SaaS Blog | Sixteen Ventures

Analysis: Reaction to Mimecast's Cloud Barometer Survey

Thu, 22 Jul 2010 11:25:40 -0500

Justin Pirie - Director of Communities and Content at Mimecast and one of the best SaaS minds in the world - sent me the results of some research they published today. The report is titled "2010 Mimecast Cloud Barometer Survey" and the research was conducted by Loudhouse Research. You can grab a copy of the PDF here - its behind a lead capture form but it is definitely worth giving up your precious contact information for.

Loudhouse surveyed 500 IT decision-makers to see how corporations view their data, how they manage the email systems that transmit information, & where cloud solutions fit into the landscape of corporate data management. For SaaS vendors, like Mimecast, this can really help you shape your messaging and understand how your customers are thinking. If your marketing, pricing, distribution methods, etc. are not aligned with the customers' expectations and requirements, no matter how good your product is, you will likely fall short of your sales goals.

Some interesting points I took from the report and my comments...

Cloud usage is up - 51% of respondents say they use cloud compared to 36% in October last year. I think this is significant since those surveyed were IT staff and they typically under report the cloud usage compared to the "business side" - purchasing, accounting, departments, etc.
In terms of usage- our survey found Email (62%), security (52%) and/or storage (50%). CRM used to be the gateway drug for "the cloud" - but now they say its email, security, or storage. Obviously this is skewed a little bit because it was the the IT side of the business that was surveyed. On the "business side" - whatever that is - there are probably new gateways drugs beyond CRM - probably utility or narrow-band horizontals like Yammer or YouSendIt. Email, storage, etc. are the low-hanging fruit of the IT department that could be moved to "the cloud" much easier than core business applications, especially proprietary or highly modified versions of commercial apps. Of course, this result is great for Mimecast which sells an service that enhances Microsoft Exchange.
In terms of planned usage - 66% of respondents said they were considering starting to use or increasing use of "the cloud". What was interesting though is that 29% of people who aren’t using cloud today are planning to in the next year. I think that number will grow, and could change substantially in the next couple of months as 2011 corporate budgets are reconfigured. For IT shops looking to begin migrating some of their infrastructure to "the cloud" I think they are going to be looking heavily at their existing infrastructure investments to see if there are ways to leverage "cloud-like" technologies to extend the life of that equipment. Without starting a debate about whether or not private clouds exist or if "hybrid" is a word that should be used in the context of "cloud," the reality is that a vendor that recognizes this reality and can help the IT group deal with it - perhaps using virtualization to slice up and extend the life of on-prem hardware while offloading the low-hanging fruit mentioned above like storage, email, etc. they'll be more effective than coming in and saying "move everything to to cloud now!"
Finally, the cost argument is back... 73% think their IT infrastructure costs are lower with cloud. Well, if you have a premium service or high-overhead and can't compete on price against some of the more commoditized services like Amazon Web Services, how do you compete? How do you differentiate your offering in a way that takes the focus off of the cost and puts it on the benefits? If you really understand your customers needs and wants, and understand their value perception of your product, you can price in line with that value perception. And don't think that "cheap" or "commodity" services like AWS don't have value-based pricing. Of course they do - their value is in being cheap (per unit). Is that the value your product or service brings? You need to be aware of this when developing your pricing.

Great research and thanks to Mimecast for publishing it and thanks to Justin Pirie for giving me a sneak peak. Oh, and if you are a "cloud" vendor and need help with your pricing or marketing strategy, contact us to get started today.

Author: Lincoln Murphy (@lincolnmurphy on Twitter)

Fast Company article about Freemium features Sixteen Ventures

Wed, 21 Jul 2010 13:30:00 -0500

I was interviewed by Fast Company about Freemium and that issue of the magazine is currently on the shelves at the bookstore. The context of the interview was the potential downside of Freemium - which I'm somewhat known for - and in particular how it relates to Freemium poster-child Evernote.

You can read the "Remember the Money: Evernote CEO Phil Libin's 3 Steps to 'Freemium' Success" article on the Fast Company site or you can find it on page 42 of the tree-killer version.

Thanks to Fast Company for the opportunity to help ensure the "other side" of Freemium in SaaS - the cautionary side - is presented in mainstream articles.

Author: Lincoln Murphy (@lincolnmurphy on Twitter)

Why the SaaS Quick Start Program Will End on Sunday

Sat, 17 Jul 2010 00:08:50 -0500

The Quick Start program for SaaS & Web Startups is ending Sunday 7/18/2010. Are you sure you don't want us to help you with the Pricing, Revenue Modeling, Marketing or Business Strategy for your SaaS or Web App? The program is going away after Sunday and at least for a while, if you want to work with us, it will be on a project or retainer basis! Remember, you just have to sign-up for a Quick Start session by Sunday - we will work with you on your schedule, at your pace.

So why are we getting rid of the Quick Start program if we love early-stage startups so much? The idea for the Quick Start program came about after having to turn away so many startups due to cost issues. We wanted to develop a way to work with SaaS & Web App founders who are smart, capable, and willing to work hard, but might lack some direction or need some guidance. For technical founders, for instance, Revenue Modeling & Pricing are two areas where they often lack experience.

So we figured out a way to work with startups, in a way that they could afford, didn't take too much time, and could send them on their way to bigger and better things. They would get one two-hour meeting with one of our consultants for only $500.

This worked well at first, but then we started making changes based on:

Client feedback
Observations of how our clients really want to work
The realities of what can be accomplished in such a short amount of time
The need to let ideas develop between meetings
The need for additional research between meetings
Our desire to provide as much value as possible

Since the introduction of the Quick Start program in March, we have:

Split the single meeting into 2 1-hour sessions
Then we added email communication / homework between meetings
Then we added a third hour as a marketing gimmick after the Zendesk pricing debacle
Then we spread the meetings over a few weeks to work at the client's pace

All of this has resulted in a much different service than the Quick Start program was originally designed to be - it has evolved to what it is today - which is what you will get if you sign-up on or before Sunday - and we've learned a lot from that process. It is a wonderful service that has proved valuable for many companies, including:

MODx
New Bamboo (Pusher & Panda)
Loop11
Metaconomy
ProProfs
Conductrus
Threadbox
And many others - hopefully you too!

But we need to take a step back and look at the program in the context of Sixteen Ventures' goals and direction, and even more important, address the fact that the one-size-fits-all nature of the program isn't the most efficient way to work, especially spread out over weeks or months. Different companies, at different stages have different needs.

So, the great news is that the Quick Start program will be replaced by multiple offerings more aligned with the way our startup clients want to work, the expected outcomes, and in a way more aligned with how we work, too. I am VERY excited about these changes even though exactly what the new offerings will look like - and when they will launch - has yet to be determined.

In an effort to make sure we help as many people as possible we didn't just want to end the program without at least letting everyone get in before its too late. So, if you like working with Sixteen Ventures in bite-sized pieces, think you would (and believe me - you would), or know of someone that would, sign-up for the Quick Start program on or before Sunday 7/18/2010 - we just don't know when the other offerings will become available and you don't want to miss out!

Author: Lincoln Murphy (@lincolnmurphy on Twitter)

SaaS Quick Start Program Ends Sunday

Thu, 15 Jul 2010 16:22:29 -0500

Just a reminder that we won't accept new sign-ups for our SaaS Quick Start program after Sunday 7/18/2010. If you want to take advantage of our Quick Start program to help develop the Pricing, Revenue Modeling, Marketing or Business Strategy for your SaaS or Web App, you must sign-up before Sunday. You just have to sign-up before then - we will work with you on your schedule, at your pace.

At Sixteen Ventures we work with about 80% early-stage startups and 20% established companies - in terms of client volume. It is offerings like the Quick Start program and Pricing Page Tune-Up™ services that lead to the disproportionate numbers of small startups vs. large clients. We push those programs so heavily because they give us an opportunity to help very early-stage companies that would otherwise not be able to afford guidance from a consulting company so deeply entrenched in the SaaS industry. And we're building our future "big company" clients from the ground up.

The great news is that the Quick Start program will be replaced by multiple offerings more aligned with the way our startup clients want to work and the expected outcomes. I am VERY excited about these changes even though exactly what the new offerings will look like - and when they will launch - has yet to be determined.

If you like working with Sixteen Ventures in bite-sized pieces, think you would (and believe me - you would), or know of someone that would, sign-up for the Quick Start program before Sunday 7/18/2010 - we just don't know when the other offerings will become available and you don't want to miss out!

Author: Lincoln Murphy (@lincolnmurphy on Twitter)

In-App Pricing and Customer Lifetime Value (CLV)

Tue, 13 Jul 2010 15:21:30 -0500

One of the great things about SaaS & Web Apps is the fact that your customers and users are a captive audience. One of the major mistakes many SaaS & Web App companies do is forget that! Too many vendors put all of their time, effort, money, resources, etc. into getting people to their site and converting visitors to customers or registered users - and then they stop.

For those that are successful at getting the visitor to sign-up, they often stop most marketing activities right there. There are many reasons why a vendor might do this, but it usually comes down to these: 1) simply not thinking it is necessary to continue to market (vs. communicate) to the user / customer once they are "in" the system or 2) they think the App is so great it will sell itself - or the "premium features" will cause customers to trip over themselves to upgrade. The latter is one of the primary reasons Freemium fails.

Whether you are attempting to convert free users to customers, or up-sell existing customers, it is critical that you remember this: the same rules apply for in-app pricing pages as for public-facing pages. The ability to perform in-app up-sells to your active customer base is key to growing Customer Lifetime Value (CLV) - a key metric for measuring the success of a SaaS company. Of course, there are other factors that come into play. You have to have a great product that works, your customer service has to be great, streamline workflows, etc.

To be clear, you do not have to have a full "pricing page" in-app, but the same principles that apply to public pricing pages apply to in-app pricing screens/pages/etc. This is especially true when you force all customers to go through a "Free Trial" sign-up before they can give you their money (a topic for another day). If the internal pricing page, requires ~6 steps to get to, including a trip to the email inbox, before the customer has an opportunity to give you their money, it better convey a significant amount of value around that pricing. Why some app vendors put up barriers to taking money from customers still eludes.

The internal or in-app pricing page should be as much about marketing as the public-facing pricing page. But for many SaaS & Web App vendors there does not seem to be a marketing effort around in-app pricing, often there is just an option to upgrade that brings up an order or sign-up form. The message around it is usually "Get premium features..." which is not compelling, especially when you are not really sure what you currently have - another problem with many vendors' use of "Free."

The only difference between public pricing pages and in-app pricing pages is that your users or customers have already taken a step to move into the application and have now clicked Upgrade. This means that they are ready to be reminded of why they should pay you or upgrade - but it does not mean they are ready to buy. Assuming that clicking on "upgrade now" is a guaranteed sale can be a costly assumption and can kill CLV growth. The in-app pricing page should be as much about marketing as elements external to the application. While the workflow may be a bit different, the ideas are the same.

How is your pricing page working out for you - public or in-app? You could probably use a Pricing Page Tune-Up™ - sign-up today for only $149 and ensure that you are on your way to solid CLV growth. Yeah, we'll check out your in-app page, too!

Author: Lincoln Murphy (@lincolnmurphy on Twitter)

What is the Goal for your SaaS or Web App Pricing Page?

Mon, 12 Jul 2010 11:57:42 -0500

What is the Goal for your SaaS or Web App Pricing Page? If you said "show the price" you are missing the big picture! Even if you just said "make sales" you could be missing something.

When you sign-up for a Pricing Page Tune-Up™ we ask you to tell us your goals for your Pricing Page. This is quite often the first time our clients have been asked this question - or have even thought about their Pricing Page as anything more than a price list with some fancy rounded corners and a sign-up button.

Here are the five Pricing Page Goals we present at sign-up. Whether or not you sign-up for a Pricing Page Tune-Up™ - and you really should - look at your pricing page and ask yourself what your goals are:

Increase Sales - For many SaaS & Web App companies, a zero-touch, fully automated sales and provisioning process is the goal. Knowing this is the goal will help us determine if there are barriers, including funneling leads to a nonexistent sales team, that could hinder the achievement of this goal. What barriers to sales have you constructed?

User Growth / Traction - This should only be associated with Free or Freemium services, but is often mistakenly attached to companies with Free Trials. If a company will charge customers but use a Free Trial to allow customers to “kick the tires,” all efforts should be put to Increasing Sales with Free Trials a step to making a sale - not as a stand alone effort. Do you have a clear strategy around your use of "Free?"

Lead Generation - SaaS & Web Apps are not required to use a zero-touch, fully automated sales and provisioning process. There are always going to be situations where SaaS sales requires human intervention especially as SaaS evolves to include more large-scale, complex business systems. Whether that human touch is pre-sales consulting, on-boarding support, or custom quotes, there are going to be times where getting contact information and context to forward to a sales person is the only way to go. Many companies have both high and low-touch scenarios and by attempting to fully engage with all customer types from a single pricing page the message could be lost causing potential sales to be lost. Is your Pricing Page trying to be all things to everybody?

Market Position - Are you the low price leader? The high end niche player? Pricing has a lot to do with this. But if you have a high price and low-end messaging around that price, your market position can be hurt. Market position as defined by Sixteen Ventures is your position in the mind of your market against your competitors' value proposition. Is your Pricing Page accurately representing your place in your target market's mind?

Other (added by client) - Did we miss a goal? Let us know if you expected something else from your pricing page in the comments. Quite often, the only options checked are More Sales and Lead Generation. It is not clear to many companies that their pricing page performs so many duties at one time.

Sign-up for a Pricing Page Tune-Up™ today for only $149 and learn how you can improve your Pricing Page to meet these goals and grow your SaaS business!

Author: Lincoln Murphy (@lincolnmurphy on Twitter)

Quick Start Program is Going Away - Get in Before it is Too Late!

Fri, 09 Jul 2010 17:41:34 -0500

The Quick Start Program - introduced earlier this year - has been a HUGE SUCCESS for our clients. One of our clients told us they grew their recurring revenue by $5000 after just one Quick Start session with us - literally just a couple of hours - and a week to implement the changes. That isn't just a 10x return since it is recurring revenue! In fact, check out this tweet from one of our Quick Start clients:

Sad to see it go. 1000% worth it: Quick Start Program is Going Away - Get in Before it is Too Late! http://j.mp/akAYLM /via @lincolnmurphyless than a minute ago via Twitterrificrthrash
rthrash

Other success stories include clients who we helped obtain Angel and VC funding, make strategic hires, engage with channel partners, develop Pricing plans, and streamline their overall business model. About half of our Quick Start clients considered themselves SaaS and the others were Web Apps.

Clients from California to Boston, and Australia to Denmark have leveraged the Quick Start program to kick start their SaaS & Web App startups. So many great things to report, but we need to shut it down. This was never intended to be a permanent offering from Sixteen Ventures, and the timing dictates that we stop offering Quick Start sessions.

So, if you ever wanted to get a Quick Start Session, or if you are a former Quick Starter and want another series of sessions, sign-up today. Starting July 18, 2010, we will no longer accept sign-ups for new Quick Start sessions. We will of course work with our current clients at their pace to finish out their Quick Start programs.

But starting 7/18/2010 you will not be able to get 3 hours of one-to-one time plus homework in between meetings for only $499.99! But for now, you still can.

For a limited time, for only $499.99 you can leverage Sixteen Ventures' SaaS & Web App experience and deep industry knowledge that is second to none to help you with your:

Business Strategy (Revenue Growth, Positioning for Funding)
Revenue Modeling (Recurring Revenue, Secondary Revenue Streams, etc.)
Distribution (App Stores, Trusted Advisors, etc.)
Pricing Strategy (Pricing, Pricing Page Design, Value Messaging)

But after 7/18/2010, you will not have this opportunity. Don't let it pass you by! Quick Start sessions have already worked for Threadbox, Metaconomy, ManagerLabs, govAscend, ProProfs & others... schedule yours today before its too late. Don't miss out!

Author: Lincoln Murphy (@lincolnmurphy on Twitter)

The Shelfware Perception in SaaS is a Pricing Failure

Wed, 23 Jun 2010 00:12:47 -0500

Back in March, SaaS CRM vendor Rightnow announced a new pricing strategy that centered around the notion of eliminating "Shelfware-as-a-Service." This was a great reminder that "Pricing is Marketing" - and that marketing worked! Rightnow put the idea out that there that customers are paying for "seats" or "users" on SaaS products that they aren't using and made the industry take notice. Brilliant strategy and it absolutely got the industry talking. For some reason, that "chatter" picked up in recently with analysts and pundits bringing this up outside of the discussion of Rightnow and in the greater context of SaaS as a whole.

Shelfware comes from the way that people bought packaged, on-premise software and didn't use it - it literally sat on the shelf and was never opened. Shelfware in SaaS comes from the idea that companies are paying for "users" or "seats" that they don't need and are now realizing that. The problem doesn't seem to be only with the notion of paying for something you don't use but seems to be with the apparent conflict with the original "promise" of SaaS as "pay as you go" software. It seems that Rightnow was smart in their anti-Shelfware campaign as they saw an opportunity and ran with it. But for SaaS vendors in general, this is not something to be taken lightly especially as FUD against SaaS, including the "Shelfware Perception," continues to propagate.

The fact is, since SaaS is so unique, it is surprising that "shelfware" would even exist in this world. It is potentially excusable in legacy software where the vendor makes the sale and the customer gets a CD or DVD with the application and is left on their own to actually install and use the product. Unless they pay for on-boarding and setup, the vendor has no idea if they will actually use it. And even then, unless they have some type of ongoing maintenance plan, the vendor will have no idea if the customer is using the product.

Even with a maintenance plan, the vendor won't have constant knowledge as to the the usage patterns of the product by the customer. In SaaS, this excuse goes away. If you are a SaaS or Web App vendor, you must monitor your customers' usage patterns and be proactive with the information gleaned from that process. Just as you nurture leads or sign-ups to convert them to customers, you need to nurture your customers to ensure they are actively using and growing with the system.

But I need to give a couple of reminders. First, remember that a great deal of the value derived from SaaS happens outside of direct use of the product. Think of the continuous improvement to the software itself, constant vigilance by the vendor to ensure business rules are up to date (tax laws, industry requirements, etc.), infrastructure upgrades, support systems, backups, etc. These are elements that the end-customer would have had to support in the past so it is clear that even if they aren't using all of the "users" they are paying for, they are clearly getting a tremendous value simply by being your customer.

Second, SaaS is not a Pricing Model! To be very clear, SaaS does not mean "per user, per month" billing. You have to understand that. SaaS is an overall business architecture and your pricing must reflect the relationship between you and your target market and the value they feel they will derive, and how they will derive that value, from your product. All external factors, including what other SaaS vendors are doing, is irrelevant. This means that you must ensure customer-facing pricing is aligned with value perception by those customers. "What's in it for them?" is the mantra that should resonate in your head all the time.

If you understand all that, it should be clear that it might not always make sense to include users, seats, etc. as a key metric in your pricing if that is not an actionable and valuable metric to the customer. The IT groups might think in terms of "users" but in other areas of the business perhaps there are better things to focus on. Transactions, value-adding features (keeping in mind how those features help the end-customer, of course), connections to other vendors, etc. You should seek to base your pricing on something that your customers will find continued value in - continued being the key word. That continuation of value perception needs to consider the notion of a growth in usage complexity, an increase in requirements, etc.

Where many vendors get into trouble is in versioning. Many SaaS vendors do "bundling" where they create different bundles or tiers based on some metrics - features, users, storage, etc. - and charge a different price for each. This is what you see on almost every SaaS company pricing page that offers price transparency. Where the SaaS vendors run into the "Shelfware Perception" issue with versioning is often in the selection of the bundle differentatiors. Far too often the bundle differentiators are not value-added, but are instead commodity or low-value items - at least in the minds of the customer (which is all that matters at this point). Is a user - the key idea in this post - a low-value metric? It can be and it is up to the vendor to understand if that is the case.

Consider this situation... What if you make your customer choose a more expensive bundle with 100 users, when all they have are 10 users, just so they can get "Feature X?" They will curse you every time you bill them and possibly start looking for an alternative solution with the correct value proposition since they are paying for users they don't use. In their minds they are paying for users they don't need even though they are clearly benefiting from, and would pay the same amount for - maybe more - Feature X. It is all about value perception from the customer standpoint and if you took the time to clearly understand user behavior and market dynamics, you would not have the "Shelfware Perception" problem in the first place.

But you thought SaaS = Per User, Per Month pricing - that clearly isn't the case. So what do you do? You contact us to get started immediately on a new pricing strategy for your SaaS or Web App, including a plan to move from your current one.

Author: Lincoln Murphy (@lincolnmurphy on Twitter)

As SaaS Evolves, So Will SaaS Pricing

Mon, 21 Jun 2010 12:12:35 -0500

From time to time I feel I must remind everyone - buyers, sellers, pundits, commentators, & analysts - that SaaS is not a pricing model or pricing strategy. From the vendor side, Software-as-a-Service (SaaS) is a unique Software Business Architecture where service is the focus over the technology. From the consumer side, SaaS is on-demand functionality that solves business problems, putting the focus more on the "service" aspect than the "software" SaaS might displace.

So, the notion that if you have a web-based, multi-tenant software product you must adhere to the same pricing tactics employed by every other vendor has come and gone. Just as SaaS vendors have created some amazingly sophisticated products that are a far cry from the simple web-based CRUD apps put out five years ago - not just because the technology has improved but the expectations of the market have matured and evolved as well - the pricing strategies employed by the vendors have evolved as well. And this is a great thing!

The impetus of this post came from an article on ZDNet by Larry Dignan the other day titled "SaaS pricing evolves: Should we be worried?" In that article Dignan discusses changes in SaaS pricing, especially around the "open secret" that some companies are signing multi-year contracts with SaaS vendors which prompts him to ask the question "Is this really SaaS pricing as initially conceived?"

As should be very obvious, SaaS itself has matured since the term was coined back in 2004 and now represents every functional area legacy software did. SaaS has moved beyond the small vertical, niche or departmental apps or less "mission critical" horizontal products - Salesforce.com, YouSendIt, Yammer for example. In 2010 you can run your entire business in the cloud with real SaaS products including wide-band horizontal products that a few years ago pundits questioned whether they were a fit for pure-play, multi-tenant SaaS. These include such "not fit for SaaS" products as: Human Capital Management (HCM) from Workday and Enterprise Resource Planning (ERP) from Plex to Material Requirements Planning (MRP) from Rootstock or Supply Chain Management (SCM) from SPS Commerce. So as the complexity of what is available as SaaS and the requirements around the solutions (customization, on-boarding, training, etc.) evolve, it only makes sense that the pricing must evolve, too.

But it isn't just the increased complexity of the products that has caused an evolution in SaaS pricing. SaaS vendors now realize that they are bringing value to a market specific to their product, and the problems it solves, and they need to be aligned with the customers in that market. This means they should not worry about what Salesforce.com is doing if they aren't a CRM product and aren't competing with SFDC. Not all understand this yet - we work with clients to change their thinking on this every day - but savvy SaaS vendors are realizing that they are still competing with legacy software vendors, they might compete with other SaaS vendors, and even more important - they compete with the status quo - whatever that might be; an Excel spreadsheet, a clip board, or a home-grown software solution.

I think the crux of Dignan's question is that the evolution of SaaS pricing has steered further and further away from "utility" pricing or this idea of only paying for what you use in the truest sense (paying in arrears, being billed by small usage metrics, etc.). The reality is that "utility pricing" has only seemingly come to fruition at the Infrastructure-as-a-Service (IaaS) portion of "cloud computing." Amazon's EC2 product in their Web Services line is a perfect analogy for utility-style computing. With EC2, you spin up a compute instance (virtual machine), it does some work, and when it is done it spins down - like a toaster where the power company only charges you for the kWh used while making breakfast. Except that even Amazon has long-running charges for storing your VM image on S3, persisting data between sessions, etc. But you still only pay for what you use. Predictable recurring revenue that grows over time (increases CLV) is still the goal, even for "utility computing" companies like Amazon.

But sorry, SaaS is not utility computing - though because it is not a pricing strategy itself if that is aligned with your market, you could certainly price that way. It is critical to understand why SaaS is not a "utility." This list is not complete, but just remember that a great deal of the value derived from SaaS happens outside of direct use of the product. Whether that is continuous improvement to the software itself, constant vigilance by the vendor to ensure business rules are up to date (tax laws, industry requirements, etc.), infrastructure upgrades, support systems, backups, etc. These are elements that you as an end-customer would have had to support in the past. But now, you do not. Even more important are the Network Effects - the fact that a system becomes more valuable to everyone as more users join. From improving the user experience, to populating the system with actionable information not available to users of legacy software, SaaS is different and that is relevant to everyone, from the vendor to the end-customer.

So yes, SaaS Pricing has evolved - and will continue to evolve - and this is a great thing. It means SaaS is entering new markets with new value propositions and also indicates an increasing level of maturity among the vendors. For those who were only interested in SaaS because of the promise of "utility computing," sorry to disappoint. But for those who understand the incredible value that SaaS can bring to the end-customer, the notion of better alignment in pricing to those customers means a greater adoption rate for SaaS and less barriers to acceptance by the customers.

Do you need help ensuring that your SaaS Pricing is properly aligned with your target market and value proposition? If so, contact us today to get started!

