willingly pay for?

• Clear/reasonable choices for customers

– Volume plateaus, multi-user delegation, usage reporting,

support levels (24*7), custom training, migration support…

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Avoid Multiple Pricing Schemes

• Adverse selection

– Occasional customers choose “by the drink”

– Volume customers pick “all you can eat”

• Increased customer complexity

– “Too hard to figuring out…

so I won’t buy either plan.”

• Increased operational complexity

• Encourages more “specials”

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Attention Spans Are Shortening

• Mobile apps feed instant gratification

• Web surfers spend under 30 seconds

on a new site

• Twitter/Facebook streams

• Consumer-grade UI/UX has

migrated to B2B (Gmail, Jive, Rally…)

You have less time than ever to show value

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Showing Value (Very) Quickly

Consumer (B2C)

• Websites and mobile apps must be trivially easy to try

• Smallest possible “aha!” experience

• Sign up and use first feature within… 45 seconds?

• User experience is make-or-break, not afterthought

Business (B2B)

• Productivity trial looks like consumer

• Need to entice B2B pioneers

• How to prove value of complex service?

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Incremental Sales Cycle

Initial subscribers sign up more quickly, but…

• Easy, cheap trial is #1 benefit of service model

• Pioneers are really in extended sales cycle

• First taste must be great

Revenue ramp is slower

• …upsell to more users

• …upsell premium features

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Getting Real User Feedback

• Old on-premise model: second-hand feedback – Customer meetings, third party surveys, sales issues,

annual user groups, online forums, industry analysts, product reviews…

– What are their agendas?

• SaaS model: your own data – Marketing automation/analytics

– Clickstreams, error reporting

– Screen-share with UI volunteers

– What features are really being used?

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Continuous Marketing

• “Shared success” service model

– We can’t grow your account until you are happy

• Touch users early, often, honestly

– Transactional: when they do something

– Periodic: monthly hints, support contacts

– Specials, referral bonuses, feedback,

rewards, new features (sparingly)

• Continuous marketing = constant upsell

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Behavioral/Activity-Based

• Experiment, experiment, experiment

• Trigger-based communications

– Successes (user tried a new feature)

– Recovery (dropped transactions, help, tickets)

– Retention (idle user)

• Usage, segmentation, insight

– How do we know which users

are succeeding? Failing?

– Testable hypotheses

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New Kinds Of Service Metrics

You need an Operations team with SaaS skills • Uptime SLA (“Application up 99.95% of the time except…”)

• Response Time (“98% of log-ins take <1.5 seconds…”)

• System Capacity (“Add CPU when usage >60%...”)

• Support Escalations (“P1 first response within 15 minutes…”)

• Reporting (“Billing reports showing all customer transactions…”)

• Software Updates (“Push software weekly at 1AM Sunday with roll-back…”)

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You Own Customer Satisfaction

• As a service provider, any problem is your problem… – User-generated errors

– Poor UX or workflow

– Downtime and data loss

– Networking failures

– Browser/phone differences

– Security holes

• How can you design and engineer for satisfaction?

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Takeaways

• Software has already moved to the cloud

• Focus on consumer-style trial, adoption, pricing

packages and behavioral analysis

• Avoid pricing “specials”

• Marketing (selling) moves from

discrete to continuous

• Much deeper Operations skills

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Contact

Rich Mironov, CEO

Mironov Consulting

233 Franklin Street, Suite 308

San Francisco, CA 94102

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/in/RichMironov

@RichMironov

Rich@Mironov.com

+1-650-315-7394

www.Mironov.com

2014 State of Embedded Analytics Report

• Executive Insights on

Embedded Analytics

• Why Embed Analytics

• How to Embed Analytics

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http://learn.logianalytics.com/2014-soea

#SOEA

QUESTIONS?

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SaaS Business Models Keys to Success