How to make Money from SaaS #3

 This is the final installment on my series, "how to make money from SaaS". (Links to Part 1 and part 2 , this series also carried on Cloudave.com)

 

Step 7 Think about your channel model

How are you actually going to sell your service to end customers is something you need to think long and hard about. A lot of it will depend on what service you have and who you are actually targetting.

There are several models going at the moment, all with merit, all with one thing in common. You are going to spend loads on sales and marketing (if you didn't click through to, check out this graph from McKinsey's on my original post)

There are ways around this, all classic marketing… well actually not classic but well known marketing principles. Things like;

  • Know your customer inside out
  • Know who you won't sell too (just as important, avoid elephant hunting if it's not right for you)
  • Using the Internet, get some viral marketing going.
  • Think about how your service can help another company out. Think about leveraging their marketing spend to your benefit, here is a good example

In terms of actual sales channel, the way I see it they aren't any different from traditional channels.

  1. Be an Internet company – have a really really slick website that gives customers everything they need. Do all the right things in terms of online advertising, customer referrals, social media etc. I would also strongly emphasise giving free trials as a proof point in the sale
  2. Be a face to face sales company – get leads (somehow) but send in the sales guys to close the sale.
  3. Have a channel – think Microsoft, build a brand and let others sell the product for you (and perhaps wrap services around it too)
  4. Some hybrid of each of these based on who the prospect or segment is (salesforce.com)

The key element here is getting the mix right for your product and understanding your costs and how new sales translate into profit. A good post from Phil Wainewright details one providers experience.

I would also say that you have got to understand sales remuneration models and the impact on the business you drive and the costs you are incurring.

Step 8 Know thy customer

You have to stay close to your customers in any business, but SaaS (supposedly) is much easier to swap out. To me that means involving customers in your product development and enhancements is vital. If you can make a tweak based on sound feedback and have it out in a day or a week, imagine how powerful that is. But to do that, you have to be listening and you have to have the ability to include such feedback into your build.

Step 9 Be open to all clouds

At a fundamental level it seems to me that one of the major irritations of on premesis software is its proprietary lock in. Why replicate that?

But it's much more than that. These 'clouds' have thousands or millions of potential clients, why exclude yourself? Actually take this openness one step further and aggregate, try to be a traffic hub. I believe that aggregation is power. The reason for this is that others who are later will use this aggregation power for their benefit, that means you entrench yourself in their value chain…and that means money.

Step 10 It's a never ending journey

This service you have is never complete, technology doesn't stop changing and neither do your customers requirements.

The technical stuff will come when it does, the marketing stuff is up to you. Things like

  • Think about other ways you can sell your service. Niche's that can be addressed if you change your proposition and tweak your offering.
  • Think about roles within your existing customers. Who else can you sell the too within clients who have made the leap
  • Think about your customers channels, can you federate up or down the channel. What does that mean to your

So, that's the end of this series. Hope you enjoyed it. Merry Christmas

How to make money from SaaS #2

This is the second part in a series on how to make money from SaaS. If you missed it, here is Part 1 (It also appeared on Cloudave here)

Step 4 – Create a plan

This is the critical step in the metamorphosis from idea to actual start up. Why? Because it's the bit that describes the "how", and that information is really really important to investors.

No matter what your product does, you are going to need money to make it real. If you can articulate the process by which you are going to build and operate the product. How you are going to sell and market the product, how the business is going to run, and hence how you are going to turn a profit, you are in a good position to get funding. IPO, private Equity or Angel…. understand which is best for you and go with it.

The plan will also help you focus your staff, there should be one clear message that you can tease out of the planning process. 'Get Big Fast' (Amazon) or 'A PC in every home' (Microsoft) are good examples.

Step 5 – SaaS companies should buy SaaS

For goodness sake use your own software, and take SaaS every other way you can, bar one application (and I'll get to that). You have to live and breathe this, experience the highs and lows from a customer point of view. That way you keep your upfront costs down, know first hand what a pain in the butt an outage is, and understand interoperation and single sign on from a customer point of view. I repeat Live and breathe it.

But, keep one on premises application. For a similar reason, so that you'll understand the highs and the lows and have a balanced view. Your sales people can use this… "we deliberately kept our XYZ application on premise so we'd remember…"

Step 6 – Think long and hard about how you will build your service

Sinclair Schuller of SaaS Blogs (and CEO of PaaS provider Apprenda) wrote an excellent dissertation on the many acronyms of cloud computing platforms. The key here is speed, economics and reliability.