Author: Lincoln Murphy (@lincolnmurphy on Twitter)

5 Pricing Mistakes to Avoid for SaaS or Web Apps

Fri, 11 Jun 2010 16:20:35 -0500

There are many pitfalls Web App & SaaS companies need to look out for when it comes to pricing. If you keep the "Pricing is Marketing" mantra running through your head and "What's In It For Them?" (them being your customers) as the framework for that marketing, you will avoid many of these mistakes:

Under Value Your Offering
Focus on Margins
Just Guess
Copy Others
Avoid Pricing Altogether

This isn't a "Top 5" list, these aren't in any particular order and the list is certainly not complete - 5 seems like a nice odd-number - but these are five things that SaaS & Web App companies (startups or not) should look out for and try to avoid. What are others? Have you done any of these and had a good or bad experience? Please share your experience in the comments.

Under Value Your Offering

Probably the top issue we see is that SaaS & Web App companies completely undervalue their offering. This is not limited to startups, and certainly not limited to SaaS or Web Apps. But with a web app and the pedigree of being a "cheap" alternative to traditional or legacy software, this is pervasive. This boggles the mind since the vendor takes on all the infrastructure burden for the clients, updates the software daily in many cases, reacts quickly to market changes, customer requests, etc. And yet, SaaS vendors in many cases put a low price on their offering. Why?

The reasons are many and varied but from what we see is a twofold problem. First, many SaaS and Web App companies are started by technologists. These technologists often feel "burnt" by legacy software and want to invoke change and completely undercut the "competition" - not understanding that they actually solve the problem better or more efficiently and could offer a *lower* price and undercut the legacy players but don't need to do so in such dramatic fashion. In many cases, the opportunity is there to offer exponentially more value that they could actually charge more for; to have a low price-point on this makes no sense.

For many technical founders, and the thing that drives nontechnical people crazy, is that building the product is often relatively easy. "Oh, that's just a CRUD app with some filters and a couple of calls to the vendor's API" to a super talented developer might be the difference between for a supplier to Walmart adhering to their latest mandate or losing a product line with their biggest customer. Get it? Easy for you (which is great) might have tremendous value to your customers.

Of course, the biggest reason for Under Valuing comes from the SaaS company failing to clearly understand the use cases or the potential of the product. Who is the customer? Why should they care? What's in it for them? Or more precisely... what is the Value Perception of the customers? Here's the hint, outside of IT/Infrastructure stuff, it is generally not the technology. Just as with the other problems of under valuing, when a company's executive team - or startup founders - are highly technical, they tend to focus on the "hard stuff" that they had to do, or that the application / service does and forget about the real value the customer would find in the product.

For a very honest, real-world, from-the-trenches view of this be sure to check out Chris Ashworth's great article titled "My 2 Bucks on Pricing" where he talks about his issues with pricing his software product too low, the feedback from his customers, and what happened when he raised his prices (along with a major feature update, by the way).

The bottom line is that you need to get out of your own head and focus on "What's in it for them?" - or what your customers get out of the service. This will change your game. If you under value and thus under price, you might have to raise prices later and unlike Mr. Ashworth's experience above, it could end disastrously - so try to avoid undervaluing and get it as right as possible first.

Focus on Margins

When we see margin-driven pricing it is generally for one of two reasons. 1) Trying to match what was in your investor pitch or 2) to meet what you think is a "good margin" (based on the net margin of publicly traded SaaS companies, perhaps?). If you consider "Pricing is Marketing" for even a second, you can understand that those two reasons as a driver of Pricing Strategy will lead to failure. Besides, backing into a price based on an investor pitch is a great way to make that entire pitch a wasted effort... investors aren't as dumb as you think. That is good to remember, too.

Inside-out or Bottom-Up pricing, where you take what it costs you to land and support a client plus some type of margin, is irrelevant. If your costs are high (support, infrastructure, customer acquisition, etc.) your market doesn't care. There is a price range they will support based on the current value proposition and if you can't cover your costs within that price range, too bad. You either need to figure out a way to lower your costs, figure out a way to get them to pay more, or accept that the market opportunity you thought was there, and your ability to capitalize on it, isn't. Of course, the best way to deal with this is to figure out a way to improve the value perception of the market ("What's In It For Them?") so that they will pay more for the product or service.

But wait... doesn't pricing have something to do with finance? Something to do with accounting? Aren't profit margins kind of important? Of course, but once you've covered your costs, everything above that is marketing. If you can't cover your costs with the price that the market is willing to pay, and you can't position your product or service so that the market will pay more, then you have not found a product / market fit. The market doesn't care what margin you want or what your cost of doing business is; they only know what they'll pay for the perceived value that your product or service delivers.

Pricing is so much more than just some numbers in a spreadsheet or on a Pricing Page. This is the basis of our Pricing Page Tune-Up™ service - many times its more about the presentation and structure of the marketing around pricing than the pricing itself. Here is a great example of that idea related to fruit for sale in a cafeteria - it wasn't the price, it was the presentation!

Just Guess

Ask 100 startups to answer honestly how they came up with their pricing and you are likely to find a statistically significant number that will say they just guessed. And not an educated guess, either. For many SaaS and Web startups, thin-air is the second most popular place to pull pricing from. The problem with freshly minted startups is that they lack time in the market so they don't understand customer behavior, buying patterns, etc.

Of course, time in the market is of little use, though, if there is not data to go along with it. SaaS & Web Apps that leverage an automated sales process have the ability to capture a great deal of the information associated with sales, churn, and usage unlike other businesses that require secondary systems to and processes to "capture" that data. This doesn't happen magically, though, so it is up to the company to ensure that they actually build-in the ability to capture that data - something to consider when architecting your SaaS & Web Apps, for sure.

But even when there isn't time in market, and where there aren't many competitors to look at, or when the competitors are not leveraging the same revenue model, you still shouldn't guess! When we help startups in this position with pricing, we use proxies or analogs (sometimes called benchmarks) which are companies that aren't in the same market or don't do the same thing but have a similar model. We apply a great deal of scientific as well as experience-driven processes to that data in an effort to try to get it as right as possible out of the gate.

But... none of this matters - analysis of historical sales data, proxies, etc. - if there is not a Pricing Strategy in place first. It is critical that SaaS & Web App companies come up with a pricing strategy that is part of their marketing strategy if they want to develop pricing that is aligned with their goals and the market's value perception. Collect data, analyze it along with other market information, and make sure you have a Pricing Strategy in place and you'll be much closer to getting it right out of the gate.

Copy Others

For those that didn't guess, under value, or focus on margins, copying another company's pricing is the logical option, right? No! I've written about this a couple of times before. Whether it is another company's Pricing Page or the pricing itself, don't copy. Do the work required to ensure your pricing comes from a pricing strategy that is part of your overall marketing strategy. (Is there a theme here?). But we have seen companies, startups and later stage alike, that copy competitors pricing exactly. This makes more sense, I guess, than those who copy companies who aren't even in the same business!

You absolutely should know how the competition charges (what revenue metrics they use, billing cycles, etc.) and what their pricing is - but only so you know how you are different. If they are the market leader and have set the tone for years, and you come in with a different model because you have a deeper understanding of the market, you will need to know how to position that different pricing in the eyes of your market. Even if you know this is how the market really wants to pay, what they want to pay, etc.

But let's look at the topic of "copying others pricing" from a differentiate angle. Did you copy everything else your competitors do? Probably not. In fact, you are in business because you thought you could do it better, more innovative, more aligned with what the market wants, right? So why would you copy their pricing? Oh, because you think they got the pricing right? That could be a seriously costly assumption!

Avoid Pricing Altogether

Finally, the other big mistake we see are companies who want to avoid pricing altogether. Whether this is by offering the product for free or using Ads, this happens. Of course, Freemium isn't used to avoid pricing since the premium portion of the service requires a price. We often see companies launching their product with absolutely no revenue model at first just to "get traction" to gauge interest. First, this is no indicator of "interest" in a paid service - only a free one. Next, without a very well-thought-out plan for how to move from Free to a paid service, this could seriously backfire - this includes more than just a Pricing Strategy, but a strategy for ensuring you don't alienate the free user base.

Further, for companies that have a free service but use advertising as the primary revenue stream, here is an interesting insight - even ads have prices! Look at a company like Spiceworks, a B2B SaaS company that just recently hit 1M users and who's primary revenue stream is ads. They really only have ~150 customers - their advertisers - and you better believe they have a strong pricing strategy around those ads. You cannot avoid pricing unless you avoid doing business altogether.

Pricing is a critical piece of doing business - whatever the business. For SaaS & Web Apps that leverage an automated sales process, where the customer goes to the marketing website, to the pricing page, through the buying process, and then uses the product - without any human intervention - pricing is critical. There is no sales person or consultant there to answer objections or read body language. No one to offer discounts rather than lose the sale. For this reason alone, it is critical to get your pricing as right as possible out of the gate. To do this requires work and avoiding the 5 mistakes above.

Have a pricing page with a high bounce or exit rate and aren't sure why? Sign-up for a Pricing Page Tune-Up™ today. Need help avoiding those 5 mistakes and developing a Pricing Strategy for your SaaS or Web App company? Get started with Sixteen ventures today!

Author: Lincoln Murphy (@lincolnmurphy on Twitter)

Sixteen Ventures Guest Posts on Other Sites

Fri, 04 Jun 2010 18:28:56 -0500

The past couple of weeks have been really busy here at Sixteen Ventures. Working with some great SaaS companies, doing a lot of Quick Start sessions with some amazing Web App & SaaS startups, and of course our Pricing Page Tune-Up™ service has been cranking out Pricing Page reviews and recommendations for lots of SaaS and Web App companies.

So we haven't had a lot of time to post much over the last couple of weeks. Luckily, some of our content got picked up as Guest Posts on other sites and a post I wrote a while ago setting the stage for my involvement on a panel at HostingCon finally went live.

Enjoy more Sixteen Ventures content from around the web:

Sandhill.com - SaaS Acquisitions Create New Opportunities

HostingCon - For ISVs, Moving to the Cloud can be Foggy

47Hats.com - If Our Prices Are Wrong, We’ll Just Change Them Later

Thanks to those awesome folks for giving us an outlet to reach a bigger audience!

Author: Lincoln Murphy (@lincolnmurphy on Twitter)

If Our Prices Are Wrong, We'll Just Change Them Later

Wed, 26 May 2010 18:22:15 -0500

Alternate post title: "The Great Zendesk Price Debacle of 2010"

If there was ever any doubt that the "Pricing is Marketing" mantra of Sixteen Ventures is true, just look at the SaaS and Web App pricing related stories that have come out lately. From the positive, where RightNow used changes in pricing in an attempt to disrupt the status quo in the SaaS CRM world, to the extreme negative press generated by Zendesk - and the accompanying customer backlash - last week when they jacked up their prices. Since I promised a "post mortem" on the Zendesk pricing announcement, I'll focus on the latter of those two examples in this post.

I'm going to lay it out plain and simple so there are no misunderstandings: you need to get your pricing as right as possible out of the gate - don't just guess or make up numbers. Once you are in the market, you will learn new information, customer buying behavior, feature bundling problems, etc. This is like the Mike Tyson quote "Everybody has a plan until they get punched in the face." This isn't terrible, as long as you got it close in the beginning - but if you are off by a significant factor, or if you didn't train to fight Mr. Tyson, then you are going to have a hard time changing your pricing without hurting your existing customer base, or you're going to get knocked out as soon as the bell rings

Pricing is not static; rather, it is fluid over time, moving with market conditions, time in market, market segmentation, etc. This doesn't mean it changes every day, or week, or month, but it is not something that you figure out once and then never think about again - until you need to make a huge adjustment. You want to avoid huge adjustments, and you can do that by getting your pricing as right as possible out of the gate and then monitoring it over time. Ensuring that your prices are part of an overall pricing strategy that is aligned with your overall marketing strategy is critical. It appears that Zendesk didn't get their pricing close to right at first and then had to make some significant, sweeping changes; and they paid for it - and likely still are.

It is even more critical for startups that don't have time in market and historical data to pull from to start with a solid Pricing Strategy. If you understand why you are developing the pricing that you are, you are more likely to get it right. Ask most startups what their pricing strategy goals are and some statistically significant amount will say something about "making sales." Then they'll ask what you mean. On our Pricing Page Tune-Up™ sign-up page, for example, we ask what your Pricing Page goals are; included selections are User Growth, Increased Sales, Lead Generation, Market Position, etc. Remember: Pricing is Marketing.

But many companies don't get it even close to right at launch - likely because they neglected to develop or execute on a real pricing strategy. So what if they need to make a big change, like Zendesk did, and raise prices? Is it even possible to do this without a negative outcome? The answer is yes, but you need to have a strategy and execute according to plan. Some people will always be upset by a price increase - they will be vocal in their opposition. Let them vent and then let them move on. Have you successfully raised prices without causing a backlash? Please comment on this post and share your story!

Engage or Alienate

If you have a mailing list, a registered user base, or active customers using your app, you have what we refer to as a voluntarily captive audience; exploit it! When you need to raise prices, there are only two options with your users and customers: engage or alienate. Its your choice - I suggest the former. One method is to find your top users - the oldest active users - and get them to help you. Engage (there's that word again) with them. For startups with a beta user base, this is your chance - the kids these days are calling this "customer development" - whatever the term is, get out and talk to your users and existing customers. Maybe even call them on the phone.

Find out what these folks want, if they'll pay for it, what they'll pay, how they'll pay, etc. Just like anything, this should be executed according to a well thought out plan. Not only will you learn a lot while you engage the user base, you could even create evangelists. The more engaged and respected users and customers feel, the more they'll be happy to help you - which is what you're asking for.

The backlash from the Zendesk users was more likely that they felt betrayed and less about the actual pricing. Pricing is neither good nor bad - its empty - its all about perception and the betrayal likely clouded the perception of their customers (that, coincidentally, is very Zen-like itself). If Zendesk had actively recruited their customers to help or otherwise made sure that every customer knew something was going on with pricing, the customers might not have revolted in such a way. In fact, had Zendesk done this, they would have been made aware of some of the use cases that they should have known about, but obviously didn't consider - the ones that lead to the 300% price increase some customers mentioned.

But to find out on a blog or via email after the fact that the prices are now 300% higher is a slap in the face. Consider that your current users (especially early adopters, beta testers, etc.) and customers want to feel special - like they're in a club - and by telling outsiders first, you take away that special feeling of belonging that we all long for. At the end of the day, would Zendesk still have alienated and irritated a segment of their customer base? Sure. But it would have been a lot smaller and they would have had the rest of the customer base to defend them - rather than add the attack!

Grandfathering is NOT the Answer

Okay, so Zendesk admitted that they messed up with their price hike. They probably needed to do something to respond to the backlash, but what they did seems to further indicate that they really didn't have a strategy going into this. What did they do? They "grandfathered" existing customers and are only applying the updated pricing to new customers. Let me make this very clear: "grandfathering" prices is not an acceptable alternative to having a good pricing strategy or failing to execute on it!

So, while the tactic of grandfathering prices might appease some of their customers, what is the cost - in real dollars, PR, position as the market leader, etc? Why would a company backpedal on something that was good - their new pricing? Ultimately, this all comes down to lack of a strategy, lack of preparation, and an overall inability to execute if they did have a plan. It shows they didn't talk to anyone outside of perhaps some "star" clients and now it shows that the new customers are going to get the "bad" pricing. Pricing is Marketing and what message is grandfathering sending?

Remember, it isn't like this grandfathering is a secret - especially when the CEO posts this to their blog and it gets picked up by Techcrunch and every other tech news site - exactly Zendesk's target audience, by the way. It is clear that those who were members on or before 5/18/2010 paid one price and anyone else that joins after that date has to pay more. Period. What a great way to entice new customers to join, right?

Some commenters on the Zendesk site and Twitter said that they were talking to Zendesk about becoming customers in the days leading to the price hike and were not told about the pending changes nor given the option of locking in "legacy pricing." Way to start that relationship off on the right foot! I imagine sign-ups slowed immediately following the announcement and will be slow to come back until this gets swept under the virtual rug. Which it will, but that 2Q update to investors will be interesting, to say the least.

While the majority of this post has been talking about how to engage existing customers and users, it is very important to consider the impact of these changes on new customers. Does your value proposition correlate to the new prices? Obviously Zendesk didn't talk to their customers to get to this point so by continuing with the pricing, are they going against the customers' value perception? What about trust - are new customers going to trust that they too will be grandfathered on the next huge price increase?

It should be obvious that you just don't want to get to this point. It is much better to be transparent leading up to the pricing change than during the backlash and accompanying backpedaling. Forced transparency is ugly! But what happens if you do find yourself in this situation? How should you handle it? There are a lot of different ways to work with this. Keeping in mind that Pricing is Marketing, you want to make sure you clearly understand the Value Perception from the eyes of the customers who will pay the higher price. Nobody wants to pay a higher price just for the privilege of doing so. What's in it for them? Can we give them something more?

Perhaps you could consider one of the following if you must raise prices and are backed into a corner where grandfathering seems to make sense:

Grandfather privately - reach out to the legacy customers and tell them that their existing pricing will be in effect for some amount of time
Offer to let new customers lock-in "legacy pricing" for some amount of time if they sign-up in the next 30 days
Add value to coincide with the increase in price - this is the preferred option - is there a much-requested feature or service you can dedicate some resources to work on in an effort to appease them?

So, if grandfathering isn't the answer, what is? Strategy - plain and simple.

Intentional Alienation - or - Firing Unprofitable Customers

There is the reality that sometimes it is just wise to get rid of customers that cost more than they are worth - a strategy that was undertaken by Ning when it dropped its use of Freemium. Raising prices to force low-profit or high-cost customers to leave your company and hopefully bring their troubles to a competitor is a valid strategy. Just be prepared for the backlash! From what I've seen, it is usually the low-end customers that do the most complaining - they have more time to do that sort of thing which is likely why they are low end clients.

They will be loud, vocal, and spread the bad word everywhere they can. When they do, you know you did the right thing - now they will move to your competitor and be unprofitable for them. Win - Win. In dealing with them, it is wise to just let them vent and then let them move on. If you have a strategy in place and know that this will happen, it is easier to deal with them and you won't be as tempted to give in to the noise.

But to be clear, Zendesk obviously didn't just irritate the low-end customers - they hit everyone equally hard. Again, this is something you will want to avoid. By having a complete pricing strategy at the beginning, you will know who your target audience is and perhaps save yourself from having to deal with a similar mess.

The great thing is, with SaaS or Web Apps, you can actually create different versions of your application for different target market segments - in this case low-end and high-end customers - with the same code-base! This is why we advocate decoupling the pricing strategy from revenue model in SaaS and why single-instance, multi-tenancy is a key component of real Software-as-a-Service.

A great example of a this is the company behind SendPepper and OfficeAutoPilot. They have one marketing automation SaaS product that, through feature configuration and skinning, serves two very different market segments. Nothing like being able to send people to "the competition" and having that company be... you. Behold, the power of single-instance multi-tenancy in SaaS that few companies really understand and take advantage of.

Do you need help understanding the power of the SaaS Business Architecture? Do you want help figuring out your pricing or Revenue Model? Sixteen Ventures can help you in a variety of ways. Get started today!

Author: Lincoln Murphy (@lincolnmurphy on Twitter)

Please Learn From the Zendesk Pricing Fiasco

Tue, 18 May 2010 14:36:32 -0500

It is time for SaaS & Web App startups to sit up and pay attention. Pricing is very important to your venture but not just to ensure you make a profit or cover expenses. It is so much more than that and you should seek to get it as right as possible out of the gate. Too many SaaS and Web App companies, startups or not, think that they'll just throw some numbers together, put it on a pricing page and that is the end of it. If they are leaving too much on the table, they'll just raise prices until people stop buying and then lower it a notch. Simple. They would be wrong.

Pricing is marketing. We say it all of the time, but what does it really mean? Well, look at Zendesk, a growing startup with $6.5M in funding and, until this morning, very well-liked. They decided to raise their prices and did so in a way that has caused an enormous amount of negative backlash. In some cases, customers are reporting a 300% increase in what they'll pay to use Zendesk. From the outside, this seems to be indicative of no real pricing strategy (as a part of marketing) and certainly no or at least very poor tactical planning around the price increase. Some simple polling on Twitter shows that Zendesk did not actively engage their customers in the process prior to raising prices.

My immediate reaction on Twitter to the backlash:

When you need to raise prices, there are two options: engage your user/customer base or alienate them. Its your choice. #zendeskless than a minute ago via webLincoln Murphy
lincolnmurphy

Did the price increase correlate to an increase in perceived value by the end customer? How is their market position now? How have they helped the competition? Look at this random tweet I grabbed when searching for #zendesk... this is why pricing is marketing!

Anyone got any recommendations for someone considering dumping #zendesk after their crazy stupid level price increaseless than a minute ago via webAdam Bartlett
abartlett

We will do a post-mortem on the Zendesk Pricing Fiasco of 2010 later, after more details emerge and the dust settles, but It is very obvious the planning around their price increase was either poor or was executed poorly. Just to be clear, Zendesk did not reach out to Sixteen Ventures for help with their pricing nor with the execution of the price increase, but they should have. This is something we help companies with all the time. Whether its a price increase, moving from beta to production, or from Free to a Paid or Freemium offering, Sixteen Ventures can help you. Please don't wait until its too late, though we have been known to clean up some messes...

We have always preached the message that Pricing and Revenue Modeling are vitally important for SaaS & Web App companies, startups or not. Unfortunately, this kind of thing happens a lot, and when the company is lower-profile than Zendesk, it doesn't get this kind of coverage. But it happens more than it should and that is because the message that Pricing is Marketing and vitally important to your business just isn't being absorbed. So we're prepared to put our money where our mouth is. For a limited time, cause we can't do this all day, we're going to give away an hour of one-one-one consulting to SaaS and Web App startups.

If you buy a single Pricing Page Tune-Up™ plus a follow-up or two, we'll throw in an hour of one-on-one consulting. If you sign-up for our Quick Start program, we'll throw in an extra hour of consulting. This is a very limited time offer and we'll pull it when we don't think we can take on any more, but this needs to happen. If you are a startup, or if you know or work with SaaS or Web App startups, please tell them about this offer as it could literally save their business.

Author: Lincoln Murphy (@lincolnmurphy on Twitter)

Is Your Pricing Page a Momentum Killer?

Mon, 17 May 2010 18:36:11 -0500

The Pricing Page for a SaaS or Web App company that uses an automated sales process, where marketing and e-commcerce are tied with automated provisioning of the application, live and die by their marketing websites. For these companies, the most important page on that marketing website is the pricing page. Really? Yes. Read on...

Truth be told, especially in startups, we see at least 75% of all effort going into the application itself, with the remaining 25% going into everything else, including marketing. Since pricing is marketing, just a fraction of that 25% of effort is focused on this incredibly important factor in the success of a business. Developing pricing is often overlooked or put off until later - which sometimes never comes, only to have someone eventually throw some numbers on a page and call it a day. This is a great way to fail, by the way - an over-engineered app that no one will (because they don't know about it) or can (because it is priced wrong) buy. Too many startups you'll never hear of end up this way.

From our experience, too many SaaS and Web App companies do not have a real pricing strategy - that is, an actual strategy around their pricing decisions - and the window into that strategy, their pricing page, often makes this abundantly clear. Look at enough pricing pages for SaaS or Web Apps and you will notice a disturbing trend; seldom does a pricing page convey the same message as the overall marketing website. In fact, it is almost as if most companies say "I've done such a great job building my marketing site that when someone clicks 'Plans and Pricing' that it is just a formality at that point." It isn't, and you just killed any momentum you had built up because your pricing page is ineffective. Have you wondered why your bounce rate is so high on your pricing pages? There you go.

When we review pricing pages for our Pricing Page Tune-Up™ service, we look at over 100 different points in 10 different categories. One of the easiest fixes most SaaS or Web App vendors could make has nothing to do with their pricing itself, the display of the versions or pricing tiers in grid form, or even where the sign-up buttons are located. The very first thing to look at is their main Call to Action - the thing that says, "hey, you made it this far, let me remind you of why you're here so you'll hit the buy button"...

Understanding that the pricing page should maintain, or even better, build on the momentum generated by the rest of the marketing site, being the culmination of all of that effort where the buying decision is ultimately made (with sign-up or payment the next and last step), why would a company let this opportunity slip through their fingers? Because they don't view the pricing page for what it is: the most important page on your marketing website. There are always naysayers, but what I've found is that those who argue against this fact are simply trying to justify their lack of attention to their pricing page or overall pricing strategy - but I invite you to try; the comments are open.

Lets look at the pricing pages of three similar SaaS or Web App companies and to keep this post from getting entirely out of hand, we'll focus on just one small aspect of the overall design of the pricing pages; the Call to Action. Since Rags Srinivasan just called out some versioning improvements for Mind Mapping app MindMeister over on his Iterative Path blog, we'll stick with that theme and look at them, plus two of their competitors - comapping and Mindomo.

First, what is the Call to Action? At Sixteen Ventures we describe this as the main headline of the pricing page... or the first thing beyond the header that viewers of the page will see. This should be aligned with your overall marketing message! The stronger and more aligned with the "what's in it for them" to the end-cusotmer, the strong the Call to Action is said to be. Unfortunately, for the three companies we looked at here, there is simply no strong (or even passable) call to action. All of these vendors fall into the ill-conceived category of "presumptive close" - if you get to this page, you will buy.

MindMeister Main Page:

MindMeister Pricing Page:

Mindomo Main Page:

Mindomo Pricing Page:

comapping Main Page:

comapping Pricing Page

Unfortunately none of the key marketing elements from the main pages of any of these companies are present on the pricing pages, let alone in the main Call to Action. Each company simply presents the pricing page as if it is a given that the marketing job is done and now it just a matter of taking the customers' money. This is an incorrect assumption that could be costing them money.

Do not assume that their purchasing decision is made and that all you have to do is present three options and a buy button. Don't let your Pricing Page stop the momentum created by your marketing website. Understand the reason for the pricing page and how important it is to you as a SaaS or Web App company. Use the pricing page to remind the customer of what's in it for them should they decide to sign-up.

All of these pricing pages reviewed need a lot more help than has been detailed in this post. But sometimes just making one tweak will lead you down the right path so hopefully this was helpful to those three companies and you. However, I would suggest that MindMeister, Mindomo, and comapping all get a Pricing Page Tune-Up™ right away - and so should you. It is time to make your Pricing Page work for you!

Author: Lincoln Murphy (@lincolnmurphy on Twitter)

SaaS Acquisitions Create New Opportunities

Wed, 12 May 2010 11:55:25 -0500

Merger & Acquisition (M&A) activity around SaaS and Cloud seems to be heating up. Legacy Software, network and hardware infrastructure, and even Web 1.0 companies are are gobbling up SaaS pure-plays left and right these days. For every Salesforce.com buys Jigsaw (a SaaS company buying a Web 1.0-turned-2.0 company) or SuccessFactors buys CubeTree (SaaS buys Enterprise 2.0 firm) there are more deals where a legacy software company buys a SaaS / Cloud / Next Generation whatever company.

Some deals are small and fly under the radar, like EZFacility buys eFit Financial. Others are larger and really shake up an industry, like the announcement this week by Warehouse Management System (WMS) firm Red Prairie that they acquired SaaS WMS Smart Turn.

This uptick in M&A activity, which really started to heat up in 2009 at the tail end of the steep downturn when prices were low and SaaS companies that needed out wanted out, prompted Evangelos Simoudis from Trident Capital to write a great post detailing why now is a great time for M&A activity around SaaS. It makes sense for him to really understand this aspect of the "SaaS Market" since his firm has a large portfolio of SaaS investments and it is in the best interest of his investors for many of those companies to find a big exit.

But what is the real motivation for these acquisitions from the buy side? For SaaS, Cloud, or Web companies, the acquisitions seem to be a head start to certain functionality more than anything else. Salesforce.com could have built their own crowdsourced Rolodex, but instead used their massive cash reserves to just buy one in Jigsaw. SuccessFactors bought CubeTree to give it a head start in enterprise social networking likely as a hedge against SFDC's Chatter.

So what is the motivation for Legacy Software companies to buy SaaS companies? Likely its not to add features since there is a technology disconnect. Is it the recurring revenue? Yes. Is it the existing customer base that they can cross-sell their existing (or future) products / services to? Yes. Is it the jump start on a path to SaaS? Yes. Is it the "SaaS DNA" that their organization might be lacking? Absolutely yes!

Evangelos in his post on M&A activity in SaaS thinks it will be mid to late 2011 before legacy companies really ramp their acquisitions of SaaS firms. We saw an uptick in activity starting in mid-2009 with some major legacy vendors brining us in to help vet SaaS companies for acquisition, but I think it was just the tip of the iceberg. As he states, the ramp will happen when vendors realize that doing it themselves is harder than just buying a company; and it will likely be due to their lack of "SaaS DNA."

Whenever Sixteen Ventures is involved in due diligence or market intel work for a legacy company seeking to acquire a SaaS firm, a lot of effort is spent in understanding that "DNA" that makes up the target firm. Legacy companies still don't "get" SaaS so they think by acquiring or "injecting" SaaS DNA into their firm, the entire organization will overnight become a "SaaS company."

In theory that is nice, but in practice I'm not so sure. SaaS is often fundamentally different than the core business of a Legacy Software company. It just is. And while the "SaaS DNA" that they brought in could be beneficial, it is usually the acquiring company that is unwilling to change that causes the acquired DNA to whither away and die; the host is rejecting the transplanted material.

There are numerous examples where even a progressive web company like Google buys a company and the founders leave as soon as they are allowed to by contract and the product dies on the vine. While something companies don't often admit to, there are times where acquisitions occur specifically to kill a threatening competitor and lock-down the executives in tight non-competes for a few years.

But this isn't all doom and gloom! In fact, it is actually good news as it shows that every time a legacy company acquires a SaaS firm, a new opportunity is born in that space. For instance, if you have a SaaS WMS solution, you might have looked at Smart Turn being bought by Red Prairie as a death knell for your firm. A well funded market leader, possibly going IPO, just got acquired by a legacy market leader and now they'll eat your lunch.

But there are other potential outcomes. First, if the company that acquires your competitor has their own Legacy Baggage (negative market sentiment, a distrust of their practices, over priced, etc.) that baggage will spill over nicely to their "new On-Demand product." Plus, the new company will likely cave to pressure to do one-off installs and customizations of their product since they don't really understand SaaS, leading to the same negative market sentiment that befell the acquiring company.

In some cases, we recommend that firms start a new company from scratch or continue to operate the acquired company as a wholly owned subsidiary to keep from commingling the two. Trust is a HUGE factor in SaaS and many legacy software companies do not have the trust of their customers. The customers are happy to use their software if they get to run it themselves but would never want the vendor to run it for them. How can you take advantage of their newfound baggage?

Just as interesting is the serious likelihood that both companies have used negative marketing campaigns against each other or their delivery methods/business architectures (SaaS is insecure, legacy software is antiquated and broken) and now they are one. How do they position their products now? This can create an amazing amount of market confusion for another vendor to take advantage of.

Finally, there is always the possibility that the acquired company will die on the vine, never having a chance to really take off under the direction of their new owners. Perhaps the acquired company will linger in the purgatory that is a "hybrid" organization (both On-Premises and SaaS) while the executives, with strong non-competes in that space, wait out their prison sentence. This creates amazing market opportunities for savvy and strategic SaaS vendors.

Sixteen Ventures can help you perform market intelligence or due diligence on SaaS or Cloud acquisition targets, help you take full advantage of those strategic acquisitions and that new "SaaS DNA," or help you exploit the opportunities created by the acquisition of your competitor. If you would like to discuss retaining our services, contact us to get started today.

Author: Lincoln Murphy (@lincolnmurphy on Twitter)

Change the (SaaS) Channel Please, it's a Rerun

Wed, 12 May 2010 01:56:27 -0500

I've written in the past about SaaS channels and how most people are doing it wrong, and there seems to be renewed interest in this topic. Unfortunately, things haven't changed much. Since this is "software" as-a-service, people cannot get away from looking at things from a legacy software channel point of view.

The recent heat-up seems have been pushed over the edge by the announcement earlier this month by Salesforce.com of their partnership with VMWare (and their subsequent acquisition of Gemstone) to introduce VMForce. This partnership will supposedly provide the ability to run native Java server applications on the Force.com platform, in addition to apps written in SFDC's proprietary Apex language. This seems to be similar to other PaaS offerings, like Heroku, that use "open" languages and technologies, but have proprietary functions, data stores, and services to interact with.

Just to be clear, I'm not talking about integration by one SaaS application with other SaaS or On-Premises applications through open APIs and custom code or via 3rd party services such as Boomi or connectors like Cazoomi Snaps. This type of integration is absolutely critical if the vendor wants to become an integral part of the ecosystem its customer-base is building. Lack of integration options by SaaS vendors will be their downfall as companies move to "the cloud" and want one version of the truth, single-sign-on, etc. But integration is not a channel issue or a SaaS issue; it's just an issue. This is why IBM just bought Cast Iron Systems. But I digress...

The thing that has analysts and pundits excited by things like VMForce is that now the "channel has something to do"... as if the only reason for a channel is to build on or extend a platform. Extending an application, and essentially building a platform, a la SFDC's Force.com and AppExchange can be a fantastic opportunity for the core vendor and the surrounding ecosystem; but its exactly that - an ecosystem. This has very little correlation to traditional channels and more closely resembles developer programs in legacy software companies, but that analog doesn't do it justice. Further, the notion of a true ecosystem is an opportunity quite unique to SaaS or other single-instance, multi-tenant "cloud" applications or platforms. Celebrating that technology VARs finally might be able to add value to SaaS or Cloud apps is not progress. In fact, its a rerun from legacy software and an attempt to justify the existence of VARs.

There has always been a HUGE opportunity for SaaS and the channel that only a few companies are really taking advantage of. The reason? Other than the lack of industry support and promotion of these opportunities, it requires the SaaS or Cloud (or whatever) company to stop thinking like a "software" company and start understanding just what they have at their fingertips. They are service companies who can provide tremendous value not only to the end-customer but to intermediaries that help the SaaS vendor reach those customers. In some cases, its possible to directly monetize the relationship the SaaS vendor has with the intermediary.

Of course, progress isn't helped along by the traditional channel consultants or former VP Channes at XYZ Legacy Software Corp who wants to get into SaaS or "Cloud" trying to force their traditional channel management best practices square peg into the round hole that is SaaS. There is so much Legacy Baggage coming into SaaS and Cloud (due to bandwagon-jumping) that it is really bogging down the substantial progress that seemed to be happening in terms of next-generation channels, network effect, ecosystem, etc. Announcements like VMForce that are actually quite revolutionary unfortunately don't help because they can so easily be twisted to fit nicely into that legacy baggage being drug along by "industry insiders"

At Sixteen Ventures, we have always looked at SaaS as something far beyond "software" delivered over the web. Whether its SaaS or Web Apps, if there is multi-tenancy and you're solving a business problem, the opportunities for channels, specifically distribution via Trusted Advisors, is significant. Forget traditional VARs, the real opportunities are in understanding who the end-customer is, who they trust, and giving tools to everyone that sits between the vendor and the end-customer so that all involved can add, and extract, value. If there is a third party involved at the "technology level", they aren't a traditional VAR; likely they're an integrator using the services or tools from above. Think of the relationship between SaaS vendor, intermediaries, and end-customers as a value-chain or value-network.

Look at a company like Xero, with their SaaS accounting package, and how ~50% of their business is via channels; specifically CPA and Accounting firms. They work through the trusted advisors to get to the end-customers they want to use their products. But Xero isn't just giving spiffs or a cut of revenue to those professional firms; that would be misaligned with the business of their channel partners. Xero actually helps the trusted advisors do more of their CORE business by giving them tools, insight, visibility, etc. into their end-customers' activity, data, and operations. This is far more valuable to Xero's partners than some cut of monthly revenue and much more aligned with the business model of their partners.

Would CPAs or Accounting firms want to touch installed software? Some have in the past, including affiliations with products like QuickBooks, Great Plains, etc. because it made sense on paper; they shared the same end-customer. But the logistics didn't work. Few non-technical companies want to get involved in "software;" so Xero simply provides a service. And everyone in the value-chain wins.

It is great that VARs finally have something to do with "the Cloud," but for SaaS vendors, the message being sent by the "industry" is still off-point. Just because you don't have some technical layer that will allow you to engage technology VARs doesn't mean that channels are not available to you. On the contrary. There are likely far more lucrative channels out there if you understand how to find them; look for Trusted Advisors that share the same end-customer with you and figure out how to help them do more of their CORE business while also helping the end-customer.

Sixteen Ventures can help you develop the Distribution Strategy for your SaaS or Web App; Get started today!

Author: Lincoln Murphy (@lincolnmurphy on Twitter)

Exploring Ning's Post-Freemium Pricing Page

Wed, 05 May 2010 20:28:24 -0500

Ning is an example of a company that is well funded (>US$100M), can spend heavily on marketing and user acquisition, and certainly seemed to have an addressable market size that made Freemium look like a good idea. But it wasn't.

Unfortunately, one of the biggest problems we see with companies using Freemium, and it appears that Ning was no different, is that they attract the wrong crowd. That base of free users that you look to as a group of hot prospects just waiting to give you their money; not so much. This isn't always the case, but with Ning that was certainly in play.

So Ning pivoted; they changed focus at the business level and killed Freemium. No more free networks. And on May 4, 2010 they announced their new pricing. So lets take a look at the pricing page they put up and see if they really understand this whole "premium" SaaS business.

This review is done knowing fully that Ning's pricing page will likely change between now and the go-live date in July. Their actual pricing might change, too. We'll revisit this when they launch their premium-only service to see what changed and if they took our advice. This review is also only looking at their current pricing and comparing it with their competitors, rather than the past Ning pricing. Looking back at the history of pricing page designs is a topic for another day, but it is not recommended!

We'll just pick a couple of the elements from our Express Compare™ service and walk through these for the Ning pricing page as it was published on May 4, 2010 at 3pm Central Time.

Overall Page Design

The page is sleak and clean and the mass of information that is there is nicely laid-out, but overall it lacks any real Call to Action, The page also lacks any real Trust Factors like a phone number or security badges, and it is way too long. There are some ways that much of the redundent information could be re-worked or shifted around to make more efficient use of this page, with some information possibly offloaded to individual bundle landing pages. There is also no call to action below the fold, which, ironically, is where the meat of the information required to make an informed decision between the bundles is located.

Contrast this with their competitor Grouply, who has a pricing page with many elements below the fold, but who at least puts buttons down there so you don't have to scroll back up to sign-up. Grouply still has a lot of other issues with their pricing page, but that was one thing they did right. Ning should learn from that.

While Ning could learn something from Grouply on the placement of below-the-fold sign-up buttons, apparently Grouply did not learn anything from Ning's Freemium debacle. On Grouply's home page they have a banner welcoming with open arms the Ning refugees who have already shown they won't pay even $2.95 a month - and Grouply's lowest price is $4.95. Can Grouply, with 1/50th of Ning's funding, do a better job of converting their free users than Ning? Is it just a publicity stunt?

Bundle Names

This one is something that almost everyone gets wrong, and Ning is no exception: The bundle names don't mean anything. Really? Does this make that big of a difference? Remember, its all marketing and we know that marketing that speaks the language of the customers works. So how do Mini, Plus, and Pro align the pricing to the consumer? If I sign-up for the Plus tier does that mean I am not a professional? This is marketing people; and those bundle names are way off.

The thing that doesn't make sense about Ning's bundle names and ultimately market alignment is that they obviously have a target market segment in mind for each pricing tier. They even spell out who could benefit in the paragraphs below the bundle names. Unfortunately, the value prop directed at those market segments is lost everywhere else on the page.

Value-Based vs. Commodity-Based Pricing

One of the mantras of Sixteen Ventures has always been Pricing is Marketing. If you understand that, then you realize that everything you do with pricing has an effect on the perception by the market; or your market position. If you have a low price, you might be seen as cheap or poor quality or if you have a high price, you could be seen a luxurious and fine quality. You could also be seen as disruptive or overpriced, respectively, if the rest of your marketing and product / service execution isn't aligned.

It certainly does not help convey high-value to your market if you continue to put the focus on commodity items in your pricing. Unless you're selling storage, get rid of the gigabytes! And frankly, if you are selling storage, file transfer services, etc. if you can put the focus on something else (reliability, security, etc.) then you can change your market position and value perception and maybe charge more.

But, it looks like Ning seeks to differentiate its pricing tiers on storage and bandwidth. This could be a continuation of legacy pricing for them or even a knee-jerk reaction to the major costs associated with their free users; storage and bandwidth. Remember, nobody cares what it costs you to run your business; not the amounts and not the metrics.

What Ning needs to ask themselves is "what does a Gigabyte mean to the small non-profit or family looking to setup a social network?" They do a call-out with the "?" but it should be more clear - perhaps putting how many pictures or videos and then a "?" to say this equates to x GB.

I was going to write how one of Ning's competitors, KickApps, did a better job on their inclusion of commodity metrics in their pricing page. KickApps actually listed in the bundles what the commodity metric was equivalent to; number of videos, photos, etc. Good stuff (though in itself meaningless; like saying an iPod can hold x number of songs... some songs are longer, different bit rate, etc.)

original, snapped on 5/4/2010

But when I went back today to check, it looks like KickApps changed their pricing page. Now they are using market segmentation to drive Enterprise customers and SMB customers to separate pricing pages. This is a really good idea as its difficult to have one pricing page that is all things to everybody, but for KickApps its probably too late in the sales funnel for that step.

Overall, it looks like KickApps took a huge step back in their pricing page design. Their new pricing grid might be cute, but its below the fold, the names still don't mean anything, and now, the one good thing from their previous pricing page is missing; the real-world-to-commodity metric bridge.

Pricing

Its funny, but 90% of the conversations about "pricing" end up being about "value" or the communication of that value. This is the main reason we do a Pricing Page Tune-Up™ for SaaS & Web App companies... in many cases, no matter how spot-on your pricing is, if everything else around it is terrible, it won't much matter. Sometimes a bad pricing page is indicative of a poorly designed Pricing Strategy; often it is not.

For Ning, their pricing page does little to convey the value that they offer. A pricing page should not be your only marketing, but it should be a continuation of your marketing. Don't lose momentum by having a pricing page that is more informational than marketing. For Ning, this will be an issue as moving from Free to $2.95 is quite a jump and they will likely run into penny-gap issues with their existing free users.

But it seems that the penny-gap here is intentional. Ning wants to put up a barrier to keep the freeloaders out, but otherwise keep the service accessible. This has, and will continue to, irritate their existing user base, but them's the breaks, kid. This is business and Ning ultimately has to turn a profit. The price of $2.95 looks like a number that could be equivalent to or just above what Ning has determined the cost to provide service for (hosting, bandwidth, operations, support, etc.) a fully-loaded network. That is just speculation, of course.

If you liked this Express Compare™ style review, we can do this for you, too, against up to 5 of your competitors reviewing over ~15 different inspection points. For a limited time, the Express Compare™ is included in our Pricing Page Tune-Up™ and Overhaul services. Check it out and get started today.

Author: Lincoln Murphy (@lincolnmurphy on Twitter)

Introducing the Pricing Page Tune-Up Service

Mon, 03 May 2010 02:04:34 -0500

Last week we soft-launched our SaaS & Web App Pricing Page Tune-Up™ service without much fanfare outside of a few tweets. Our marketing site for the service is in its early stages and, thanks to George, is still an evolving work in progress.

But since the tweets went out, and especially after the services were mentioned in my 47Hats guest post on "Pricing is Marketing", many people have asked exactly what is included with a Pricing Page Tune-Up™. Some have even insisted, without knowing anything about how it works, that this type of service must be automated, generic, and useless due to its low price point.

Based on all of that, I decided it best to formally introduce this service and to go into some detail on how the service works and what you get while we continue to build out the service's marketing website.

Personally, I am very excited about this service because it brings something to startups and small SaaS or Web App companies that is greatly needed but has traditionally been out of their grasp due mostly to cost. Where cost wasn't an issue, the reality that the traditional pricing industry does not have the depth of knowledge around SaaS or Web Apps (or any companies that use an Integrated Business Architecture) often kept clients from getting the most from their relationships with pricing consultants.

Those consultants simply could not bring the SaaS and Web App experience and knowledge that Sixteen Ventures can bring, especially around Revenue Modeling. But even with Sixteen Ventures, there was still a cost issue. It is not cheap to retain us, which is why we came up with our $499.99 Quick Start program. But we wanted to do more.

So, we developed a way that allows us to bring our advanced pricing knowledge and techniques, along with our Revenue Modeling frameworks and tool sets to SaaS and Web Startups at a fraction of the expense of retained consulting. But no one should worry about us... we built a scalable and efficient model that allows us to keep the price low.

This is not because we have a process that spits out canned responses and sends a generic whitepaper, but because we architected this process from the ground up with this goal in mind. We're not setting out to be the "low price leader" but we certainly can accommodate a lower price because of the economies of scale built into the system. After all, we are a SaaS consultancy... we get this stuff.

This service provides a review of, and suggestions to fix a Pricing Page, not necessarily a company's overall Pricing Strategy. For SaaS & Web App companies, the pricing page is a window into its pricing strategy, so significant problems with a pricing page often indicate deeper, more substantial problems with their overall pricing strategy. Sometimes it isn't a lack of a pricing strategy, its just an inability to properly align their marketing with that strategy.

For companies that find they do have a problem with their overall Pricing Strategy, they can use the feedback from the Tune-Up or Overhaul to help them move in the right direction, whether that is trying to fix the problem themselves or further engaging with Sixteen Ventures.

This service consists of two discreet offerings differentiated by the depth of the review and the amount of actionable feedback given.

The Pricing Page Tune-Up™ is perfect for pre-launch or early-stage bootstrapped startups or if your market is fragmented with little data to turn to. We identify glaring problems and highlight items that need immediate attention without overloading you with too much information.

The Pricing Page Overhaul™ is ideal for later-stage or larger SaaS and Web App companies or companies, those that have already received a Tune-Up, or companies who are comfortable receiving a large amount of feedback and information.

We do this in a way that is:

Not 100% automated - This is not like Website Grader from Hubspot, which is a great product for what it does. There are real human beings with expertise in this process. Some pieces are automated, though... but not where it counts.
Not crowd sourced - We don't go to Amazon Mechanical Turk or otherwise use the wisdom of crowds here; it's all Sixteen Ventures' staff and consultants
Sourced from Sixteen Ventures experts - SaaS, Web App, and Pricing consultants perform and complete the Tune-Up and Overhauls. While it's a great resource for UX or UI testing, we are not like Usertesting.com where they have untrained individuals give you feedback.
Not Focused on A/B Testing or Analytics - While we want baseline analytics to test your Pricing Page Score™ and future improvements against future bounce rates and A/B tests, our Pricing Page Tune-Up™ and Overhaul service does not have a built-in testing or analytics engine. We recommend A/B testing and two resources are Unbounce (disclosure: Unbounce got a Tune-Up from us) or VisualWebsiteOptimizer. For analytics check out KISSMetrics or Google Analytics.

We've already done Tune-Ups or Overhauls for OfficeDrop, Unbounce, Rypple, Indicee, Oquma, and many others. For one company, the process exposed a key element they can use to differentiate from the competition. For another company we showed why their Freemium conversion rate was so high and why that actually was not a good thing.

At a minimum, each Pricing Page Tune-Up™ or Overhaul report will help you understand:

How well your Pricing Page aligns with your pricing strategy goals based on goals outlined by our client
How your current pricing page reflects or dictates your market position
How to make changes to your pricing page to improve your market position
How your Pricing Page stacks up against up to 5 competitors via our Express Compare™

If you sign-up for a Pricing Page Tune-Up™, you will receive a PDF report with the results of the ~50 point inspection plus the Express Compare and Goal Alignment. Pricing Page Overhaul™ adds an inspection of another ~50 points for a more in-depth review of your pricing page. Both reviews include inspection points from the following categories:

Overall Page Design
Call to Action
Use of Free

Market Segmentation
Pricing & Bundling
Marketing Strategy Alignment
... and more!

All of this starts at $99.99 for a Pricing Page Tune-Up™ or $149.99 for a Pricing Page Overhaul™... But we suggest you also buy a follow-up review or two. Get started today.

Author: Lincoln Murphy (@lincolnmurphy on Twitter)

Don't Copy Their Pricing Page

Fri, 30 Apr 2010 00:41:08 -0500

I did a guest post on Bob Walsh's 47Hats site this week where I talked about the Sixteen Ventures mantra that "Pricing is Marketing" in the context of SaaS & Web Apps, especially startups. The goal of writing posts on that site is simple; to introduce Web App startups to the ideas and techniques that have been cultivated over the last few years in SaaS that they might not know about. Primarily, the post focused on value-based pricing and these five elements to help you develop your pricing strategy:

Your Pricing Strategy Goals – Market Position, Hyper Growth, something else?
Ensure Market Alignment – Know how they buy, what they’ll pay, and how they’ll pay
Market Segmentation – Do you have one-size-fits-all pricing, is that the right strategy?
Distribution – Will you sell direct or through channel partners or App stores?
Sales Model – Do you have a sales force or will you use an automated process?

If you aren't familiar with those, I'm happy this was your introduction. Remember those as they are the key to a robust and successful pricing strategy.

The other thing that I brought up, that is critical for SaaS & Web App companies, startups or otherwise, especially those that leverage an automated sales process, is the simple idea of not copying other companies' pricing pages. I even singled out 37Signals as one not to copy since they are the sacred cow. And a commenter had an issue with that. Here is what he said, my emphasis added:

...instead of saying something like “Don’t copy 37Signals pricing page” - which I think is bad advice. Considering they’re one of the most successful SaaS providers in the space, I would think their page is the first page you’d want to start your experimentation on.

My response to his assertion that I was giving bad advice, contained in a much longer comment that covered other topics, was the following. This, by the way, further explains a blog post I did last month called "Admit it, you copied their Pricing Page":

The item that you called “bad advice” is “don’t copy 37Signals pricing page”. Why would I say that? To get people to pay attention. Its a gimmick; and it works.

You see, we do a lot of pricing page analysis and I can assure you, most people don’t even go as far as to completely rip off the pricing page for Basecamp. If they did, they’d probably be better off than they are. But why I say that, other than to get readers to react, is unless you are building a horizontal collaboration product in the same market, and have the same market position as Basecamp, you just shouldn’t do it; it makes zero sense. The Basecamp pricing page might work well for them, but you need to know what you want to happen and then design a page around your goals and your market. Taking their layout and drop shadows is one thing; I’m talking about using them to figure out your pricing strategy.

Something I’ve written about a lot in the SaaS world but realize I’m talking to a new audience here is to your point of 37Signals being “one of the most successful SaaS companies.” Remember this, SaaS is not a market; its a business architecture, delivery method, business model. Whatever you want to call it, but its not a market. Collaboration, CRM, ERP – those are the analogs. The markets are Construction, Healthcare, Automotive. So, if you have a SaaS Automotive ERP and are competing against Plex, you should look at their pricing to know what the market expects; and then come up with your own. This is the problem when you think “they’re a SaaS company, I’ll just copy what they do.” It doesn’t work that way. That is what I mean by “don’t copy 37Signals.” Can this be argued against? I’d love to hear it.