I refer you to point 5 above. Be a SaaS company. In my opinion, there is no way you should build every element of your service, that would be fiscally irresponsible given the plethora of platform offerings available today.

This opinion is especially true of the underlying infrastructure that delivers your service. Think about what goes into building a geographically diverse, robust operating environment. You also need to think about how and where you are connected to the internet because it can significantly affect the end user experience. All of this costs and absorbs time. Why even do it? A good PaaS provider has also thought through such things as billing, API interoperation (Salesforce.com and Amazon) etc. All very important, and sometimes easily forgotten.

If you are going to build stuff you have a lot of different choices depending on what you have as a service

  • Build it all in house – do this in a proprietary system or opensource
  • Go PaaS and only build the 'special sauce' part.
  • Go IaaS, build the OSS/BSS layers plus the special sauce

Any approach you take is going to have its pros and cons. To me the most critical part is to understand your costs and cash burn rate. Then look really hard at the numbers and seriously, in your heart of hearts, ask…. can we make money doing it this way. If the answer comes back positive go for it, if the answer is negative or marginal, consider the alternatives above.

 

All this technology stuff is cool but…

Without a change in the business or user culture or behaviour, you get no benefit. It seems to me that technology adoption is the greatest inhibitor to any IT projects success. Unfortunately the tried and true methods for addressing this, user training and senior sponsorship seem to fall short.  

Perhaps this is why technology continues to be saddled with its reputation for over promising its benefits,

 Any ideas for addressing this?

How to make money from SaaS #1

One of the most popular posts I ever wrote was “how do SaaS companies make money?” The title was rhetorical in that I analysed the underlying economics of a SaaS company. Judging by the amount of hits and threads (Smoothspan and SaaSBlogs), its something that people are interested in. So,now a year on, I thought I would write a series on …well how to make money as a SaaS company. Here goes.

 

Step 1 – Be really clear on what problem your service is solving

Just because its SaaS doesn’t mean its a winning proposition. If your service is a substitute for existing processes or software you will have to convince people your way is better. Better being faster, cheaper, more functional.  If your service is radical, solving the previously un-solvable, then you could be on a gold mine if you can sell it. As part of this article I’ve tried to think of who is a well known example of this, not easy. Potentially Google with Adwords. There is a downside to being radical too, you may have to educate the market which is an expensive proposition. Pingar.com is an example of this to my way of thinking. (hat tip, some of the thinking borrowed from Ben Kepes)

Step 2 – Be clear, you are in the scale game.

You really need to spend a bit of time finding out how big a market your SaaS could service. It better be large because you are entering the scale game. Scale drives down your costs, scale drives up your profit, scale is everything in a multi-tenant world.  If you can’t get to a scale position I would look at other delivery methods.

Large markets are important for revenue too.  Look closely at Telco’s, they  are the poster child of the subscription revenue game, you make a small amount of a lot of customers .

 You also need to think globally, its the internet stupid….its ubiquitous. Some poor soul might discover you and if you are set up to only deal with one small geography you got an issue. It’s called client dissatisfaction, a killer in the SaaS world.

Challenge existing market definitions and sizings especially from name analysts, take time to think. The reason for that is things like the long tail, things like untapped markets. It could actually be that your service, will substituting an existing offering is better suited to the masses. That is you could grow the market.

Take away message, know how big your market is.

Step 3 – know how you are going to make money

Be crystal clear on what value your clients are going to pay for and create a service that gives them that.  Google knew cost per click was their game, and this hasn’t changed.

More to come….

PaaS just got a new poster child, Cisco

What do Cisco, EMC and VMWare all have in common?  Virtualisation. Up until fairly recently they’ve all been playing in their own sandpits, but that’s is all changing. Cisco recently bought a chunk of VMWare from… EMC. So now you have  (arguably) the three leading vendors in virtualisation playing together. Not only in it, but tightly integrating.

Imagine one orchestration framework that could dynamically allocate you network, server and storage. That’s powerful… very very powerful. Think about why virtualisation hasn’t gotten 100% penetration? You’ve never been able to seamlessly link network bandwidth to server I/O or SAN space. Now you can, this is IaaS. 

Then extrapolate out what VMWare is doing with their View product. (Virtual Desktop Technology) and suddenly this triumvirate can deliver SaaS AS you WANT IT, and not just through a browser.  This is immensely powerful for an enterprise, it would be even more powerful for a MSP.

This isn’t just vapour ware either, reportedly Terremark are already doing this. Definitely watch this space .