No argument yet... do you have one? Comment here or there; the floor is yours. You can read the rest of my comment, along with the article, over on the 47Hats blog.

Would you like help with your Pricing Strategy? Take advantage of our Pricing Page Tune-Up™ & Overhaul services or schedule a Quick Start session with Sixteen Ventures today.

Author: Lincoln Murphy (@lincolnmurphy on Twitter)

Slides and Recap from SaaS & Web App Pricing Roundtable

Wed, 28 Apr 2010 10:24:59 -0500

The SaaS & Web App Pricing Roundtable hosted by Techcelerate and moderated by Sixteen Ventures was a great success; especially given that it was pulled together at the last minute. The representatives of eDocr, Xero, PrudentCloud, MalinkoApp, & CapsuleCRM (to name a few) were not part of a typical meetup, though. Using Tandberg's (now a part of Cisco) state of the art telepresence, attendees from UK, Dallas, Texas, and San Francisco, California gathered together virtually, yet it felt like we were in the same room. Many thanks to Tandberg for offering their services and for their fantastic hospitality.

I started out the Roundtable with the slides below. I wanted to level set with the message that "Pricing is Marketing." Over the course of the two-hour event, the following topics came up:

Pricing Metrics - Per user, per seat, something else? Value-based or commodity-based (like storage)? Punish customers for increased use? Customers "gaming" the system.

Market Segmentation - Vertical-specifiic or segment-specific messaging and pricing, the lack thereof for some and the fact that doing this saved one company

Distribution via Trusted Advisors - Is the channel dead in SaaS or for Web Apps? Not with this group who do not utilize traditional technology-focused VARs but rather completely non-technical intermediaries such as accounting firms or fleet management companies to gain access to their end-customers. These are intermediaries that traditionally would not have touched a "software" product.

Pricing a solution with a completely new value proposition - How do you come up with pricing for a product that is brand new competing in a space that is just a few years old. This was a very interesting discussion

Free Trial & Freemium Conversions - The consensus was for B2B apps there should be at least a free trial, but how long? And what is a good conversion rate? What about Freemium?

Distribution - While the "Trusted Advisor" discussion was all about Channel Partners, App Stores was another topic that was discussed. With most app stores taking ~30% of your revenue, and potentially reaching an audience with different buying habits, business problems, etc. than your core or traditional audience, how do you change your pricing for that channel? Can you do in-app purchases to drive lifetime value in a channel that might provide less revenue up front?

The most interesting thing was, after two hours of talking about pricing, I brought up the fact that we never once busted out the spreadsheet to crunch numbers. Why? Because Pricing is Marketing. You need to know that up front and invoke the holy trinity of pricing: How They'll Buy, What They'll Pay, and How They'll Pay. Once you understand all of that, now you can start to figure out your pricing strategy. Too many pricing discussions focus on formulas or bottom-up, cost-plus pricing. This is the wrong way. You have to know what your market wants before you get too deep in that spreadsheet. Go talk to your customers!

Overall, it was a fantastic event with everyone walking away having learned something new. I was very pleased to be a part of it.

Download Slides (PDF)

SaaS & Web App Pricing Roundtable April 27, 2010

View more presentations from Lincoln Murphy.

Couldn't make it to the roundtable but you'd still like help with your Pricing & Distribution strategy? Take advantage of our Pricing Page Tune-Up™ & Overhaul services or schedule a Quick Start session with Sixteen Ventures today.

Author: Lincoln Murphy (@lincolnmurphy on Twitter)

SaaS & Web App Pricing Roundtable in Dallas on 4/27/10

Sat, 24 Apr 2010 20:03:55 -0500

One of the most crucial aspects of any startup is to figure out how to make money. Oddly, this is a very overlooked and misunderstood element in startups with many deciding to put it off until later; but often later is too late. Or they just copy 37Signals pricing...

Finding out how your customers buy (what channels they go through), what they'll pay, and how they will pay are very important to understand early. You can build the greatest product that meets the requirements of your target market, but if your pricing is off, your distribution methods are misaligned with your market, or your customers simply cannot pay you, it doesn't matter. Since Software-as-a-Service (SaaS) and Web Apps have inbuilt support for e-commerce and pricing metrics, knowing all of this early in the process will ensure you've built a product that will adequately support your customer base in all areas.

To that end, I have been invited (on very short notice) to moderate a Pricing roundtable discussion by SaaS and Web App founders and CEOs this coming Tuesday 4/27/2010 at 10AM. The event is in actually in England but I will be joining via a teleconference link at the Tandberg offices in Dallas, Texas. There is room for 6 people to join me and to participate in the event. There is no charge to attend this event.

If you are in Dallas, are currently involved in a post-beta (ie. in the market) startup or later-stage SaaS or Web App company and would like to discuss your Pricing and Distribution strategies while learning from others experience as well, please RSVP here.

Not in Dallas but you'd still like help with your Pricing & Distribution strategy? Take advantage of our Pricing Page Tune-Up & Overhaul services or schedule a Quick Start session with Sixteen Ventures today.

Author: Lincoln Murphy (@lincolnmurphy on Twitter)

SaaS, Web Apps, or Just 'Apps'?

Tue, 20 Apr 2010 12:19:54 -0500

On my last trip to San Francisco I sat down with Matt Childs of DreamSimplicity to talk about the state of SaaS. We shot some video as we talked about how Google & Apple have changed the distribution landscape for SaaS & Mobile making App Stores & Marketplaces a new reality for SaaS vendors and their distribution strategies.

The conversation also focused a lot on how the term "SaaS" is not found, at least prominently, in the Google Apps Marketplace and whether or not this means anything for SaaS vendors or if it is reflective of a lack of resonance by "App Vendors" - web or otherwise - with the term SaaS. That is the topic of this video, embedded below:

Thought Leader Showcase - Lincoln Murphy: The Term "SaaS" from DreamSimplicity on Vimeo.

What was potentially more interesting, and not caught on camera, was later conversation about whether or not the term "SaaS" even matters any more. Perhaps another way to frame that thought is this: True Software-as-a-Service (SaaS) leverages an Integrated Business Architecture (IBA) where you have a multi-tenant, network-centric commingling of Marketing, Intellectual Property, Technology, and Revenue Model.

But, the IBA applies equally to SaaS, Web Apps, Cloud, PaaS, IaaS (some flavors and vendors) and even Mobile. This then begs the question: since the main thing is the IBA, not the consuming market, not the type of device or even method of consumption of the service, is the term "SaaS" as many have defined it simply too limiting?

Further, have large companies like Salesforce.com, with its $11B market cap, inadvertainly associated the term "SaaS" with a certain company scale that bootstrapped startups simply do not associate themselves with? Are we SaaS industry insiders keeping our message of IBA and the associated Revenue Model, Distribution, & Pricing Strategy best practices out of the hands of the very companies that need to hear the message most because we insist on using a term that does not resonate outside of our small "community?" This is certainly an interesting topic for discussion.

There are many of us that have always believed 1) there has to be a better name than "Software-as-a-Service" and 2) at some point this technology, delivery method, business model - whatever you use to refer to it - will cross the chasm into mainstream and at that point it would likely just revert back to "software." But things seem to be accelerating at a faster pace vis a vi mainstream adoption and with Google and Apple behind the term, Apps seems to be the term likely to replace SaaS. What are your thoughts? Join in here or on the Sixteen Ventures community at DreamSimplicity.

Whether you call it SaaS or a Web App, if you need help with your Pricing & Distribution strategy, take advantage of our Pricing Page Tune-Up & Overhaul services or schedule a Quick Start session with Sixteen Ventures today.

Author: Lincoln Murphy (@lincolnmurphy on Twitter)

SaaS & Integrated Business Architectures

Mon, 19 Apr 2010 23:11:50 -0500

In 2009 Sixteen Ventures defined the SaaS Business Architecture as a multi-tenant, network-centric architecture where Marketing, Intellectual Property, Technology, and Revenue Model are tightly coupled. We have now rebranded this as Integrated Business Architecture knowing that more than just those companies that identify with Software-as-a-Service (SaaS), such as Web App, Cloud, and Mobile companies, take advantage of it.

In fact, it is critical to understand that the consuming device (browser, iPad, Adobe AIR) or service (i.e. API end-points, for example) doesn't matter where an IBA is concerned. And unless you're talking about data center, infrastructure products, or specialized desktop apps, an IBA is actually the default architecture for bringing new apps to market.

It is absolutely clear that if you are starting a "software" business in 2010 and you are not building your product and your company around an IBA, you are definitely going against the current.

Sixteen Ventures works primarily with SaaS, Web App, Cloud, and Mobile companies that leverage an IBA as well as an Automated Sales & Distribution Process where Marketing, e-commerce, and Application Functionality are also tightly integrated.

Do you need help with your Automated Sales & Distribution Process or Pricing Strategy for your IBA-based web service? Take advantage of our Pricing Page Tune-Up & Overhaul services or schedule a Quick Start session with Sixteen Ventures today.

Author: Lincoln Murphy (@lincolnmurphy on Twitter)

Just Like Russian Roulette, Freemium is a Numbers Game

Fri, 16 Apr 2010 14:38:57 -0500

There continues to be interest in what companies like Evernote are doing with Freemium and how they are making a lot of money with the majority of their userbase not paying a dime. Lets be very clear here; Evernote has found a strategy that works well for them. One of the keys to the Freemium marketing tactic working for Evernote is that it has a very large potential audience; essentially anyone in the world with any sort of device connected to the Internet is a potential user. That is much different than the new tool you created for the Health Club industry in the United States.

On the flip side, Ning, a very well-funded company with another very large potential audience, announced this week that they will kill the free version of their service because, well, they weren't making any money from the free users. Why? It could have been that they gave too much away for free or even more likely: they attracted the wrong audience. Ning likely had millions of "owners" of various "social networks" that created those networks without ever intending to 1) use them or 2) pay anything. So much for the theory that free users are a large pool of potential customers, right? So now Ning is going to focus on something businesses for centuries have traditionally sought... paying customers.

So what does this mean for the "Freemium model?" Like most marketing tactics, some will find success with it and others will fail miserably. If you understand that it is simply a marketing ploy and don't build your "business" around Freemium, when it doesn't work, you will be in a better position to recover. If you spend all of your time, money, and resources up front attempting to collect some "critical mass" of users thinking that you'll convert them later when you "turn on the revenue tap" you might have a big, negative surprise waiting for you.

Something that I presented at the Freemium Summit that seemed to be very popular was what I called my "back of the napkin" formula for figuring out if you have a large enough market for Freemium to work. Essentially it says, are there enough people/companies/potential users of my app for the "numbers game" that is Freemium to work. If not, then Freemium is not for me. You don't even need a fancy calculator for this one.

The formula is dead simple and until now was buried in the slide deck from the Freemium Summit. Since the brief renewed interest in Freemium this week, and the fact that I've seen some people talk about the formula, I thought I would extract it from the deck and talk about it here.

The Formula is simple:

Addressable Market x Reach % x Sign-Up % x 3% = Potential Paying Customers from Freemium

Here is the example that we'll break down below:

30,000 x 30% x 50% x 3% = ???

Lets look at each element:

Addressable Market: Anyone who might potentially be interested in what you have to offer. To be realistic you should consider actual companies and/or users in this number and not the monetary size of the market. I used the Health Club industry above and in the slide deck so we'll stick with that. In the United States, there are 30,000 health clubs according to an Industry Association.

30,000

Reach %: In the context of SaaS or Web Apps, we'll say this is the percentage of the market that you can actually attract to your website. We'll use some amazingly generous numbers in our math so we can end up dealing with whole, positive numbers. We'll say you have some amazing Rock Star marketing folks who can get 30% of the market to your website, or 9,000 health clubs.

30,000 x 30% = 9,000

Sign-Up %: Of the 30% of the market that you were able to attract to your website, you get your even-more-Rock Star conversion queen to work on the problem of getting them to sign-up for the "Free" part of your Freemium offering. Sure enough, she pulls it off and gets you a sign-up rate of 4,500 health clubs. This is truly amazing.

9,000 x 50% = 4,500

3%: This is the average rate of conversion from Free to Premium for SaaS or B2B Web Apps. You can replace this with whatever number you want, but just keep in mind that 3% is average in B2B SaaS & Web Apps; some do better but many also do worse. This is backed-up by recent research from Softletter.

4,500 x 3% = 135

Potential Paying Customers from Freemium: So the answer is, after all of that hard work of getting 30% of the market to visit your site and 50% of those to sign-up for the free version, you are left with only 135 paying customers. 135.

From a Revenue Model standpoint, you need figure out how to:

1. Make a TON of money off of the converted 135

2. Monetize your 4365 free users (through the other 6 Revenue Streams)

From a Marketing / Business Strategy standpoint, you need to figure out:

1. If you are giving away too much for free (no reason to convert)

2. If you are attracting the wrong users (who will never pay) and if so, why

3. If your users think your product is terrible and are just using it until something better comes along and will never pay you a dime

But overall, the reality of getting 30% of the market to your site and 50% of those to sign-up is a long shot and shows how unrealistic the notion of Freemium is for small industries or niche products. As I said at the Freemium Summit, in these markets, your best bet is to:

Create a solution to a real business problem and charge money for it

Freemium Works better for "narrow band" horizontal products that solve a very specific business problem across all verticals, can leverage a land and expand strategy, can be pulled into a company by the individual users, etc. Think of companies like ThreadBox, Yammer, Xobni, Box.net, and YouSendit.

These products literally have every business as their possible customers. They have a big enough addressable market to make the formula work, even with realistic reach and sign-up percentages.

If you need help with your Pricing Strategy, including Freemium, take advantage of our Pricing Page Tune-Up & Overhaul services or schedule a Quick Start session with Sixteen Ventures today.

Author: Lincoln Murphy (@lincolnmurphy on Twitter)

SaaS Startup: Pull Back the Complexity Curtain

Wed, 14 Apr 2010 00:28:54 -0500

During a Quick Start session the other day, the SaaS startup we were working with was explaining their very complex multi-channel and strategic sales go-to-market strategy. It quickly became clear: these guys had created a very real and viable product that they could launch next week to start generating revenue and gaining market intelligence but they could not see it. In fact, this product by their own admission actually has wider appeal than their initial target market segment and could leverage an automated sales process. In many cases we instruct startups to focus on one market segment, but in this case the opposite was true.

In an effort to go after the big vision, the founders of this company were unintentionally adding complexity and missing out on potential near-term opportunities. They needed to pull back the Complexity Curtain in order to see what they had at their fingertips. What we called attention to was what some refer to as a Minimum Viable Product or MVP. I like to expand on that, and I know it ruins the cute acronym, but I prefer to talk about the Minimum Commercially Viable Product or M-C-VP. And these guys have it. They could go to market literally next week.

Is it possible they will miss out on the big opportunities that make up the big vision? This is just the Complexity Curtain at work and is exactly what was keeping them from getting to market. It is true, once the initial excitement of this new M-C-VP approach wears off, the internal struggle for the founders will be front and center "but aren't we abandoning our overall vision?" This is the struggle that all startups with a big vision have. My answer is simple, "you're not missing out on the big vision, you're decreasing the time it takes to make a commercially viable version of that overall vision a reality."

In other words, you have this big vision, but you also have the ability to get into the market today with a real product. And since we know that its only after you are in the market that you really know anything anyway, and that the best laid plans do not stand up to a run-in with real, paying customers, the sooner you can get to market, the better. And rather than causing you to lose focus on the big picture, this will just ensure that the big picture you see is the picture of realty and not something obscured by the Complexity Curtain.

Need help getting rid of your Complexity Curtain and developing a M-C-VP strategy for your SaaS or Web App? Get started with Sixteen Ventures today.

Author: Lincoln Murphy (Follow me on Twitter)

Admit it, you copied their Pricing Page Design

Wed, 31 Mar 2010 15:10:10 -0500

During the "Payments and Monetization for Freemium Businesses" at Freemium Summit I tweeted this:

That started a number of conversations on Twitter and moderator Dave McClure asked for some tips and even brought it up again to the panel. Unfortunately, at least one on the panel again laughed it off. I was about to let it go when it reared its ugly head during a recent Quick Start session with a SaaS startup where they asked about Salesforce.com's pricing page and pricing strategy. This wouldn't be a problem except this company is not a CRM firm and they sell to the government.

Based on that I decided to finish and publish the following post that had been queued up for a little while. Your feedback is always welcome.

-----------

Its okay to admit that you copied 37signals pricing page design; in fact, admitting you have a problem is the first step to recovery. Frankly, why wouldn't you copy them? If you Google "pricing page design" there are numerous blog posts analyzing how 37signals pricing page is designed, some that even show their pricing page's evolution for the last few years. This is really cool if you are a big fan of 37signals. However, if you are doing it to try to figure out how to develop your own pricing strategy and pricing page... YOU'RE DOING IT WRONG.

If you aren't competing in the same market for the same customers with the same offering and market positioning as 37signals (the go-to company for small web startups) or Salesforce.com (the company that up-and-comming SaaS firms look-up to) then you shouldn't worry about how they price their offering or what their pricing page looks like. For all of the ideas from their pricing pages that you'll want to take along there are as many or more that you'll want to avoid like the plague.

Pricing is marketing and copying another vendor's pricing page design, copy, pricing strategy, etc. just doesn't make sense; even just to start out with as some might suggest. Take the design of your pricing strategy or pricing page lightly at your peril. In an Integrated Business Architecture like SaaS (or web, mobile, etc.) where automation is key to scaling the sales process, your pricing page design is a key component of that process. Execute poorly and expect poor results.

There are some things you should keep in mind when developing your pricing page that you could glean from studying 37signals or others' pricing pages:

Pricing should match your value prop & market needs
Make sure the overall page design reflects your marketing strategy
Make sure you have a definitive call to action
Speak the language of your audience
Sign-up button above the fold
If you use pricing bundles or tiers its good to have an odd number

But from there, it really depends on your offering, your market, and your position therein. Repeat after me: Pricing is marketing, and your pricing page should be a reflection of your overall pricing strategy, which should come from an overall marketing strategy. Just throwing some numbers on a page in columns with drop shadows and rounded corners won't cut it. Pricing page design should not be glossed over; it can make or break your business.

Are you ready for a Pricing Page Tune-Up™? Sign-up today to get a professional review of your pricing page, comparisons to up to 5 of your competitors, and Actionable Recommendations to help you improve your Pricing Page.

Author: Lincoln Murphy (@lincolnmurphy on Twitter)

SaaS Pricing: The Amazing $240 Gigabyte

Wed, 31 Mar 2010 13:54:33 -0500

This topic came up during a recent Quick Start session with a SaaS startup where they wanted to pass on the storage costs associated with the use of the system to their end-customer. We adequately moved past that, but I wanted to bring it up to a greater audience so I decided to finish and share a post that I've had queued up for a while. Your feedback is welcome, of course.

A quick search on Google shows you can buy a 500GB hard drive for $60, or about $0.12 per GB. Anyone can do that search and probably a lot of people have; most probably weren't happy when they did, either. Even if they haven't actively sought pricing on a new hard drive, they know that a GB is super cheap these days.

Yet when you sat down to develop your pricing strategy for your SaaS or web service, and the pricing page to go along with it, you decided it was a good idea to charge your customers an extra $20/month or $240/year for an extra GB of storage space; something both you and they know they can get for $0.12.

Wait! "That argument doesn't make sense" you say. "We add value on top of the storage;" you manage that data for them, you do backups and have a disaster recovery plan, your data center is SAS70 certified... stop... it doesn't matter any more.

Whether you like it or not, your customer just did an apples to apples ROI comparison between two things that have absolutely nothing to do with each other; your complex web service and a commodity, desktop hard drive. And its all your fault. So now, they either won't step-up to the next tier (holding back on usage or deleting objects) or they will because they have to but won't be happy about especially since they "know" the insane profit margin you're getting off of them. More importantly is that even though they moved up, they might be actively looking for a way out.

You see, knowing that you add value isn't enough; you need to tell the customer about the value you add and sell them on it. Unless they are buying a storage system (S3, online backups, etc.), at best focusing on "storage" is simply not aligned with the customer. At worst, it takes their minds off of the true value you add and focuses it on some metric that they associate with a super-cheap commodity.

So as not to simply give high-level advice without any meat to it, here's a free tip if you happen to have this type of commodity-based step-up in your pricing. Setup monitoring for odd behavior before your user upgrades such as excessively deleting objects only to finally upgrade. This can be an indication that they tried their best not to upgrade but finally had to. This type of forced, unhappy upgrade is a good indicator of impending churn; they want out and rest assured, they will eventually get there.

Depending upon how you've built your system this might be possible only after they've upgraded. Have your subscription management system trigger a process to go back and look for odd behavior after an upgrade. If some is found, pass that off to an inside sales person or account rep who can talk to the customer to make sure they are happy and if not, hopefully fix it and get them to stay around longer.

That tip aside, the entire mess could have been avoided if you didn't put some type of "commodity item" as a main differentiator between pricing tiers and instead focused on value-added functionality or features as the users grow.

Author: Lincoln Murphy (@lincolnmurphy on Twitter)

Slides from Freemium Summit

Mon, 29 Mar 2010 11:47:34 -0500

I was pleased to have been invited to speak at the first Freemium Summit last Friday, March 26, 2010 in San Francisco, California. It was a standing-room only crowd and I must give serious props to the organizer Charles Hudson for pulling together such a phenomenal range of speakers and topics.

While I was the lone contrarian in the group, speaking on "Freemium and the Enterprise: Proceed with Caution" and warning those in niche B2B markets especially of the fact that Freemium is likely not even an option for you, all of the speakers had some form of caution for the audience. Universally they said Freemium is not for everyone and it is risky.

The part of my presentation that got the most tweets and I think the biggest reaction was was the back of the napkin math that I encourage those wanting to try Freemium to do. This starts on slide 14, but slide 16 really nails the point home. Everyone says Freemium is a numbers game; indeed, but if the numbers aren't there to begin with, its a non-starter. Check it out.

The other big reaction was perhaps my giving big ups to Biggie Smalls and the complex concept of "Mo' Money, Mo' Problems". Overall, what a fun, energetic, and very receptive audience at the Freemium Summit.

I welcome your comments, feedback, questions, or attacks... ready, aim...

Download Slides (PDF)

Freemium and the Enterprise - Proceed with Caution Slides from Freemium Summit 2010

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If you need help with your Pricing Strategy, including Freemium, take advantage of our Pricing Page Tune-Up & Overhaul services or schedule a Quick Start session with Sixteen Ventures today.

Author: Lincoln Murphy (@lincolnmurphy on Twitter)

SaaS Pricing: Scaling with Customer Success

Fri, 05 Mar 2010 18:27:15 -0600

There is a great post on Sachin Rekhi's blog titled "Freemium Design Pattern: Scale Pricing with Customer Success." I left a comment on his post, but I thought it was relevant so I want to share it here as well.

Sachin makes the strong case for creating pricing bundles or versions that are aligned with the customers' growth making it easier to "step-up" for the customers. Specifically, he said:

One variant of capacity-limited freemium tiering that is particularly effective for products targeted at the SMB market is to scale pricing with customer success. What I mean by this is providing various premium tiers of your product that will become appropriate for your customer as they are more successful in their own business. Typically this means tying the tiers with capacity-limits that either directly reflect or proxy the customer's growth in their own user base or revenue.

What's nice about this model is that it appropriately segments your potential customers into pricing buckets by ability and often willingness to pay. Businesses that are just getting started, pre-revenue, or early in finding product\market fit can often leverage your product as part of the free tier or low priced tiers. This provides few barriers to adoption and get's them quickly onto your product. And as their business scales, they'll think twice about switching since they've already been successfully using your solution. On the other hand, larger businesses will pay against a higher tier appropriate for their level of success.

I used that as a jumping off point and left the following comment:

Since B2B (Enterprise & SMB) SaaS is our specialty at Sixteen Ventures, we have a lot of experience in versioning, bundling, etc.. First, we work with our clients to ensure that they are solving a business problem for their target market. By doing that, we also help our clients realize that when they solve a real business problem, there is a real value put on that by the clients. This means it is very unlikely that SaaS vendors we work with are going to be in the game of competing on price... we don't want them to be the low-price leader.

One of the main things we always tell our clients in an effort to ensure they are positioned in the minds of their target market correctly is to do what you suggest; reward their growth and success. The SaaS vendor doesn't want to punish the client's growth. They don't want to give the client any reason not to continue to use the product as their business grows. In fact, by showing the client that they understand their business and the increasing complexities as they grow, the SaaS vendor further cements in the client's mind that they are the subject matter experts.

So, while I agree in principal with what you said, we go a step further and that is to have our clients differentiate the pricing bundles or versions based on value-added features, services, etc. and to avoid "commodity" items like storage, CPU, or even users. Sometimes, for example, users are the key metric that is most aligned with the needs of the client, so it would be foolish to not use that, but often, metrics with little perceived value are used.

By aligning the "step-up" between bundles or versions with the value perceived by the client, the SaaS vendor is in a great position and the client feels great about moving up. They don't feel forced or bullied which could create churn out, and churn is the bitter enemy of revenue. Also, being value-based allows vendors to charge more in many circumstances.

Author: Lincoln Murphy (Follow me on Twitter)

Startups: Keep It Simple and Get Your SaaS to Market

Thu, 04 Mar 2010 18:21:49 -0600

I met with the CEO of a startup last week to talk about her venture. She has a great idea and a lot of domain knowledge and industry contacts to back it up. She has very little experience with startups and is not technical. After she gave me an overview of the business, where it is at, and what the opportunities are, we discussed a number of things.

First, I introduced her to the 7 Revenue Streams and we looked at the opportunities in the business regarding revenue modeling. A number of very viable options are present, and as of that meeting she was unclear as to which revenue streams to take advantage of. I suggested a lot more research and customer development was in order. Along those lines, I also introduced her to the concept of a Minimum Viable Product; getting something into the customer's hands as quickly as possible, meeting just the absolute requirements of the customer.

After a quick email to check-in, she sent back the following message and I responded. I thought the exchange likely had value to others, so I anonymized the messages and posted them below.

Her email:

We made some tactical progress this week, and are planning to "interview" a couple of app development companies next week.

I'm considering taking on a "project manager" role and want to break up the "product" in to silos;

- Database
- Application
- User Interface (UI) / User Experience (UX)

Or, is there a " playbook" for this kind of thing that exists (for software startups/ SaaS)?

My response:

As far as the COO type of role and all of that.... my advice is to keep it simple. If it helps you manage your business and keep things humming along by categorizing things, then do it. But at this stage, you might keep that to yourself. Now is not the time to silo the team members... everyone needs to contribute as much as possible, even if that means doing things that are outside of their comfort zone. This includes you, too. ;-)

Unfortunately there isn't a playbook since all companies are different and have different resources available (money, talent, etc.). You have to know what the market needs, and then what you have available to meet those goals. Then, you need to figure out what you need to bring in in the form of outside resources after that. Product development in a startup is 180 degrees different than the way things are done in large companies... at this point, your product IS your business so make sure you treat it that way.

I think I understand where you are going with the "silos" approach, but remember that at some level its all related and should all be developed in a tightly-coupled effort to reach your business goals; not just technical specifications. Be careful putting the cart before the horse with too much software development before business development. Yes, this is what we do at Sixteen Ventures so this might come off as me trying to sell you, but believe me, I'm not.

Use us, use someone else, read books, Google the answers, or whatever... but please know that more companies fail, or fail to launch, because of "business" issues than technology problems. In other words, make sure you have your MVP fully scoped out (which means you should be interviewing more clients now than developers) before you engage with technical resources.

Remember that MVP isn't just Minimum (Technically) Viable Product, but Minimum (Commercially) Viable Product... how can you build something if you don't even know which of the many and varied revenue models you'll choose? In SaaS or web-based solutions, support for the revenue models must be built into the product so that is one big issue that you have not solved yet.

In the end, you'll save time and money ensuring that you are building *just* what the market wants and nothing more. It also allows you to "fail faster" by only spending time and money on a minimal feature set and getting that in front of paying customers. If you missed the mark, you aren't out too much in both time and money and you can quickly iterate to get what the customer really wants back in front of them.

Just my $0.04 (I think there was more than two cents worth of info there)... Sorry I didn't have a better answer for you. I wish there was a machine where I could feed some specs and out would pop a viable growth company... still working on that!

Take care,

Lincoln

Do you need help with your SaaS startup? Schedule a Quick Start Session today!

Author: Lincoln Murphy (Follow me on Twitter)

Updated 7 SaaS Revenue Streams Report

Tue, 02 Mar 2010 23:45:36 -0600

The 7 SaaS Revenue Streams report has shaped the revenue model strategies of countless SaaS vendors as one of Sixteen Ventures' most downloaded and viewed publications. Since we haven't updated it since November 2009, we thought it was time to make some changes. Included in this release are the following changes:

The Subscription revenue stream is now called Recurring to more adequately reflect the many options available beyond traditional monthly subscriptions
Sample Use Cases - how real SaaS companies leverage the various revenue streams
Worksheet to determine when each revenue stream can be leveraged
Link to the Reality of Freemium in SaaS paper
White background for easier printing

Your feedback on the report is encouraged and welcomed! If you need help with your pricing strategy or revenue modeling, contact us today to get started!

Download Slides (PDF)

Updated 7 SaaS Revenue Streams with Details

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Author: Lincoln Murphy (You should follow me on Twitter)

Take Your Customer to Lunch, Not Me!

Tue, 23 Feb 2010 12:10:23 -0600

Like most consultants and advisors who make themselves publicly accessible, I get emails asking for advice or to meet for coffee or lunch. Often it is to "pick my brain" and certainly there is no harm in asking. When it is feasible, I'm happy to oblige and end up meeting some great people. Sometimes the logistics don't work, and other times the person asking might be better served taking someone else to lunch; his customer.

Below is an email I received from a SaaS entrepreneur and my response, which I thought was something others would find value in, so I've anonymized the original email and posted it along with my response.

His email:

"I recently came across your white paper on the freemium model for B2B while researching software pricing tips for my startup.

I have struggled with pricing on my SaaS business for a while and your paper was very insightful. In particular your comments on the relationship between perceived value and pricing are helpful to me.

I had heard from a few potential customers during the product validation period that my prices seem low. I think my current pricing is too complex and low. I will think over this a few more days but will probably shift to single higher price model.

[...] I am offering a free lunch in exchange for some more insights from you. Thanks for writing the paper!"

My response:

Thanks for contacting me. I'm glad you found the Freemium paper and am happy it was useful. I'll give you some generic advice on pricing based on your email and after looking at your site.

Pricing is part of marketing which is part of your overall business strategy. It should not be something that you take lightly or just some arbitrary numbers thrown on a "pricing page." Pricing should reflect your market position (or what you want that to be). All of your marketing should push your value proposition and when it comes time to make the purchase, the price should be aligned with that value-prop.

I like that you said you had some potential customers tell you they'd pay more. My advice to you is to go talk to more potential customers. Take them out to lunch; not me. Find out not only what they think about the pricing, but what part of your value-proposition really resonates. Then you can start to figure out how to price. And pricing isn't just the figure you attach to your service, its how you bundle the features together, or what "metric" you use (per project, or example)... you have to know how your customers will buy and what they care about before you can apply a figure to it.

You're on the right track, especially since you are willing to involve customers in the process. A lot of startups avoid talking to potential customers and just make guesses.

Take your customers or prospects to lunch. I'm happy to help you, but to get to a point where we can really help would require more than lunch. We do have a pretty great deal for startups if you're interested.

Author: Lincoln Murphy

Slides from Rackspace UK SaaS & Cloud Event

Wed, 17 Feb 2010 00:24:32 -0600

We were honored to have been invited to participate in the Rackspace UK SaaS and Cloud event last Friday 2/12/2010 in London, England on the topic of SaaS Revenue Modeling and Business Architecture. Representing Sixteen Ventures in the UK was Justin Pirie, SaaS Product Specialist extraordinaire who put together a great presentation using the SaaS Business Architecture and Seven Revenue Streams (PDF) research published by Sixteen Ventures. Below are Justin's slides and a great video provided by Rackspace. I hope you enjoy them.

Watch Presentation Video (Flash)

Download Slides (PDF)

How to Optimize Your SaaS Revenue Streams - Rackspace SaaS & Cloud 2010

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Author: Lincoln Murphy (You should follow me on Twitter)

Slides from SaaS Channels Webinar with OpSource

Thu, 11 Feb 2010 00:38:29 -0600

OpSource hosted a webinar on channels in the cloud on 2/10/2010 and I was the featured speaker. The title of the presentation was "Making Channels Work to Grow your SaaS / Cloud Business." We had a large, diverse group on the webinar and the majority stuck around to the end when the moderator, Richard Dym, Chief Marketing Officer of OpSource and I answered some great questions sent in from the audience.

I appreciate the opportunity that OpSource gave Sixteen Ventures to present about Channels in SaaS; a subject that has little consensus in the "Industry." Many think the channel is dead, that if "its on the web" then that is the channel. For those that don't, they treat channels in SaaS the same way they treated channels in Legacy Software; completely disconnected from the application.

Understanding that within the SaaS Business Architecture everything is tightly coupled inside the application, including Marketing, and understanding that Distribution or Channels are part of marketing, then it is easy to see that we need to address this differently in SaaS than the Legacy Software vendors did. And of course, it is the unique features of Network Effect and Ecosystem that are inbuilt with SaaS that will allow vendors to provide tools to empower and motivate the channel beyond anything legacy vendors could do.

View Webinar Recording

Download Slides (PDF)

Making Channels Work to Grow Your SaaS / Cloud Business
View more presentations from Lincoln Murphy.

Author: Lincoln Murphy (You should follow me on Twitter)

Rackspace UK SaaS and Cloud Event

Tue, 09 Feb 2010 02:01:39 -0600

We're honored to have been invited to participate in the Rackspace UK SaaS and Cloud event on Friday 2/12/2010 in London, England on the topic of SaaS Revenue Modeling and Business Architecture. Representing Sixteen Ventures in the UK will be Justin Pirie, SaaS Product Specialist extraordinaire. Justin will be presenting on the SaaS Business Architecture and Seven Revenue Streams (PDF) research published by Sixteen Ventures and I am sure the audience will learn something new.

If you are in London and interested in SaaS, regardless of your company's stage, but especially if you are a startup, you should attend this FREE event presented by Rackspace. In addition to Justin's presentation, the Venture Capital panel moderated by Ivan Farneti of Doughty Hanson, a UK Private Equity firm is another can't miss session.

Here is the Info:

Rackspace SaaS and The Cloud 2010

Microsoft Cardinal Place, London

Friday 12th February 2010

9:00AM - 3:00PM

Successful Strategy and Execution of SaaS (Software as a Service)

Join the community of Rackspace SaaS clients, partners and friends in this free of charge interactive forum for Independent Software Vendors (ISVs). Learn and discuss some of the key strategies and techniques to build a profitable SaaS business.

Find answers to questions and topics such as:

Funding an emerging SaaS business – Q&A with a panel of influential VCs
Creating predictable and recurring revenue streams
Creating sales and marketing networks to optimize SaaS Revenue Streams
The importance of service delivery to successful SaaS
The future of SaaS Hosting in the Cloud
Addressing Security Concerns of Cloud
Technical Workshop: How to re-architect your applications for SaaS

Author: Lincoln Murphy (You should follow me on Twitter)

Webinar - Effectively Leverage Channels in SaaS

Sat, 06 Feb 2010 16:36:29 -0600

OpSource Cloud has invited Sixteen Ventures to participate in their "Channels" series of webinars. This is a great opportunity to continue the message originally published by Sixteen Ventures in the "The Reality of Freemium in SaaS" paper, then extracted from the paper and published on Sandhill.com and partially explored at SaaS University in Dallas. Thankfully, OpSource has given us a forum to help educate the industry on this completely misunderstood topic.

The great thing about OpSource is that when we are invited to do a webinar for them, we are asked to speak freely about the given topic; this is not a commercial for OpSource. I believe one of their representatives will take some time at the end to introduce their channel strategy for their Cloud offering, but I will be speaking to the industry on a very important, and completely vendor-agnostic, topic. I hope you will join us. Here is the info:

Making Channels Work to Grow Your SaaS / Cloud Business

Wed., February 10, 9:00am PST / Noon EST

The notion of channels in the distribution of SaaS & Cloud is a topic with very little consensus in the industry. Many people seem to think: "if it's on the Web then the Web is the channel." This view can significantly stagnate growth. There are industries and market segments where the people making the purchasing decisions do not spend their time searching the Web for the best solution. In these cases they turn to trusted advisors for recommendations.

While traditional channels like VARs and SIs might be having trouble with SaaS, new and exciting channels have opened up and savvy vendors are taking advantage of these opportunities. Thriving SaaS vendors have realized that there can be a significant benefit to leveraging intermediaries. In this webinar, Lincoln Murphy of Sixteen Ventures, will show SaaS and Cloud vendors how to:

Preview of the Agenda (subject to change, of course):

Author: Lincoln Murphy (You should follow me on Twitter)

We hit a nerve! Reactions to the "Reality of Freemium in SaaS" paper

Mon, 01 Feb 2010 17:37:06 -0600

Little did we know when we published the "Reality of Freemium in SaaS" (PDF) report in early January 2010, it would hit such a nerve with the industry. In fact, you know we hit a nerve when I've been asked to speak at the Freemium Summit on March 26, 2010 in San Francisco, California to "bring a different view" to the mix.

Aside from being asked to speak at the Freemium Summit, the paper has been mentioned or used in a number of places...

Articles that used the paper as a jumping off point or looked at different aspects of it:

"Why Freemium is Bad for Business" on ZDNet by Phil Wainewright
Study: SaaS Pricing Is Still Opaque And Freemium Is Rare on ReadWriteWeb
Justin Pirie's This Week in SaaS #10 - Interview w/ Lincoln Murphy about Freemium paper
"Rethink Your SaaS Channel Strategies" on Sandhill.com - Looks at the Channels / Distribution angle
"Users or Abusers" on PPM Today - looks at Users vs. Customers

Articles that used the paper to educate their customers or readers on the different aspects of Freemium:

"SaaS Reality Check: Freemium is NOT a Business Model" on Under The Radar blog by Dealmaker Media
"No Such Thing as a Free Lunch" on the Rackspace blog
"Freemium Paper by Lincoln Murphy of Sixteen Ventures" on the Chargify blog
This Week in SaaS for IT Management

The Best Feedback

While we had some great coverage, the best feedback has been from the readers directly. Some people chose to contact us privately via email while others chose to leave passionate comments in support of Freemium on the blogs. Passionate reactions means that we definitely hit a nerve!

The best feedback, and the thing that makes writing this paper worth it, was from founders or companies directly who had the following to say:

Executive from existing B2B SaaS company:

"...it is even causing me to rethink our Freemium strategy. The low conversion rate [common in the industry] blows me away. Something I knew, but until I saw it substantiated, I thought I was doing something wrong."

Startup founder:

"I've read your article and it was an eye opener for me in many ways. I'm currently working on [an application], which is designated to be distributed as a Freemium at least in the beginning. Now, your insights are making me reconsider many of my basic assumptions, which is a good thing to do when the project is still at early stage. So here are my thanks for your excellent work!"

Startup founder:

"I'm about to start a start-up targeting small and medium-sized financial institutions. Just wanted to drop you a note, thanking you for your paper on Freemium. [...] In my case, it helped me see that I would be using Freemium as a crutch to avoid having to sell (I am a technologist by background), and that providing services to users would be a potentially fatal distraction from acquiring and servicing customers."

Startup founder:

"I thought it was spot on, and reinforced my gut feeling that fremium is a waste of time, effort, and money for us. If you've solved a thorny business problem, then not charging for it will just lead to suspicion, plus your competitors are charging for their shitty legacy software. No business person is going to invest the time to configure your software if you think it's worth giving away for free."

Attorney that works with early-stage SaaS Vendors:

"This is a great reality check on the growing enthusiasm for the Freemium model. I think you put the analytical focus exactly where it should be: what's the quid pro quo? I'll definitely be employing your insights when we counsel our SaaS clients on pricing alternatives in their SaaS contracts"

These are the reasons this paper was written, not for all of the coverage (who would have expected a 23 page paper to go viral?) Even if the people that wrote to us or commented on the blogs do not do anything different, at least we got them and the industry to collectively re-address their business decisions. We really might have saved a company from failure and for that, writing this paper was the right thing to do.

If you need help with your Pricing Strategy, including Freemium, take advantage of our Pricing Page Tune-Up & Overhaul services or schedule a Quick Start session with Sixteen Ventures today.

Author: Lincoln Murphy (You should follow me on Twitter)

Monetizing Multi-Tenancy Slides from SaaS University in Dallas

Mon, 01 Feb 2010 15:34:51 -0600

I was very happy to present to a full room at SaaS University in Dallas on January 27, 2010 on the topic of Monetizing Multi-Tenancy in SaaS. This was a detailed look at (50+ slides; available below) the concept of Exploiting the Revenue Potential in Network Effect & SaaS Ecosystem that also had an interactive component (see the worksheet PDF below).

These concepts really resonated with many of the attendees who will certainly be looking at their businesses in a very different way going forward. I was told after the presentation that a couple of attendees from seemingly unrelated companies sitting near each other, an Electronic Health Record company and an Occupational Safety and Health Information Management System, realized that there might be an opportunity for them to work together! Certainly there are data points useful to each other (ecosystem) and the value of the network effect data goes up substantially due to the context each brings.

The greatest thing wasn't just the discovery of the potential ecosystem partner, but the core understanding by the EHR company founder that HIPAA compliance would not stand in the way of leveraging anonymous, aggregate data. Its up to the SaaS vendor to know their market, but don't just assume this won't work for you because of the compliance or governance issues in your market or industry. Know your industry and market before making that determination.

For the rest of the attendees, hopefully this turned the lightbulb on and they will soon begin to understand that in SaaS, the function of the application itself is just one part of the overall Business Architecture. Definitely check out the slides and the worksheet, and of course, your feedback is welcome and encouraged!

Download Slides (PDF)

Download Worksheet (PDF)

Monetizing Multi-Tenancy in SaaS by Sixteen Ventures. Presented at SaaS University in Dallas January 2010

View more presentations from Lincoln Murphy.

Author: Lincoln Murphy (You should follow me on Twitter)

The Reality of Freemium in SaaS

Wed, 13 Jan 2010 13:22:46 -0600

In 2009 we published our “7 SaaS Revenue Streams” (PDF) report and it has become the most viewed publication we've produced to date. The reason for its popularity? No one had ever broken down and detailed all of the possible revenue streams available to a SaaS company like this. We thought we were doing great work, and it turns out we were! The feedback has been incredible and you should certainly check it out.

However, what we didn’t count on is Freemium being so popular, that here we are talking about seven revenue streams while a segment of the industry is buzzing about giving stuff away for free. I suspect this new publication, titled "The Reality of Freemium in SaaS," will quickly surpass the "7 SaaS Revenue Streams" publication in views.

As always, your feedback is requested and appreciated.

UPDATE: Download the PDF of the paper directly.

The Reality of Freemium in SaaS

If you need help with your Pricing Strategy, including Freemium, take advantage of our Pricing Page Tune-Up & Overhaul services or schedule a Quick Start session with Sixteen Ventures today.

Author: Lincoln Murphy (You should follow me on Twitter @lincolnmurphy)

Happy Holidays from Sixteen Ventures

Wed, 23 Dec 2009 17:00:39 -0600

Thanks to our clients, partners, and those that promoted Sixteen Ventures through media, seminars, etc. this year. What an incredible year 2009 was for Sixteen Ventures; 2010 should be even better!

Have a safe and Merry Christmas or Happy Holidays & a Happy New Year from all of us at Sixteen Ventures!

Author: Lincoln Murphy (you should follow me on Twitter!)

Discount Code for January 2010 SaaS University in Dallas, Texas

Thu, 17 Dec 2009 23:31:32 -0600

If you are a SaaS vendor, or would like to be one, you should attend SaaS University right here in the backyard of Sixteen Ventures: Dallas, Texas. The event is January 26-28, 2010 and will be packed with SaaS experts from around the world. With over 30 sessions, this event provides the best opportunity to learn, share, and more importantly network with those that are out there making it happen in the SaaS world.

SaaS University really is a fantastic event. Sixteen Ventures participated in July 2009 at the event in Chicago and we are proud to be a part of this one, too. The attendees in Chicago ranged from pre-launch startups to Fortune 100 companies repositioning legacy software, and they all had the same goal; to be successful with their Software-as-a-Service offering. At the event in Chicago, the sessions were actually educational and the attendees were very serious about learning. Dallas will not be any different!

Sign up today to receive early bird pricing (good through December 21, 2009) and get an additional $100 off with the code SIXTEEN100. We don't get anything from this (no kick backs!) except a larger crowd of folks to present to. Speaking of which, I will be presenting on the following topic:

Monetizing Multi-Tenancy - Generating Revenue through Network Effect Data and the SaaS Ecosystem

Multi-tenancy is a key element of Software-as-a-Service (SaaS); but not for the reasons you think! Achieving economies of scale, streamlining software development, maintaining one line of source code, etc. are the widest-known benefits of multi-tenancy. The real magic happens when multi-tenancy is leveraged to unlock and enhance the Network Effect created by all customers using the same system. And when the Network Effect is itself leveraged by the Ecosystem, myriad opportunities present themselves to drive growth and revenue. These are what makes being a SaaS vendor so much better than being a Legacy Software vendor!

Hope to see you in Dallas at SaaS University!

Author: Lincoln Murphy (you should follow me on Twitter)

SaaS vendors: stop competing with legacy solutions

Thu, 10 Dec 2009 01:33:03 -0600

One need not be a math genius to figure out that some SaaS solutions, over time, might be more expensive than competitive "perpetually licensed" legacy software products. This can also be seen in a build vs. buy scenario where the decision is to roll their own solution, as the subscription-based, pay-every-month-in-perpetuity costs appear to be excessive over time. Its easy for potential clients to write off some SaaS solutions as too expensive long-term if the SaaS product is competing with legacy software or home-grown apps on their terms.

So how does the SaaS vendor turn the decision in their favor every time? Change the focus! The SaaS vendor must stop competing as a replacement for on-prem, legacy products or as a replacement for home-grown functionality. The SaaS Vendor must change the focus of the market by harnessing the power of the Network Effect and Ecosystem that makes SaaS unique to give clients something THEY WILL NEVER GET with those other options. Once that is done, the legacy vendors or the internal programmers of your target client have to come up with answers to "can your software do what that SaaS app can do?"

Take those "competing" options off the table by putting a value-prop out there that only a SaaS vendor with hundreds or thousands of users, transactions, etc. contributing to the Network Effect can offer them. The SaaS vendor should give clients, as well as their Ecosystem partners, something that over time will become even more valuable to all who leverage the system. This strategy is especially critical if your product could be considered a "feature."

Do you need help identifying ways to differentiate by leveraging the Network Effect and Ecosystem opportunities unique to the SaaS Business Architecture? If so, call us today at (972) 200-9317 or email us.

Author: Lincoln Murphy (you should follow me on Twitter)

Articles about SaaS, Pricing, Startups & more from the past two weeks

Fri, 20 Nov 2009 22:05:00 -0600

When I find articles that I think are useful to my followers on Twitter, I always post them. Here are the ones from the time period of 11/9/2009 - 11/20/2009. To get these in real-time, you should follow me on Twitter.

SaaS

Article says credit card acquirers excited about SaaS due to recurring revenue http://j.mp/3i3Sbg #saas #revenue

New post by @eliasbiz (/via @sundelin) "The business model of APIs" http://j.mp/Iacb4 #saas #api

New post "Updated - Introducing the 7 SaaS Revenue Streams" http://j.mp/46n8qb #saas

The 7 SaaS Revenue Streams detailed report has been updated. Check your email (or sign-up here http://j.mp/sjwm8) #saas

Great post by @justinpirie about the top questions ISV’s are asking themselves about SaaS http://j.mp/1G5HtH #saas

Posted slides from "Think You're Ready For SaaS? Think Again!" http://j.mp/4ek6Fz #saas #startups

New article by @heinzmarketing & Dave Chase "10 Laws for SaaS Sales & Marketing Success" http://j.mp/2mSrbF #saas

Notes from the Goldman Sachs Cloud Computing Conference by @esimoudis http://j.mp/2kXgRI #cloud #saas

New post by Dani Shomron "SLA Management in SaaS" http://j.mp/4bcR5L #saas

Latest post by Peter Cohen: "Make Renewals Easy" http://j.mp/3E9S31 #saas #revenue

Your data is safer in the cloud than you think http://j.mp/1oG6W3 /via @infoworld @jamesurquhart @dcunni @DavidLinthicum

BVP released latest "Top 10 Laws of Cloud Computing and SaaS" http://j.mp/2mZ6ep (PDF!) /via @justinpirie #saas

Revenue Cycle Management / Pricing

New post by @StartupCFO "Usage-based billing models" http://j.mp/7lKB1A #saas #billing #pricing #revenue

RT @mimiran: cell phone pricing maximizes recurring monthly $ @NYTimesComm Method in Cellphone Madness? http://j.mp/12BOyy #pricing

Revenue model changes in legal profession "Will a new model kiss the billable hour goodbye?" http://j.mp/C3p21 #revenue

We can all learn from this: "New revenue streams help restaurateurs retain valued staff" http://j.mp/2crObk #revenue

New post by @adventurista "Measuring churn for recurring revenue businesses" http://j.mp/2ngXqC #saas #revenue

RT @pricing Remember, you are not Walmart, Target or Amazon - RT @Mimiran WalMart expands price war to DVDs. http://bit.ly/2waYpB <+1

New post by @Recurly "Preventing Chargebacks" http://j.mp/3ldJ2i #billing #saas

Product Development / Marketing

A short but sweet gem on Seth's Blog "The reason they want you to fit in..." http://j.mp/4f5ZHo

Killer post by @ashmaurya "How I am Measuring Product/Market Fit" http://j.mp/8CS3K <-- inc. A/B testing on #pricing

Great new post by @sehlhorst "Can You Write Website Requirements Without a Product Manager?" http://j.mp/3awHAG

Great post by @sundelin "Business models turning products into platforms" http://j.mp/2Ni5LI

Good post by @RichieBlueEyes "It’s all in distribution Baby" http://j.mp/42bzWn

Great post: @daniel_jacobson on @programmableweb "Content Portability: Building an API is Not Enough" http://j.mp/1WC3AN

Great post by @ashmaurya "Achieving and Measuring Product/Market Fit" http://j.mp/3sa2UL

Investment / Venture Capital / Startups

Post by @jasonmendelson "Why Don’t Venture Capitalists Tell You Why They Won’t Invest?" http://j.mp/nbfZm #vc #startups

Great post on Seth's blog "Embracing lifetime value" http://j.mp/85e0L8

New post by @fdestin: "How a great entrepreneur deals with complexity" http://j.mp/54Orzd #startups

New post by @markpeterdavis "Signs That Your Team Might Be Deterring Investors" http://j.mp/1uweRH #vc #startups

New @austinventures “Entrepreneur Hours” announced; in DFW on 2/23/2010 http://j.mp/1at3Ys #vc #dfw #startups

New post by @privateequiteer w/ some good links "The viability of bootstrapping a business" http://j.mp/16Yysd #startups

Another great post by @sgblank “Lessons Learned – A New Type of Venture Capital Pitch" http://j.mp/3hn1u5 #vc #startups

Stanford's Entrepreneurship Corner w/ @sgblank: Fall 2009 Qrtr Roundup: What Did We Learn? http://j.mp/28Wmmu #startups

New post on @venturebeat "4 MORE ways to get automatically rejected by an angel investor" http://j.mp/DiqN9 #vc #startups

Author: Lincoln Murphy

Updated - Introducing the 7 SaaS Revenue Streams

Wed, 18 Nov 2009 13:44:24 -0600

This is an updated overview of the Seven Revenue Streams available to SaaS vendors. The monetization opportunities available to a SaaS vendor are far beyond just "subscriptions." If you haven't looked beyond that one revenue stream, or even fully exploited "subscriptions," then you are leaving money on the table. As always, your feedback is both welcome and encouraged.

Keep in mind that this a teaser (though potentially game-changing on its own). Go here if you want the FREE full, in-depth version that goes into each of the revenue streams in detail, click here and all it'll cost you an email address or a tweet. Plus, we'll keep you updated whenever a new draft is released.

For those that have already subscribed or received the link to the first version, check the email you subscribed with for the latest link (its changed!) or DM me on Twitter to get the new link.

UPDATE: Slide deck is updated as of 3/2/2010

Download Slides (PDF)

Updated 7 SaaS Revenue Streams with Details

View more presentations from Lincoln Murphy.

Do you need help figuring out which of the seven Revenue Streams your SaaS business can take advantage of or how to build support for them into your application? Do you need to apply a pricing strategy to those revenue streams and aren't sure how? Give us a call (972) 200-9317 or use our contact form.

Author: Lincoln Murphy (You should follow me on Twitter!)

Slides from SoftwareCEO Class "Think You're Ready For SaaS? Think Again!"

Wed, 18 Nov 2009 09:07:55 -0600

Here are the slides from the class I did last week for SoftwareCEO titled "Think You're Ready for SaaS? Think Again!" While the slides cover the 9 Misconceptions of SaaS that should be avoided, ultimately, this was a part of a 1.5 hour presentation and the slides were used simply to "support my narrative" as one reviewer said. This is true, I'm a minimalist when it come to slides that accompany a presentation. The slides help tell the story; they aren't the story themselves.

By the way, I will be doing a series of posts on this blog about those 9 Misconceptions of SaaS so stay tuned.

The version I embedded below is without SoftwareCEO branding and contains a few quick fixes and updates to make it readable without the accompanying narrative. However, if you would like to download the actual co-branded slides presented on the webinar in PPTX format (as a .zip file), you can do so here.

My sincere thanks to SoftwareCEO for allowing me to spend some time educating a great group of software company leaders on the potential pitfalls of SaaS and the common misconceptions to avoid. As I said at the beginning of the class, few can agree on exactly what SaaS is (even though Sixteen Ventures has clearly defined it), so the best way to move forward is identify what SaaS is not! Enjoy:

Think You're Ready for SaaS? Think Again! - 9 Common SaaS Misconceptions to Avoid

View more documents from Lincoln Murphy.

Do you fully understand Software-as-a-Service and how to benefit from it as a vendor? Do you understand the potential pitfalls of being a SaaS vendor and how to avoid them? If not, call us today at 972-200-9317 or contact us here.

Author: Lincoln Murphy (You should follow me on Twitter!)

Think you're ready for SaaS? Think Again!

Fri, 06 Nov 2009 18:55:25 -0600

I'm doing a webinar with SoftwareCEO next Thursday, 11/12/2009 from (9:00-10:30am Pacific. Get more information and sign-up here.

From the SoftwareCEO site:

You hear about SaaS every day… “It's the next great thing,” “Everybody wants it,” “Everybody's doing it,” “It'll make you rich,” yada yada yada. But before you jump on the SaaS bandwagon, there are some things you really need to consider first.

In this presentation, we'll help you avoid some of the common landmines, and make sure you're really ready to move to SaaS.

You might want to reconsider moving to SaaS if you think it's:

Just another software delivery model
Impact of single instance vs.multi-tenancy? Got an SLA? You're going to need one.
A way to deliver cheap software
Bad idea. You can actually make more from your customers if you play your cards right.
A market
It's a business architecture, not an industry.
Subscription pricing
Did you know there are 7 revenue streams? Does your business plan account for all of them?
Anything in “the cloud”
Slapping a “cloud” label on it doesn't help your customers, or you.
An easy sale: if you build it, they will come
What about your sales people? Your channels?
Just another version of your software you'll offer
Keeping your existing product line while adding SaaS on the side is a really tough strategy to pull off. Just ask Letterman.
The right thing to do for our company since everyone else is doing it
Is your market doing it? Are you ready? Your organization?
A ticket to easy success with the right checklists, "readiness assessments", and best practices
They can help get you onto the runway, but they won't get you in the air.

I hope you'll join us... its free if you are a SoftwareCEO member!

Author: Lincoln Murphy (You should follow me on Twitter!)

Article links from week of 11/2/2009

Fri, 06 Nov 2009 18:23:20 -0600

Whenever I find articles that I think are useful to my followers on Twitter, I always post them. Here are the ones from the week of 11/2/2009 - 11/6/2009. To get these in real-time, you should follow me on Twitter.

SaaS

Fantastic new post by @devcorporate "SaaS Company Valuation Trends" http://j.mp/2pdJcU #saas

Seeing lots of folks at BIG, legacy cos. download the "Detailed Report on the 7 SaaS Revenue Streams" PDF lately: http://j.mp/sjwm8 #saas

Great post from @ashmaurya "From Minimum Viable Product to Building A Landing Page" http://bit.ly/16FoCD #saas

RT @ghaff: RT @vtri: Nice slide deck on SaaS & tenancy models by @progressSW (http://bit.ly/1cgbup). << Agreed nice overview/model < +1

Pricing

RT @pricing: [Upated] Pricing Observer Post - Network Solutions - Domain Name Purchase Process - http://post.ly/BsCZ

In-depth post by @greggerca "When Licensing Metrics Must Change" http://j.mp/cWaj9 #pricing

New post from @venturedig "Monetizing Social Networks: The Four Dominant Business Models" http://j.mp/ysMc8 #pricing

New post from @ppolsinelli "Pricing an online service" http://bit.ly/GVrTH #saas #pricing

"Will the Customer w/ High Willingness To Pay Please Step Forward" http://j.mp/3CGGcA (via @pricing & @bouldernet)

Great post by @skap5 "Discounting Madness" http://j.mp/1qwKxX #pricing

Marketing

Great post by @scottdolson1 "Yes, your product is differentiated … so what?" http://j.mp/4B9RiH

Thoughtful post on "Revenue Journal" by @KristinZhivago "The Art of Liftoff" http://j.mp/3TjobF

New post from @williamtincup "Editorial Calendars: Get Ready For The Year Ahead" http://j.mp/27OmZY <-- you must follow this guy, HR or not!

Investment / Venture Capital / Startups

New post on @pehub "VCs: Thousands Of Companies Will Exit Next Year…" http://j.mp/2vnagE #vc #saas

Great post by @albertwenger "Don't Let the Funky Math of Convertibles Bite You" http://j.mp/457Wxq #vc

Great post by @giffconstable "Free financial model for freemium tech startup business" http://j.mp/9gi8p #startups

New post from @bernardlunn "Bits of Destruction Hit the Venture Capital Business" http://j.mp/2JaFXI #vc #startups

Great new post by @msuster "Are Business Plans Still Necessary?" http://j.mp/37EAuh #startups #vc

Great VC perspective from @pjozefak: "It's Not About Paychecks. It's About Equity!" http://j.mp/yn8O6 #startups #vc

Another amazing post by @sgblank: "Raising Money Using Customer Development" http://j.mp/1h4u3u #startups #vc

Great post by @venturebeat "4 ways to get automatically rejected by an angel investor" http://j.mp/2avbAK

Starting to see the 7 Revenue Streams appear in SaaS business plans... very cool... http://j.mp/2yZ7l #saas #startups

Great post by @bijan "Exit Strategy" http://j.mp/8duFE <-- build real valuable biz; exit might not be what/when you want!

Awesome post by @sgblank "Lean Startups aren’t Cheap Startups" http://j.mp/4l9ZBQ

Author: Lincoln Murphy

Agile Revenue Generation in SaaS slides from SIIA OnDemand 2009

Mon, 02 Nov 2009 09:00:15 -0600

The SIIA OnDemand event in San Jose, California last week was fantastic on all fronts. From the keynotes, to the breakout sessions, and the networking. OnDemand is always a great event, and this year it delivered in a big way.

I was fortunate enough to be on a panel with Matt Shanahan of Scout Analytics and moderated by Ken Boasso of Keychain Logic. The topic of the panel was "Agile Eyes, Nimble Fingers: The Optimal On-Demand Sales Organization" and the portion of the deck (embedded below) was presented at the beginning of the panel to set the stage for the Sixteen Ventures' point of view on Revenue Generation in SaaS. Enjoy.

Agile Revenue Generation In SaaS from SIIA On Demand 2009

View more documents from Lincoln Murphy.

Is your SaaS company setup for Agile Revenue Generation? Can you leverage a decoupled revenue model and pricing strategy to enter adjacent markets as opportunities arise? If not, call (972) 200-9317 or contact us today!

Author: Lincoln Murphy (you should follow me on Twitter!)

Cloud Business Architecture?

Fri, 16 Oct 2009 00:03:42 -0500

After publishing our updated SaaS Business Architecture and Seven SaaS Revenue Streams slide decks, people have asked if those principals apply to other cloud services or just SaaS? The answer is, of course they do. Some clarification is required on what "cloud" is in this context:

Cloud Computing is most often comprised of three as-a-Service acronyms:

SaaS - Software-as-a-Service
PaaS - Platform-as-a-Service
IaaS - Infrastructure-as-a-Service

There are others that have tried to leverage the "as-a-Service" moniker (Storage, Identity, etc.) but ultimately they fall into one of those three categories.

The definition of the SaaS Business Architecture, in case you missed it before, is:

...a Network-Centric commingling of Marketing, Intellectual Property, Technology, and Business Model.

One key element of this definition of SaaS is found in the Technology portion of the Business Architecture: Multi-Tenancy. The inclusion of Multi-Tenancy is why this definition is specifically SaaS and not "cloud." It could, however, just as easily be the PaaS Business Architecture or the IaaS Business Architecture.

Unfortunately, cloud is too broad and includes elements that are *not* multi-tenant (including private clouds, ASP, virtual appliances, etc.). Network-centricity without Multi-tenancy is not a scalable business architecture and the number of ways to monetize is reduced dramatically.

Its easy to see how the Seven Revenue Streams can be available to a SaaS vendor, because the context is easy to see. SaaS offerings can be very specific to a niche or vertical, they have a well-defined GUI making it easier to understand the value to the market, etc. As you move away from what we think of as SaaS applications and go "down the stack" a bit, the opportunities for additional revenue streams becomes a bit harder to discern. This is not only due to the lack of a presentation layer, but also by the widening horizontal nature of the offering.

Of particular interest to me due to my Supply Chain Management background are companies that have an offering that sits somewhere between PaaS and SaaS; pure ecosystem or proxy plays like:

System Integration
API proxies
Data Aggregation
EDI/EC

These are vendors who have a single-instance, network-centric, multi-tenant, web-native environment, but because they don't have a substantial UI, its harder to see (actually visualize) the opportunities. Yet, these plays have some of the best Ecosystem and Network Effect revenue model options of any vendors out there.

As you move down the stack to PaaS and IaaS offerings, the revenue streams are just as relevant, but even less obvious. With SaaS, for example, the data that can be aggregated anonymously and leveraged in the form of reports or benchmarking is a bit more obvious. How a PaaS or IaaS vendor can leverage these revenue opportunities ultimately depends upon where in the stack they sit and what the underlying architecture of the offering supports. For instance, a PaaS with shared data fields where a tenant application is really just an extension of the core application will have more context at the Network Effect Data level than a PaaS that is a more of an abstraction layer of the underlying infrastructure for host applications.

At the lower levels of the stack, the information that is relevant between tenants will be less coherent, but it will be there; the opportunities will present themselves when you look with the right context. Perhaps that data cannot be monetized directly, but it can certainly be leveraged to drive other revenue-generating initiatives, better customer service, etc.

Regardless of whether you are SaaS, PaaS, IaaS, or somewhere in between, if you need help with your revenue modeling or business architecture, give us a call at (972) 200-9317 or use our contact form.

Author: Lincoln Murphy (You should follow me on Twitter!)

Introducing the Seven SaaS Revenue Streams

Fri, 25 Sep 2009 13:59:55 -0500

This is an overview of the Seven Revenue Streams available to SaaS vendors. The monetization opportunities available to a SaaS vendor are far beyond just "subscriptions." If you haven't looked beyond that one revenue stream, or even fully exploited "subscriptions," then you are leaving money on the table. As always, your feedback is welcome and encouraged.

UPDATE: Ultimately this is a teaser (though potentially game-changing on its own). If you want the full, in-depth version that goes into each of the revenue streams in detail, click here and all it'll cost you an email address or a tweet. Plus, we'll keep you updated whenever a new draft is released.

UPDATE 2: Slide deck is updated as of 10/1/2009 to include some clarifications on how a Revenue Model fits into a Business Architecture.

UPDATE 3: Slide deck is updated as of 3/2/2010

Download Slides (PDF)

Updated 7 SaaS Revenue Streams with Details

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Author: Lincoln Murphy (You should follow me on Twitter!)

SaaS Business Architecture - Definition Update

Fri, 25 Sep 2009 12:29:04 -0500

This is updated definition of the SaaS Business Architecture. I added a key element to the one-line definition:

The SaaS Business Architecture is a Network-Centric commingling of Marketing, Intellectual Property, Technology, and Business Model.

Note the inclusion of "Network-Centric" in this update. In the presentation embedded below this theme is expanded upon as it is core to the nature of SaaS. As always, your feedback is welcome and encouraged.

SaaS Business Architecture - Definition Update

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Do you need help applying the SaaS Business Architecture to your business? Do you want to "switch" to SaaS or enter the market with a SaaS product but are unsure how the SaaS Business Architecture applies to you? If so, give us a call at (972) 200-9317 or use our contact form.

Author: Lincoln Murphy (you should follow me on Twitter!)

Decouple Pricing Strategy from SaaS Revenue Model

Tue, 22 Sep 2009 12:10:10 -0500

One of the biggest mistakes I see SaaS vendors make, aside from thinking the only way to make money with SaaS is through subscriptions, is that they tightly-couple the pricing strategy to the underlying revenue model. This is in part due to the fact that in legacy software the revenue model and pricing strategy are both arbitrary (though hopefully market-driven) and exist in the sales or accounting departments, not in the product itself. In SaaS, this is not the case.

The Seven Revenue Streams that make up the Revenue Model in SaaS must be built into the underlying application. Whether all seven will be leveraged at go-to-market, they must be considered early during the architecture phase. If this is not done, money will be left on the table and additional money will eventually be spent to re-architect the system to support these additional revenue streams.

Once the revenue stream metrics are defined within the application, then you can begin to apply your pricing strategy by bundling and packaging the underlying revenue streams and the associated metrics. It is critical to understand that Pricing Strategy is more closely tied to Marketing than anything else. A good pricing strategy is specific to a vertical/niche/target market, is a living organism that has different phases, from go-to-market through maturity, etc.

Pricing strategy is also part of your overall marketing plan and should consider long-term revenue goals. You don't want to cannibalize other, potentially more lucrative long-term revenue streams (read: Network Effect Data) or make them less valuable through missteps in your early pricing strategy.

The bottom line is, in SaaS, revenue model architecture must take place prior to developing a pricing strategy, because you can't apply pricing strategy without knowing what you are applying it to. Don't leave money on the table. If you have not identified all of the revenue streams available to you, how can you apply pricing?

Do you need help figuring out which of the Seven Revenue Streams your SaaS business can take advantage of or how to build support for them into your application? Do you need to apply a pricing strategy to those revenue streams and aren't sure how? Give us a call (972) 200-9317 or get started today!

Author: Lincoln Murphy (You should follow me on Twitter!)

SaaS Vendors Should "Exploit" Network Effect Data

Mon, 21 Sep 2009 12:20:35 -0500

First of all, lets be very clear: its not exploitation and the revenue streams are not hidden. Network Effect Data (data exhaust, aggregate application data, etc.) is based on the position of the SaaS vendor as a proxy in a multi-tenant environment and the value that is created by the network effect data can be quite significant when leveraged correctly; both for the vendor and the ecosystem.

Regarding Network Effect Data, as a SaaS vendor, you should:

Make sure your User Agreement is up-to-date and is clear about your intentions (see your legal department)
Anonymize the data before leveraging it in aggregate
Leverage the information as soon as it becomes actionable
Understand that this is part of the trade-off that you get for managing infrastructure and operational burden for the clients
Add value to the ecosystem when you leverage Network Effect Data

I realize that journalists or analysts that attack SaaS vendors for "exploiting" Network Effect Data get hits when they spread FUD. I do feel that I have to defend the rights of the SaaS vendor from the negative attacks. I also need to remind my clients, readers, and followers that these folks are just spreading FUD and that leveraging, not exploiting, Network Effect Data, is potentially a critical piece of the value derived from being a SaaS vendor. Finally, I need to remind the users of SaaS that a credible, trustworthy vendor will leverage the Network Effect Data in a way that provides value to you in a way you could never have expected from Legacy Software.

The problem with Network Effect Data is that, just like SaaS itself, it is mis-understood. For example, too many SaaS vendors consider the de facto revenue model in SaaS to be monthly subscriptions, which is not only untrue, but limits the potential of the SaaS vendor substantially. In that same vein, most people think of "selling aggregate data" by a SaaS vendor as some sort of nefarious dumping of client-spefiic data to the highest bidder in a back-alley transaction. That is either an antiquated view, one that exemplifies the naivete of the author, or worse...

It is not only common practice, but highly accepted, to leverage Network Effect Data in these functional areas and market verticals:

Supply Chain Management
Financial / Banking / Credit Reporting
Healthcare
Entertainment (Music, Movies, TV, etc.)
Retail

Note the inclusion of Healthcare in there; an industry with tight privacy laws (not just industry suggestions, but laws). All of these industries have been trading in data like this for years. The vendor needs to ensure they comply with the proper laws and industry governance and make the right ethical decisions, but anyone who makes a blanket statement that leveraging network effect data by a SaaS vendor is "exploitative" or otherwise inappropriate is simply trying to stir the pot by being "edgy" or is, even worse, incented to spread FUD.

Unfortunately, most SaaS vendors do not consider leveraging Network Effect Data as a viable revenue stream, mostly because they do not understand what they have at their fingertips. This means they often fail to build into their system adequate data capture methods which prevents them from leveraging network effect data in any meaningful way. If they don't capture data in the right way, even if they do realize what they have later, they will have missed out on all of the data up to that point and will have to re-architect the system for improved data capture. These are things that need to be considered during the early phases of product development, even if you won't be able to fully monetize for a long time.

In fact, how long it will take to get to a point where you can derive revenue from Network Effect Data is something that is 100% unique to your business. We leverage our proprietary SaaS Revenue Matrix with our clients to get past the false notion of "critical mass" for Network Effect Data value.

Do you need help "exploiting" your Network Effect Data to drive revenue or want to figure out now when it would make sense to do so? Do you need guidance on how to capture data effectively so you can leverage it in the future? If so, give us a call at (972) 200-9317 or use our contact form.

Author: Lincoln Murphy (You should follow me on Twitter!)

The SaaS Model - You Break It, You Buy It

Thu, 17 Sep 2009 10:25:08 -0500

When you draw the line in the sand and become a SaaS vendor, you might be tempted by people asking you to break your model. These requests could include:

A competitor wants to license your application
A client wants a copy of your product on-premises
A client wants one-off customizations & require their own instance
A client has security concerns & wants their own separate instance

It was announced this week that the United States government wants to use Google Docs but had some security concerns. Google said they will overcome those concerns by building a private "cloud" to meet government requirements. This is probably a pretty good deal for Google, but it is not the way they normally operate. In fact, would they do this for a smaller customer with similar privacy or security concerns? No. They'd tell them to go find someone else who will break their model for them. The government wanted Google to break their model and to Google, the deal was big enough that it made sense. The government broke the model, and they bought it.

SaaS is a Business Architecture, not just another way to deliver software; at least when implemented correctly. People will always want you to make an exception for them, but as I posted yesterday, SaaS is about rules, not exceptions. We've all seen the sign in an antique store that says "if you break it, you buy it." As SaaS vendors, especially early-stage companies looking for any and all deals, we need to plaster this message around the office (unless you "office" at Starbucks... just make your Mac OS background say those words).

When presented with an "opportunity" to do something beyond the model you have chosen, remember those words and tell anyone who will listen "If you want me to break my chosen model, in this case the SaaS Business Architecture, then you will have to pay a premium for that." As a SaaS vendor you need to cover the risk associated with the increase in overhead due to a decrease in operational efficiency, the need to maintain separate source code forks, etc. You also need to be compensated for the hit to the other revenue streams derived from the Network Effect and Ecosystem that are now not available to you by this new arrangement. The Network Effect and Ecosystem provide two of the most important Revenue Streams for a SaaS vendor and when you cannibalize these due to early mis-steps, like breaking your model for a quick buck, you will miss out later on; potentially when it really counts.

The risk to your business is too high to make these decisions on a whim. Don't let the temptation of a large cash influx now hurt the overall growth potential of the business. Too many SaaS vendors are met with this dilemma early on. Those that make it stick to their guns and stay on course or, if pressed, set limits on the one-off deals they'll do and of course, make those who break it pay a premium. I've seen many vendors get stuck supporting a handful of early one-off customers because they made some bad choices. These bad choices caused the businesses to stagnate and, in more than a few cases, fail.

Are you being faced with a potentially model-breaking situation and aren't sure what to do about it? Do you need help understanding all of the potential Revenue Streams in SaaS and why making bad decisions early can not only cause you to leave money on the table but could lead to failure? If so, give us a call at (972) 200-9317 or use our contact form.

Author: Lincoln Murphy (You should follow me on Twitter!)

SaaS is About Rules, Not Exceptions

Wed, 16 Sep 2009 11:21:47 -0500

For the vendor, Software-as-a-Service (SaaS) is about rules, not exceptions. Exceptions aren't scalable. For business scalability, you must shift focus to automated, repeatable processes. For pure-play SaaS startups, this isn't as big of deal since they are likely starting with a clean slate. For those "switching" from the legacy software model or branching out from a non-software company by exposing internal processes, products, or expertise to the market via SaaS, this can be a big challenge.

Whereas much of your current revenue might come from professional services, other one-off services, customizations, etc., if you draw the line in the sand and say "we are a SaaS vendor", then you need to do whatever it takes to derive most of your revenue from the rules, and not the exceptions. The rules are the scalable revenue streams, and the exceptions are not. To do this requires you to identify and clearly delineate the revenue streams available to you (there are 7 total) and to architect your business, including the underlying software, to drive toward the scalable revenue streams.

This could also require you to completely change your business and operating environment (the technology is the easy part); are you ready? We can help you determine if you are ready for SaaS, and if so, how to execute the switch to the SaaS Business Architecture and ensure your Revenue Model is optimized once you get there. Call us today at (972) 200-9317 or contact us through other channels.

Author: Lincoln Murphy (You should follow me on Twitter!)

SaaS Revenue Modeling is a Balancing Act

Tue, 15 Sep 2009 11:20:55 -0500

I posted yesterday about the power of Network Effect Data in SaaS, spurred on by the announcement that Intuit had agreed to purchase Mint.com for $170M. I wrote about how the exit for Mint.com was based solely on their unique leveraging of Network Effect Data derived from their SaaS platform. After reading this post on alarm:clock indicating that Mint.com had raised $32M in three rounds of funding, something I didn't know yesterday (I could have looked it up, I guess), it makes the sale to Intuit a bit less attractive than I originally thought.

One could argue that a 5x exit is okay, even good these days, and it is probably better than a slap in the face, but remember that the investment they took was over three rounds. Given that, this exit potentially speaks to the overall lack of revenue generated by the reported 20% of their users that took advantage of the credit card and other offers they presented. If Mint.com had been leveraging multiple revenue streams, rather than just their pseudo-Advertising/Affilate program streams, perhaps they could have improved their valuation and/or reduced the need for so much external funding.

So, the lesson to take away from this is to look at all of your potential revenue streams (there are seven) early and figure out how and when each one will come into play. We use our proprietary SaaS Revenue Matrix for this purpose. No matter how you do it, It is critical that as a SaaS vendor you learn to leverage and monetize Network Effect Data, otherwise you are missing out on a big opportunity, but don't neglect the other six revenue streams in the process. Don't miss out on future revenue opportunities by trying to make a quick buck early, but don't give everything away up front for that "long-tail" or back-end revenue to the detriment of your enterprise in the short-term. Its a balancing act; a process.

If you need help optimizing your revenue model, or determining what revenue streams are available to your SaaS company, give us a call at (972) 200-9317 or contact us in myriad other ways.

Author: Lincoln Murphy (You should follow me on Twitter!)

Who cares about Network Effect Data in SaaS?

Mon, 14 Sep 2009 15:32:31 -0500

Network Effect Data, Data Exhaust, the side-effect of network-centric computing... who cares? Intuit, apparently, as they just agreed to pay $170M in cash for Mint.com, a company who's entire business model is built around network-effect data. I have no visibility into Mint or Intuit on this deal, but I can only imagine that the real value was found in the user base, its accumulated data and its unique use of that data, and not so much in the software that "powers" the site itself or even the team. I could be wrong, but this seems like an Aggregate Data play more than anything.

So, if you don't get the value of network effect data or don't want to acknowledge how powerful collecting, analyzing, and leveraging aggregate information from users within your Software-as-a-Service (SaaS) application can be, then avert your eyes from the Intuit/Mint deal... move along, nothing to see here. For those that want to derive as much revenue from your SaaS offering as possible, however, let the Intuit/Mint deal be your inspiration.

I've talked to VCs that say some of their SaaS portfolio companies are worth more for the data they collect than they are for their IP, software, infrastructure, etc. Too many, however, don't know how to properly leverage it.

If you need additional help identifying all of the ways you can optimize your revenue model, and help drive up potential valuations due to these improved revenue models, including efficiently collecting and leveraging network effect data, give us a call... (972) 200-9317 or contact us today.

Author: Lincoln Murphy (You should follow me on Twitter!)

SaaS Subscription Revenue Model; the de facto standard?

Wed, 09 Sep 2009 14:13:34 -0500

Nic Brisbourne (@brisbourne on Twitter) of DFJ Esprit posted on his Equity Kicker blog about businesses with Subscription Revenue Models. I felt compelled to comment on his post to share that, especially in Software-as-a-Service (SaaS), the Subscription Revenue Model is just one stream of the 8 available Revenue Streams and that, within the Subscription revenue stream, there are many variables. I also touched on the up-sell opportunities available to SaaS vendors that most miss. I've cross-posted my comment below as I think my readers will benefit from it, as well.

When we work with SaaS vendors who are hanging their hat on the subscription revenue model there are two key elements we bring up:

1) The subscription revenue stream is only one of 8 revenue streams available to a SaaS vendor, and within that revenue stream, you must ensure the metrics (user, per month, transactions, etc.) are properly aligned with the customers or you will not get the traction you want/need

2) it is critical to not only keep a customer for a long time, but to actively seek to increase customer lifetime value. This ties directly to the other 7 revenue streams for upsell opportunities, but also monetizing your existing clients in non-direct ways. In SaaS, the ability to generate revenue beyond the core application and outside of your main subscriber base is due to the network-centric and ecosystem support of Software-as-a-Service.

The interesting thing we run into are gross margin profitable companies that kill all net with high customer acquisition costs as they try to grow, while forgetting all about the captive audience they have in their existing customers. But this problem goes far beyond not understanding how to create an environment for upselling existing customers, at the core, it speaks to the fact that many SaaS vendors simply don't understand all aspects of their chosen Business Architecture.

Too many SaaS vendors don't understand all of the potential revenue options available to them and far too many focus only on charging a low monthly fee, per user. They end up leaving a lot of money on the table and are ultimately doing a disservice to their investors and other stakeholders.

If you find yourself in that same position, not growing Customer Lifetime Value, or you haven't looked beyond the "de facto standard" revenue model in SaaS, the Subscription, then you should give us a call at (972) 200-9317 or contact us through our myriad options.

Author: Lincoln Murphy (You should follow me on Twitter)

SaaS Business Continuity Conversations

Wed, 09 Sep 2009 13:42:23 -0500

There are some very important conversations taking place around the blogosphere on the subject of Business Continuity and SaaS. I've commented on many of the posts, often multiple times, to share my opinions and learn from others. I wanted to put together a list of the blogs maintaining these conversations (below) and encourage others to participate.

As I said in some of the comments I've made, large SaaS vendors have already solved the issue of Business Continuity. Where the problem lies is with small SaaS vendors that cannot effectively "self insure" against failure. Until a third-party steps up with something that is aligned not only with the SaaS vendors (someone who understands completely the unique SaaS Business Architecture) and even more importantly aligned with their clients, small and medium-sized SaaS vendors will have trouble with how to solve this problem.

The subject of Business Continuity, remember, is not for the SaaS Vendor, but for their clients; the end-users. For Software-as-a-Service to be taken seriously, these issues must be talked about and ultimately solved. Too often, the risks associated with SaaS are overblown by Legacy Software vendors spreading FUD (Fear, Uncertainty, and Doubt) about SaaS. Security risks, availability, etc. For the most part, the FUD they spew is just anti-SaaS rhetoric since they missed the SaaS boat and are now trying to play catch-up. In many cases, its just a stalling mechanism to keep people from adopting their competitors SaaS products until they can release their (poorly executed?) SaaS "version." When that happens, mysteriously, the SaaS FUD disappears.

The problem is, that there are some issues that need to be dealt with, and Business Continuity is one of them. We could opt not to "air our dirty laundry" and those of us in the "SaaS business" could defend to no end that anything negative about SaaS is just FUD, but the truth is somewhere in the middle.

My motivation to continue these conversations is two-fold:

1) Get to a point where all FUD from Legacy Software vendors or other anti-SaaS folks is easily defended against by SaaS vendors of *all* sizes and stages.

2) Stop legacy escrow companies or other legacy vendors, ASP vendors, etc. from capitalizing on either SaaS's potential problems (on the ultra-rare occasion a vendor will fail) and/or the fast growing popularity of SaaS by associating their decidedly non-SaaS products with Software-as-a-Service.

Read on, and most importantly, participate!

Post by @benkepes on Cloud Avenue "SaaS Certainty - Escrow is the Answer"
Post by @fscavo on his blog: "SaaS contingency plans need more than software escrow"

Author: Lincoln Murphy (you should follow me on Twitter)

Drop the Legacy Baggage for SaaS Success

Wed, 26 Aug 2009 00:44:37 -0500

Legacy software is a square peg and SaaS is a round hole. No matter how hard you try, forcing legacy, on-premises software to fit into the “SaaS model” is at worst not going to work and at best, requires cutting corners. It is critical for legacy software vendors to understand that SaaS is not an evolution of software but a new and different business architecture. If forced to choose a lineage, SaaS has more in common with the evolution of the web rather than traditional software.

As vendors leveraged the web to offer more functionality to businesses, it became clear that the future of business software was on-demand, web-native, etc. Legacy software vendors that shunned the web as a toy and kept trying to move behind their clients’ firewalls, are now scrambling to play catch-up with their web-native analogs. This is, unfortunately, leading to the aforementioned shortcuts as vendors are looking for ways to “SaaS-ify” their applications through the ASP model, Virtualized Desktop, or even just a change in licensing (“pay as you go!”), etc. They are bringing their legacy baggage to the on-demand market, and calling it SaaS.

Unfortunately, with these non-SaaS architectures, vendors will continue to under-serve the market as they have not fully explored and embraced the SaaS Business Architecture (see slides embedded below); they have just changed the delivery method or the billing method for the same product they have always had. To be clear, whether they put a virtualized desktop front-end on an application and host it for their clients, or re-write the application to serve the product over the web, without truly embracing the entire SaaS Business Architecture, they have missed out. Simply re-positioning functionality for the web does not make it SaaS.

SaaS is unique and while analogs of legacy software can be built within the SaaS Business Architecture, and legacy software can be re-written as SaaS, this is not the future of SaaS. The future of SaaS, in our opinion, is in the productization and commercialization of expertise, internal workflows, intellectual property, etc. These will be exposed to the market through the SaaS Business Architecture in ways that have no legacy software analogs by companies that are not, and never were, software companies.

The future of SaaS is in products and services that never could have existed, at least at scale, in a legacy software world; they rely on the network-centric nature of SaaS, of the network effect of a critical mass of users. SaaS is not simply a change in the way software is delivered to end-users, but offers myriad opportunities, leverage, and revenue models within its very unique business architecture.

The road traveled to get to where SaaS is today is paved with failures, lessons-learned, obstacles, and ultimately success. The overnight success stories in SaaS, like Salesforce.com, have taken over a decade to come to fruition. As an "industry," we have learned a lot of lessons that have allowed us to get to where we are in the evolution of the SaaS Business Architecture; there is no need to repeat the same mistakes again.

Reality Check

For those “migrating” from legacy software or an ASP model to SaaS, this is easier said than done. How can these vendors drop the legacy baggage when that is all they have? It’s a process. The reality is, moving from the legacy software business into SaaS is not easy and should not be taken lightly. The “switch” is far more than just a technology change such as rewriting the software to be web-native and sticking it on a server. Remember: easy and worth doing are two different things and for many vendors and their clients, regardless of the effort, making the change to SaaS is very much worth it.

Make no mistake though; introducing SaaS into a legacy software company upsets not only the technology departments, but the rest of the business as well. From the marketing and sales departments, to accounting, finance, and even human resources, enterprise-wide changes must occur to adapt to the new business architecture. Every vendor is different and must decide if it is worth it in the end. If the decision is made, then you must fully embrace the SaaS Business Architecture even if it is just a goal for your company to shoot for. Even if it takes years to get there, knowing where you are going is the key to any successful venture.

SaaS Business Architecture - Defined

SaaS Business Architecture

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Author: Lincoln Murphy (You should follow me on Twitter!)

SaaS Business Architecture - Defined

Sat, 15 Aug 2009 16:22:11 -0500

This is a work in progress that sets out to define the Software-as-a-Service (SaaS) Business Architecture. I wanted to release something now, even if it is an early version without much detail just to get it out to the world. I welcome input, but caution those commenting to temper their biases. Legacy software vendors, Open Source consulting companies, Virtualization vendors, and SaaS framework vendors are more than welcome to post, in fact, I encourage it.

However, please comment in the context of an open-minded discussion not from the angle of "we want to call ourselves SaaS and will defend the fact that our model is SaaS to keep that right." You can call your product whatever you want, even SaaS, if you would like to. The purpose of this definition is to define publicly what we at Sixteen Ventures have put together for our clients based on what we feel to be the most scalable (at a business level) and sustainable model.

SaaS Business Architecture

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Author: Lincoln Murphy (you should follow me on Twitter!)

Participate in Two Important SaaS Industry Surveys

Mon, 10 Aug 2009 15:07:14 -0500

A couple of colleagues have asked us to help spread the word about separate surveys they are conducting. Please participate as the findings will be published and the results are something we can all, as an industry, benefit from.

The 2009 Softletter Telesales Compensation and Efficiency Survey

Access the survey here and read the following from Rick Chapman at Softletter:

As you may know, Softletter, now in its 25th year of publication, publishes a series of annual surveys that examine every aspect of running a successful software business. This survey covers sales compensation processes and practices for a software firm's telesales force. Softletter defines a telesales force as a group within your organization or one directed by your organization that is directly responsible for closing business via a variety of remote sales techniques, including phone calls, remote product demonstrations, responses to requests for pricing on your products and services generated by your marketing efforts and similar tactics. If your outbound group(s) focuses its efforts on lead generation but does not close business directly, we define them as a telemarketing group and you should not take this survey.

We're looking for some fairly standard information and will use this data to identify trends and current benchmarks that you can use to determine how your own numbers, processes and practices compare to those of comparable companies. In addition, we analyze information based on company development stages, an important factor that allows us to establish medians for companies in different market sectors. We also break companies down into four basic classes: desktop/retail, OEM, on premise, client/server, and SaaS. The entire survey is 25-30 questions, based on responses, and should take approximately 15 to 20 minutes to complete. Please pass this invitation along to a colleague in the industry who you feel should participate.

Everyone who supplies data for this survey will receive a complimentary copy of the complete summary results in the August/September issues of Softletter. Of course, all responses will be strictly confidential. We won't disclose or identify data about any individuals or about participating companies. Please note that if you do not complete the entire survey, we can't send you a complete summary copy of the results.

Scio Consulting Software Product Management Survey

This is from our partners at Scio Consulting:

As part of our SaaS Best Practices research, we are conducting a survey of the greatest challenges facing software Product Managers today. The survey will take 5-6 minutes.

We would greatly appreciate your participation if you wear the Software Product Manager hat.

SaaS Software Companies

On-premise Software Companies

In return for your participation you will receive the report of the results of the survey where you will be able to see how your company benchmarks with others in the industry.

Additionally, as a token of appreciation and upon your request, we will be happy to offer insight and assistance in the form of webinars, whitepapers, industry statistics, introductions and referrals, or any other resources at our disposal.

Author: Lincoln Murphy - You should follow me on Twitter!

Question: What vendors have successfully transitioned to Multi-Tenant SaaS?

Fri, 24 Jul 2009 10:18:35 -0500

Please use the comments below, or reply to me on Twitter, to share companies that you know of that have made the move from Legacy Software (On-Premises, Deployed, Behind the firewall, etc.) or even ASP to pure, Multi-Tenant SaaS.

A few of the larger ones we already know, like Boomi, Ultimate Software, etc. But what I am looking for is a more comprehensive list that contains the small, niche vendors that took their product and "switched" to SaaS. Of course, large companies are welcome on the list, too.

Once we have collected enough company names, I'll put them together in a comprehensive list, publish it here and give credit to those who contributed.

UPDATE: This is obviously an opportunity for you to promote your company, and that is fine... if you have successfully moved from a Legacy Software model to SaaS... if you haven't, please don't post a comment. If you are unsure what "multi-tenant SaaS" means, please look over this website in more depth.

Alright, lets go...

Author: Lincoln Murphy (you should follow me on Twitter)

Slides and Audio from Business Implications of SaaS Multi-Tenancy Webinar

Fri, 17 Jul 2009 17:08:51 -0500

Here are the slides w/ audio of my presentation during the Business Implications of SaaS Multi-Tenancy Webinar on 7/16/2009. I will update this with a link or embed of the final recorded version of the webinar when it is released. That version will contain the portions presented by Mike Dunham of Scio and Rick Chapman of Softletter.

Here is just the audio from the Webinar in MP3 format: Listen or Download

Business Implications Of Multi Tenancy In SaaS

View more presentations from Lincoln Murphy.

Author: Lincoln Murphy

Webinar: July 16, 2009 - Business Implications of SaaS Multi-Tenancy

Fri, 10 Jul 2009 11:52:45 -0500

As a follow-on to my SaaS University presentation "Multi-Tenancy in SaaS: The Business Case" we have put together a webinar with some industry insiders. In addition to me representing Sixteen Ventures, Mike Dunham from Scio Consulting, and Rick Chapman of Softletter will be on the panel. Jeremy Beck of Scio will be the moderator.

The idea behind this webinar is to dig a little deeper than I did in Chicago to get to the implementation level of Multi-Tenancy and its various incarnations. I will be speaking on the business implications of each level of tenancy.

Specifically I will be speaking on:

- Overview of SaaS Business Architecture

- Why the level of Tenancy per Instance matters at the Business Level

- Business Scalability and Multi-Tenancy

- Missed Revenue Opportunities when not fully Multi-Tenant

With Rick from Softletter on the webinar, this should make for a very exciting and lively discussion. I hope you can join us.

You should reserve your spot today!

Thursday, July 16, 2009

12:00 PM - 1:00 PM CDT

Multi-Tenancy Alternatives: Selecting the Best Option for Your Software Business

Software-as-a-Service (SaaS) is becoming mainstream but getting it right can be the key to survival. From the single instance ASP-model to virtualization to pure multi-tenant SaaS, this webinar will cover the business implications and technical alternatives to multi-tenancy for your web based software products.

Who should attend: Software executives and product managers working on SaaS offerings

Overview:

The business value of Multi-Tenancy in SaaS is no longer up for debate, but the implementation methods still are. Join Scio Consulting and Sixteen Ventures as we explore the topic of Multi-Tenancy in more detail at the implementation level and learn the business implications of each implementation method.

In this informative webinar, we will cover the following Multi-Tenant implementations:

- "ASP" model - Single Instance, Single Tenant

- Virtualization Solutions

- Single Instance, Unique DB per Tenant

- Single Instance, Multi-tenant DB, Unique Schema per Tenant

- Single Instance, Multi-tenant DB (One Schema for All Tenants)

You will learn the advantages, disadvantages, and business implications of each method as well as get recommendations by the experts at Scio Consulting and Sixteen Ventures on when one is preferred over the others.

You should reserve your spot today!

Author: Lincoln Murphy

SaaS University Slides, Answers, and Thoughts

Mon, 06 Jul 2009 09:25:32 -0500

SaaS University in Chicago last week was fantastic. The attendees were all very serious about making the most of being a SaaS Vendor or were interested in finding out how to become a SaaS Vendor. The caliber of questions posed during and after my presentation showed that 1) the topic that I chose was thought-provoking and a little controversial 2) those that were in the room for my presentation were in there to learn 3) the SaaS community as a whole is still not sure, divided on, or otherwise unclear about the role Multi-Tenancy plays in the SaaS Business Architecture.

The Answer

Before I went to Chicago, I asked in an earlier blog post if there were any questions regarding the Business Value of Multi-Tenancy. After promoting that question on LinkedIn, Twitter, and other outlets, hundreds of people viewed that blog entry. Alas, only two people asked questions. This tells me that people do have questions about this topic, but don't seem to know exactly what to ask. I encourage you to view the slides embedded below, or if you attended the presentation and didn't get to ask your question, to post more questions in the comments on this post.

Unfortunately only one question was relevant to the topic at hand and its context. That question was posed by Dobes and he said "I'm still skeptical about monetizing aggregate and benchmarking data, who buys it?" The reality is, Dobes, that perhaps no one will buy it. You might not reach a critical mass of users to give your data enough actionable context, or your application might be so horizontally targeted and your data collection methods be so poor, that the data you have, even if there is a lot of it, still lacks that actionable context.

On the other hand, however, you might be in a position to sell the data you have collected. Remember to visit your legal team before exploring your options therein. But, if you have all of your bases covered both legally and governance/compliance-wise (know your market and industry!), then you should be fine. Once you are sure you can "sell" this data, the next step is to figure out who will buy and in what form. Perhaps your users will sign-up for a dashboard that shows how they are doing against the other users. Maybe you can generate reports for industry associations. You could even open up an API for other SaaS companies to use your data in an ad-hoc fashion. Remember, this is another "product" you are selling and you should do as much due diligence on this as you would any other product you want to sell. Don't just assume that if you have it they will buy it. Know your market!

The Slide Deck

Business Case For Multi Tenancy in SaaS

View more documents from Lincoln Murphy.

Thoughts on SaaS University

Overall, SaaS University was a professionally-produced, well-planned, and well-attended event. I hope it was a big success for Softletter and Rick Chapman. The other speakers at SaaS University were fantastic, too, with some shedding perhaps more light on the topic they chose than the attendees might have wanted. Read Jeff Kaplan's take on the "working lunch" session by Jay Howell of BDO Seidman, LLP... seems the topic of revenue recognition was a little bit more complex than the vendors in attendance realized or wanted to admit. Jay did great, but his topic did little to win him any friends!

I am definitely looking forward to the next SaaS University.

Author: Lincoln Murphy

Do you have questions about the Business Case for Multi-Tenancy in SaaS?

Thu, 18 Jun 2009 16:46:35 -0500

Do you have a question you would like answered regarding the Business Case for Multi-Tenancy in SaaS? Post them in the comments. I will answer the questions at SaaS University first and post the answers on this blog after the event.

While you will see the answers in a blog post after the event, it won't be the same. You will miss out on the discussion surrounding the questions by not attending SaaS University. If you would like to attend, there is still time, and I have a discount code for you... just contact me.

Author: Lincoln Murphy

Sandhill.com Article - SaaS Vendors: Stop Thinking Like Software Companies!

Wed, 10 Jun 2009 09:29:55 -0500

My article for Sandhill.com titled "SaaS Vendors: Stop Thinking Like Software Companies!" was published today. Let me know what you think.

Update: Alex Postnikov translated the article into Russian!

Author: Lincoln Murphy

SaaS Multi-Tenancy and Hidden Business Models

Mon, 08 Jun 2009 15:35:13 -0500

I just saw an interesting post by Phil Wainewright on the eBiz site titled "Why Bother with Multi-Tenancy?" In fact, it's great for someone like Phil, as an analyst with a great public podium, to tackle these issues that are not the most visible issues in SaaS. I welcome a public discussion on this topic as it is what we and our partners have been preaching to our clients for years. We have been consulting with our SaaS Vendor clients for a long time to take advantage of the revenue streams beyond the core application; to take full advantage of being a SaaS Vendor. In fact, quite often the network-effect data that is collected from the application is more valuable and can be monetized in more ways than the application itself.

What is disconcerting, however, is that Phil cited a story by Zoli Erdos at CloudAve (who cited a compelling post by Dennis Howlett) that talks about "The Hidden Business Model in SaaS" as if it's something Vendors are keeping from their customers. At first Zoli talks about eyebrow-raising concerns over privacy in selling anonymous, aggregate information. The reality is that many non-SaaS businesses have been doing this for years; we tell people that this is currently being done with incredibly sensitive data. From the credit reporting agencies to hospitals, anonymized, aggregated (A/A) data is leveraged from multi-tenant environments every day and is completely safe and compliant (HIPAA, etc.). You have to know your industry and your governance issues, but it can be done.

Ken Boasso, a long-time friend and Managing Director of Keychain Logic, a Sixteen Ventures partner, likes to point out other examples when he talks about this subject. For instance the Dow Jones Industrial Average is merely anonymized aggregate (and often highly personal) financial data. Credit card fees are set based on A/A data, as are anything having to do with insurance premiums; including specific health risk information that drives the costs and coverage for prescription medicines. The list goes on and on, and the key take-away is that SaaS or not, A/A information is leveraged by many types of companies to generate revenue, to make internal decisions, and to offer guidance to industry.

Zoli, in his blog post, thankfully moves quickly into the other benefits of a Multi-Tenant environment from the vendor standpoint (including improved Customer Service, which outside of our small group of colleagues, we don't hear much about). What is unfortunate throughout the article is just his use of the term "hidden." That makes it sound like SaaS Vendors are keeping this from their customers or the market as a whole. Unfortunately, for most SaaS Vendors, it isn't hidden; it is often either unknown by the vendor ("I can do what?") or it is known, but they cannot take advantage of it because they didn't architect their application properly.

In other words, they might be "SaaS" vendors, but aren't truly multi-tenant and can't easily aggregate data. Or they are Multi-Tenant, but only included core-application functionality and didn't effectively productize their offering for the SaaS Business Architecture. For whatever myriad reasons, I can tell you that far fewer SaaS Vendors are taking advantage of their Multi-Tenant environments than there should be; for many, its simply not knowing about this early enough in the product development process to do anything about it.

I wrote a two-part article for Softletter (first-part was published on 5/31/2009; the second part comes out on 6/15/2009) about "SaaS Multi-Tenancy: The Business Case." I will be speaking on this topic at SaaS University in Chicago at the end of this month, too. The crux of the article and the presentation is not just the benefits of Multi-Tenancy, including direct monetization of network-effect data, improved customer service and retention (reduced churn = on-going revenue), etc. but to show that to truly take advantage of Multi-Tenancy, support must be built into the application. When we work with SaaS Vendors, or those migrating to SaaS, this is part of the Strategic Product Development process that we use to help Maximize Revenues. You must think about these "hidden" parts of the business early in the process so you can actually take advantage of being a SaaS Vendor.

Of course, there are other non-technical issues surrounding the use of A/A data, (data ownership, etc.) that need to be addressed by the SaaS Vendor. Since those are legal in nature, it is outside the scope of my expertise. However, SaaS Vendors do need to ensure that their terms of service or other service agreements indicate that the customer owns their data, usage data, metadata, etc. is owned by the SaaS Vendor, and that all of it will be used by the SaaS Vendor in A/A fashion to offer better service, etc. Again, this is something to take up with the legal department or your attorney, but its as simple as making those definitions clear for this to all be above board.

In fact, Boasso has stated that the SaaS industry ought to beat their critics to the punch and start including "usage data ownership" language in their contracts. I agree and would say that it is up to us in the industry to bring this to light beyond the contracts. This way, the market can see we aren't hiding anything and that the usage of this data is all about providing better service. Yes, we have ulterior motives for offering better service (increased revenue, increased customer lifetime value, lower churn, etc.) but If we can adequately indicate what is in it for them (the customers) then we (the vendors) will be fine.

So I welcome Phil, Zoli, and Dennis' public discourse on this topic. I hope others will join in. For Sixteen Ventures, Keychain Logic, and others within our ecosystem, this will help spread the message that we have been extolling for years. For SaaS Vendors, or those wanting to move into SaaS, it will open their eyes to some of the "hidden" (read: unknown, less publicized, etc.) benefits of being a SaaS Vendor. I would just urge those talking about this to switch from saying "hidden" to understanding that these advantages of Multi-Tenancy are largely unknown to SaaS Vendors and their customers. We're working to change that.

Author: Lincoln Murphy

No More SaaS ISVs

Tue, 02 Jun 2009 11:25:56 -0500

SaaS is so much more than a Software Delivery Model and to reach success it is critical for SaaS Vendors to understand that fact. In my upcoming Sandhill.com article you will read that we should be thinking more like Service Companies than Legacy Software Companies. With that in mind, it is time to start changing the language we use when talking about SaaS Vendors.

One thing we at Sixteen Ventures have done is to drop the term "SaaS ISV" (where ISV = Independent Software Vendor) from our vocabulary. Instead of ISV, we use SaaS Vendor, Provider, Company, Firm, etc. The goal is to trigger a mindset shift in those we talk to away from "software" and more toward SaaS as a stand-alone, viable Business Architecture.

Additional rationale for dropping ISV from our vocabulary includes:

SaaS Products often grow out of non-software companies and therefore the term is simply wrong. We along with our ecosystem partners like Keychain Logic believe that SaaS will consist of 20% apps that have a background in legacy software and 80% from those who productize their expertise, internal workflow, IP, etc. Those specialized applications that you will never hear about unless you are in the niche they serve. These are not "software companies" and never were.

SaaS Vendors should recognize and execute on core competency and leverage the Ecosystem for the rest. This makes the "I" in ISV invalid.

ISV is just a relic of a Legacy Software mindset. Read the Wikipedia entry for the term and explain to me how it has any relevance to SaaS Providers?

SaaS has come into its own and it is time to move beyond the "legacy terms" that carried over from the on-premises software days.

Author: Lincoln Murphy

SaaS Vendors Should Learn from Netflix

Tue, 19 May 2009 13:01:41 -0500

I often extol the virtues of SaaS for Vendors beyond the typical "cost savings" and "operational efficiency" that most pundits and analysts like to talk about. I see SaaS as a way to increase Revenue for Vendors, not just save money. This increase in revenue is achieved through various means, one of which is better customer service.

Better customer service, as Mikael Blaisdell of TheHotLineMagazine.com and Customerium.com frequently emphasizes in his writing, leads to reduced churn, more upselling opportunities, and an overall growth in Customer Lifetime Value." Many SaaS pundits and analysts tell you to look at Customer Lifetime Value, but few tell you what that really means or an effective way to increase it. Here's a freebie... serve your customers better and they will stay around and buy more. That, by the way, is not SaaS-specific.

The catalyst for this post was a an entry on the 37 Signals blog about Netflix and their proactive Customer Service. In the post, the author Ian Hall indicates that he had a streaming movie on in the background and noticed a hiccup in the audio. Apparently it wasn't a big deal to him, it must have fixed itself, and they went on with their evening.

The next day, he gets an email from Netflix telling him about the problem and asking him, if he was affected, to redeem a coupon for a small discount off of his bill. There is some discussion, to put it mildly, about the amount of the discount, etc. That is missing the point. What people should gravitate to in his post is this quote:

Now while 3% of my bill isn’t really going to add up, it makes me FEEL 100x better.

Wow! Amazing what a little customer service can do. As SaaS providers (Netflix meets the criteria for SaaS, by the way), we are in a unique position to proactively respond like this. How many actually do? Few. How many could? More, but still few since this was most likely not built into their product. If that is you, fix it.

Using the Netflix streaming movie example as an analog for a B2B SaaS Vendor, consider the same analog of Blockbuster as that of a Legacy Software vendor. I'm specifically talking about the Streaming video service from Netflix, and not their DVD Rental service. The few times in the recent past that I've actually rented a movie from Blockbuster, the experience has been horrible. Often the DVD is so chewed up that it won't mount. My only option is to return the movie, in person, and either get a refund and not watch the movie which is not ideal or get a replacement disc and try again. This is annoying for me, the customer.

But this should be just as annoying to Blockbuster, the vendor, as they have no control or visibility into this problem. I know for a fact that I have tried to view a DVD, and when it did not work it literally sat on my coffee table for three days before I just returned it. I didn't go back and ask for a refund because it was already late and frankly, I just didn't want to. In fact, I believe I saw that the movie was available on demand from Dish Network and just bought it that way. This episode, by the way, ensured that it would be even longer until my next visit to a Blockbuster. Blockbuster doesn't know that, and they have no idea it happened. This is all news to them.

As a Legacy Software vendor, you are Blockbuster in this analogy. You don't know how your customers are using your product, or even if they are. Sure, you might be getting paid now whether they use the product, but when it comes time to renew, you're out of luck. Too many SaaS vendors operate this way, too. If you don't know how your customers operate, what they are doing, or what problems they are encountering, you can't help them.

If you do, you can help them before they even have a chance to complain which is the ultimate in customer service. Remember, its Software-as-a-Service... Service is the keyword there.

Author: Lincoln Murphy

Publication Date for SaaS Multi-Tenancy Business Case article announced

Tue, 19 May 2009 10:53:11 -0500

I just found out that the two-part article I wrote for Softletter on the Business Case for Multi-Tenancy in SaaS will be published in the May 31 and June 15, 2009 issues. This article goes into detail about the myriad ways true Multi-Tenancy can bring incredible value to your SaaS Business. To get the most of that value, you need to recognize exactly how Multi-Tenancy can be leveraged.

This article series, however, is only a primer. If you want even more in-depth discussion of how Multi-Tenancy in SaaS can be the difference between merely surviving as a SaaS Vendor and fully Thriving, you should attend my session at SaaS University in Chicago on July 1, 2009.

Author: Lincoln Murphy

Webinar Question: Have you seen success with revenue share models based how much money you can save the customer?

Tue, 12 May 2009 11:37:25 -0500

Have you seen success with revenue share models based how much money you can save the customer?

This model is very risky and while I have seen success, I have also seen failure with it. The failure I have seen comes down to Control and Opportunity Cost. Regarding control, the further you get away from fully controlling the items for which you are billing, the more likely it is that something will go wrong. Likewise, the further you get from fully controlling the entire revenue model, the higher the Opportunity Cost is.

In your example, if you can tie directly into, or extract data directly from, the system where you are trying to save them money and be certain that what your client is reporting is accurate, then that might be okay. However, if you have to take their word for it, you lose control and therefore the risk goes up. The Opportunity Cost goes up in the latter model because now you will need to spend time and money following-up with clients, auditing your clients’ invoices, etc.

Author: Lincoln Murphy

Webinar Question: Does Multi-Tenancy enable vendors to capture more aggregate data than Single-Tenancy or Isolated-Tenancy?

Tue, 12 May 2009 11:37:25 -0500

Does Multi-Tenancy enable vendors to capture different/more aggregate data than Single-Tenancy or Isolated-Tenancy?

Yes, Multi-Tenancy does enable vendors to capture more data than Single-Tenant or isolated-tenant applications. Generally, Single-Tenant applications do not contain the appropriate level of data gathering that applications architected specifically for Multi-Tenant environments have.

One of the main reasons this is true is that often when an application is deployed in a Single-Tenant model, its because the core product was not built to support Multi-Tenancy and the vendor simply does not want to take the time to re-architect the product. What this also means is that the product was most likely not designed to capture usage data, meta data, etc., because its original function was that of a stand-alone, purpose-built application rather than a Product based on any type of Business Architecture or Commercialization Methodology.

Ultimately, it is the aggregate data that is the most valuable, and you must do the best with what you have. If you have a Single-Tenant product and can aggregate the data from each of the Single-Tenant Instances of the product, you should. The fact is, if a Single-Tenant application is architected in a way that takes into consideration complete data capture beyond the core function of the product, and the Vendor builds an external system for aggregating data from the separate systems for reporting purposes, then it can be done. However, this is easier said than done and as the number of isolated systems scales out, this becomes harder to manage. Customization within each Application Instance further complicates this process. This is the Application Service Provider (ASP) model and it is difficult to manage over the long-term.

It is critical to consider that if you are going to the lengths described here to aggregate data, and you are building the application from scratch, you might want to employ the true SaaS Business Architecture and reap the real rewards contained therein.

Author: Lincoln Murphy

Webinar Question: Can you explain more about the Asset Revenue Model?

Tue, 12 May 2009 11:37:25 -0500

Can you explain more about the Asset Revenue Model?

Assets are probably one of the most misunderstood and under-utilized revenue models in SaaS and yet all SaaS vendors are sitting on an asset that, leveraged properly, could yield more revenue or otherwise be worth more than perhaps the product or business itself. The notion of the Asset Revenue Model is simple, you have something that others are willing to pay to rent from you. In SaaS, a lot of this has to do with what we call Network Effect Data, or the aggregate data collected by the SaaS Vendor. Depending upon your market, your vertical, etc. you can utilize this Asset in various ways, including monetizing it directly.

Also, look for my two-part article series in Softletter on the Business Value of Multi-Tenancy. I will also be speaking at SaaS University in Chicago on July 1, 2009 on this topic. One of the benefits of Multi-Tenancy is derived via the Asset Revenue Model, which provides the ability to monetize beyond the application. See you in Chicago!

Author: Lincoln Murphy

Webinar Question: What are the risks associated with switching Revenue Models?

Tue, 12 May 2009 11:37:25 -0500

What if your legacy model was billing on storage but storage has become commoditized? If you switch to subscription based on access to feature sets, how do you migrate legacy customers without losing money?

I am unclear why you need to lose money at all, especially if you have clients that are already telling you what they are willing to pay. If your clients are paying a certain amount for the service, this might be a good place to start with your pricing strategy for the next generation product, regardless of what the billable unit is behind the scenes.

The main consideration is that your clients now understand what they are paying for; storage. If you move them away from that, even if they are paying the same amount, they might not understand. This will drive some SaaS Vendors in your situation to lower their price, but in reality that is not the right thing to do. Even though they are currently “paying for storage,” what they are actually paying for is the value-added service you provide on top of the storage. Your goal is to remind them of that so that when you change the underlying billable unit, your clients are comfortable with that change. Done correctly, you could charge more for your service because you are not selling storage (a commodity) anymore, but are now selling your value-added service (the keyword there is VALUE) even though ultimately nothing has really changed.

Every situation is different and it is difficult to offer any real guidance without knowing more.

Author: Lincoln Murphy

Webinar Question: Can a product such as supplier performance dashboards subscription be geared for SaaS set up?

Tue, 12 May 2009 11:37:25 -0500

Can a product such as supplier performance dashboards subscription be geared for SaaS set up?

Yes. There are many ways to make this happen, and I have worked with a couple of vendors that do this very thing, but for different markets. There are lots of ways of making this work, but it would take knowing more about the market from your perspective to offer even a guess at this point. I would be more than happy to chat with you about your ideas.

Author: Lincoln Murphy

Webinar Question: Can you breakdown the difference between Multi-Tenancy and Single-Tenancy?

Tue, 12 May 2009 11:37:25 -0500

Can you breakdown the difference between Multi-Tenancy and Single-Tenancy?

Multi-Tenancy = shared everything (application code, database, infrastructure)

Single-Tenancy = isolated anything (application code, database, infrastructure)

Many will debate the implementation details or the various “degrees” of Multi-Tenancy, but its relatively straight forward. If you isolate a tenant at any level, you are no longer truly Multi-Tenant and the further you get from true Multi-Tenancy, the less benefits you, and ultimately your clients, can derive and the harder it will be to realize those that you are able to.

Author: Lincoln Murphy

Webinar Question: What are the dangers, if any, to using ASP as a transition while converting application to SaaS?

Tue, 12 May 2009 11:37:25 -0500

What are the dangers, if any, to using ASP as a transition while converting application to SaaS?

There are dangers, not the least of which is the misconception that the Application Service Provider (ASP) model is simply a phase in the migration to SaaS. ASP is not a step on the way to SaaS for a Legacy Software vendor. With that knowledge, it would seem that you might be better off simply holding off of doing anything with your legacy clients until it is time to move them to SaaS.

If you introduce an interim step to your clients in the migration to SaaS, you will add yet another possible churn point, or a place where you could lose clients. The path to SaaS does not include ASP so unless there is serious market demand to move the software to the network level and out of their hands, my advice for the time being is to not introduce ASP to the mix and just wait until your SaaS product is ready to rollout.

That said, every market is different and I would be more than happy to sit down and discuss this with you in more detail.

Author: Lincoln Murphy

Webinar Question: What's the difference between ASP and SaaS and why is ASP a failed model?

Tue, 12 May 2009 11:37:25 -0500

Perhaps you covered this up front, but what is the difference between ASP and SaaS and why is ASP a failed business model?

The difference between Application Service Provider (ASP) and SaaS is quite significant, but since both are “hosted” the two models are often confused. ASP is much closer to Legacy Software than SaaS. While the Revenue Model for access to the Legacy Software delivered via ASP versus that which is deployed on-premises might be different, in either case the Revenue Model is disconnected from the software itself. So at its core, software delivered via the ASP model is generally a Single-Instance, Single-Tenant Legacy Software application. The Revenue Model is very much like renting a server with an application installed on it.

ASP is a failed model because it lacks scalability for the vendor, there is too much customization, generally a single Revenue Model, no inbuilt aggregation of data, and no network effect data to collect and aggregate. Are there vendors that have found success with the ASP model? Of course, but that success has been limited due the difficulties dealing with scalability and customization between systems. Next Generation ASP, or ASP 2.0, based on Virtualization and Cloud Computing, is just as bad as its predecessor.

SaaS, as an all-inclusive Business Architecture, is a Value Delivery Method rather than a Software Delivery Method. Due to its inbuilt Multi-Tenancy which allows for shared resources and shared infrastructure, SaaS is scalable and allows for the vendor to take advantage of true economies of scale, reducing overall operational costs and complexities, especially with customizations. However, the more efficient use of resources, reduced overall cost, etc., associated with SaaS is just one benefit to the Vendor.

The real benefit to the Vendor, as well as the Client, comes from the SaaS Business Architecture’s inbuilt Multi-Tenancy, which can be leveraged to help Improve Customer Service and Retention, Reduce Sales Cycles and Accelerate Revenue, Gain and Maintain Competitive Advantage, Improve Strategic Planning Abilities, and even Directly Monetize Beyond the Application.

A reality check is that most of the time, when an application is deployed in a Single-Tenant or ASP model, its because the core product was not built to support Multi-Tenancy and the vendor simply does not want to take the time to re-architect the product. What this also means is that the product was not properly commercialized, not thought about as a business rather than as software, and therefore revenue model support, advanced metering and billing, etc., are probably not inbuilt. Finally, the product was probably not built to adequately capture important usage and other data outside of the core product. In other words, Multi-Tenancy is often the red herring that everyone argues about. The reality is that the since Single-Tenant applications are generally not architected properly to support the Business Requirements around the SaaS Business Architecture anyway, so the argument is moot.

Author: Lincoln Murphy

Webinar Question: Any markets that reject SaaS due to security? How to overcome this during the sales process?

Tue, 12 May 2009 11:37:25 -0500

Have you seen markets that reject Multi-Tenancy based on [Information Security] requirements (no matter how well founded) and how do you counter that in the sales process?

No, I’ve not seen an entire market reject SaaS, but I have seen individual companies reject it. You should know whether this will be the case before going in and if the majority of companies you are targeting have policies in place against SaaS or will otherwise reject it, you need to find new target customers or change your product. That said, if you sell value over the fact that the product is SaaS or Multi-Tenant, etc., you can overcome many objections by simply not bringing them up in the first place. In other words, don’t immediately draw attention to the potential objectionable items.

First sell them on the value your product brings and the benefits they will experience. Once you have them sold on that, the other objections will play a lesser role. The reality is that HIPAA compliance, for example, is easy to follow and there are many SaaS vendors that deal with this every day quite successfully in Multi-Tenant environments. Remember, if you do run into a potential client that objects to SaaS, you will find it difficult if not impossible to change the way they think. If they are opposed to your delivery model, it might be time to move on… they will eventually come around and there are other clients to focus your time and resources on.

It is important to note that every market is different and I would be more than happy to discuss your specific situation in more detail.

Author: Lincoln Murphy

Maximize Revenue with Strategic Product Development Webinar - Recording, Slides, and Q&A

Tue, 12 May 2009 11:37:25 -0500

The recorded webinar can be found on OpSource's site or by clicking on the slide screenshot above.

Also, we received a number of questions that we were not able to answer on the webinar. We've emailed the people that asked the questions directly with the answers and after anonymizing the questions, we've posted the answers here:

We've also hosted the slides themselves on Slideshare so you can access those separately from the webinar.

Maximize Revenue Through Strategic SaaS Product Development

View more presentations from Lincoln Murphy.

Author: Lincoln Murphy

Great Discussion on SaaS Multi-Tenancy

Sat, 02 May 2009 02:13:07 -0500

Be sure to check out the comments section on the SaaS Single-Tenancy vs. Multi-Tenancy Debate post. The discussion has really started heating up and there is some great food for thought there. What are your thoughts on this topic? Post them there and lets continue this great dialog.

You can also subscribe to the Blog Comments Feed to make sure you don't miss any of the great points your fellow readers make. I will also post updates @lincolnmurphy and @16v on Twitter when we respond to comments so be sure to follow us.

Author: Lincoln Murphy

Webinar: Maximize Revenue with Strategic SaaS Product Development

Tue, 28 Apr 2009 01:01:02 -0500

Sixteen Ventures will be producing a webinar, presented by our partner Opsource, next week. Be sure to sign-up today. As with everything we do, this will be an ultra-informative, information-packed event that you don't want to miss. Check it out!

Wed, May 6, 9:00am PST / Noon EST

Maximize Revenue with Strategic SaaS Product Development

How does your SaaS product generate revenue? Is your revenue model aligned with market expectations? How much money are you leaving on the table because you went with a "standard SaaS" revenue model?

It's imperative with a SaaS offering to consider all monetization opportunities early in the process. SaaS is a commercial product and revenue generation must be built-in. This webinar will explore how aligning revenue to your target market early in the process leads to SaaS success. Topics covered will include:

* Why there is no "standard" SaaS revenue model

* Seven ways you can generate revenue as a SaaS vendor

* Why you need to look to your market to determine you revenue model

* The concept of Minimum Viable Product (MVP)

* The basics of developing a strategic product development roadmap

* What to do if your product and target market are not aligned

Be sure to RSVP Today!

Share it on Twitter and be sure to follow @opsource @16v and @lincolnmurphy too!

Author: Lincoln Murphy

Announcing New Partners and Events

Fri, 24 Apr 2009 00:26:39 -0500

A lot has been happening with Sixteen Ventures over the last few weeks. We have been working with some fantastic startup SaaS Vendors, some Legacy Vendors transitioning to SaaS, and a couple of Data Center-centric vendors that see an opportunity to expand their business by re-positioning their products to attract SaaS Vendors. This is truly an exciting time for us, and the SaaS Industry / Movement as a whole.

In addition to the client work we are doing, we have some Webinars, Seminars, and writing engagements coming up very soon so my "spare time" has been spent working on those projects. The writing engagement and one Seminar, both for Softletter, were announced in an earlier blog post. We also added them to the new Events page.

Next week we will be announcing a ground-breaking Webinar with a pioneer in the Software-as-a-Service industry. I cannot wait to announce that event!

Also, I am excited to announce that Sixteen Ventures has formed partnerships with two Major Players in Software-as-a-Service; Keychain Logic and OpSource. You can read more about those companies on our Partners page.

And don't forget to follow us on Twitter @16v and @lincolnmurphy

Author: Lincoln Murphy

The SaaS Single-Tenancy vs. Multi-Tenancy Debate

Tue, 14 Apr 2009 17:49:29 -0500

The Single-Tenant vs. Multi-Tenant debate in the world of Software-as-a-Service (SaaS) continues even though the most successful SaaS company of all time, Salesforce.com, has a pure Multi-Tenant architecture. This is reality, yet the argument remains. Many people argue that since a single-instance of a single-tenant application can be “spun up” for clients, on-demand, via virtualization and “the cloud”, for a very small amount of money (since hardware procurement is not necessary), the need to build a multi-tenant application is not there. ASP 2.0 anyone?

Those companies opting to forgo Multi-Tenancy (for whatever limitation-justifying reasons they come up with) will never reach the levels of success with their SaaS offerings that companies such as Salesforce.com, NetSuite, or Intacct have reached. Their failure to reach the level of those companies will be tied directly to the fact that they are not Multi-Tenant, and yet it will have nothing to do with the technology behind the Multi-Tenant architecture, Scalability, Operational Efficiency, etc. Those that continue this argument at the technology level are missing the mark.

The fact is, a well-thought-out Multi-Tenant Business Architecture allows a SaaS Vendor unprecedented visibility into the actual usage of the system in ways a single-tenant or on-premises application simply does not. A wise SaaS Vendor will tap into this amazing amount of information to:

Improve Customer Service and Retention
Reduce Sales Cycles and Accelerate Revenue
Gain and Maintain Competitive Advantage
Improve Strategic Planning Abilities
Directly Monetize Beyond the Application

It is easy to drop to the technology level when discussing Multi-Tenancy because after all, this is still software and even if people are arguing, they all “get” the technology points. Agree or disagree, its hard to dismiss, for example, that virtualization has changed the way we think about “computers” even if we disagree on its relevance to SaaS. To ensure that your company is successful, it is critical to bring the discussion out of the technology details and start talking about the business value behind your technology decisions.

Like any good technology decision, Multi-Tenancy should have business drivers behind it. No technology decision should be made in a vacuum and Multi-Tenancy for your SaaS application is no different. In fact, simply building a pure Multi-Tenant SaaS application is no guarantee of success. To be successful, it is critical that SaaS Vendors take the time to understand how to leverage the power of Multi-Tenancy.

And just to be clear, all of the “technology-level” issues are still very real. Improved Scalability, Operational Efficiency, Software Development Life Cycle management, etc. are all very much a reality of a true Multi-Tenant application. But it is time that SaaS Vendors begin to look at Multi-Tenancy not as a technology solution to a technology problem, but a technology solution to a business problem.

I will be speaking at the Softletter SaaS University in Chicago June 30 - July 2, 2009 on the topic of "SaaS Multi-Tenancy: The Business Case" and penning a two-part series on the topic for the Softletter publication leading up to that event.

See you in Chicago!

Author: Lincoln Murphy

SaaS Multi-Tenancy: The Business Case

Mon, 13 Apr 2009 11:08:03 -0500

I am happy to announce that I will be speaking at the Softletter SaaS University in Chicago June 30 - July 2, 2009. I am also penning a two-part article for the Softletter publication leading up the SaaS University event, and those articles will come out in the May 15 and May 29, 2009 issues. My topic will be "SaaS Multi-Tenancy: The Business Case" and it seems the timing of this couldn't be better.

Over the last week, a lot of talk about Multi-Tenancy in SaaS, and more specifically the use of it as a differentiator in marketing by Salesforce.com, has sparked some interesting conversations between Jeff Kaplan, Phil Wainewright, and Bob Warfield. I agree with all of their takes, but I would say that ultimately, even within their very thoughtful posts, Multi-Tenancy becomes a red herring, especially when the discussion drops to the technology level. Kaplan's take, by the way, that Salesforce.com is bringing this up to fend off attacks by legacy players entering the market with single-tenant products, is spot on, in my opinion.

Jeff Kaplan did, as he does every time, a great job of keeping the discussion at a high level for non-technical folks with his "condo" analogy. I think the conversation should be somewhere in between Jeff's and Bob's. This is software, there will be a tinge of technology speak involved. But, like any good technology decision, there should always be a business driver. So when I say that Multi-Tenancy is a red herring, I am referring to the technical issues of Multi-Tenancy and to a certain extent the term itself. What we as SaaS vendors need to be selling is the value of our product;, the pain-reducing, revenue-accelerating, world-changing value that our Software-as-a-Service application brings to our target market. Nothing else matters.

The fact is, customers do not care about Multi-Tenancy, just like they don't care about SaaS or Cloud... they aren't using your system because you met the buzzword quota. They are signing up because of the value you bring. In fact, many SaaS vendors have been lucky as those customers with the worst pain sought them out and were able to ascertain the value they provide even though the could not actually convey that themselves. These SaaS vendors will need to change their messaging and positioning if they want to continue to grow.

I can hear you saying "Okay, so Multi-Tenancy has a business value, we just aren't allowed to talk about it?" Correct. Extending Kaplan's "condo" example further, when a Realtor has a list of selling points for a condo, where on the list is "all you are buying is a 'cube of air' attached to other 'cubes of air'?" It is probably not on the list at all. To move units, it is critical you sell the value that the tenant gets because of the fact that they are in a high-density housing unit. In fact, if you draw too much attention to what a condo really is, a stand-alone house can start to look more attractive. A good example of this is customization. Sooner or later it is going to occur to the buyer that they cannot customize their condo the way they could a single-family residence, even if they would never want or need to.

So in my SaaS University session we will examine how SaaS vendors should use multi-tenancy to monetize beyond the application, streamline sales & implementation, and gain and maintain competitive advantage. We will talk about the reasons to build your SaaS application in a Multi-Tenant environment, how to use that to maximize and accelerate revenue, and improve customer service, all without "selling Multi-Tenancy."

See you in Chicago!

For more updates, be sure to Follow @16v and @lincolnmurphy on Twitter!

Author: Lincoln Murphy

Laser Focused on SaaS

Thu, 19 Mar 2009 14:12:53 -0500

I am happy to announce that we are re-positioning Sixteen Ventures to be focused like a laser on Software-as-a-Service (SaaS) Product Development and Marketing. In the process, we have re-done almost all of the content on the Sixteen Ventures website so be sure to check it out.

It is interesting to note that Sixteen Ventures, and prior to that in my own startups and as an independent consultant, have been focused on On-Demand technologies since the mid-1990's. Our SaaS-specific expertise dates back to 2004/2005 when the term "SaaS" was coined and the business model behind it started to gel. Unfortunately, we didn't position ourselves as "SaaS Experts" or "SaaS Gurus" in an effort to avoid being pigeon-holed. By avoiding becoming SaaS experts in the eyes of the industry as a whole (there are a few very smart people who know), we became simply another consulting firm that also "does SaaS."

The reality is that all along we've been 100% focused on SaaS or derivative technologies such as Platform-as-a-Service (PaaS) or Cloud Computing; though only from the SaaS-supporting technology view. But we just did not put it out there as we should have. Well, now we are. Sixteen Ventures as a company, and myself as founder of this firm, are Strategic SaaS Product Development and Marketing experts.

So why did we not position the firm that way from the beginning? The fact is, we still believe that the market should drive the delivery model for your software and that you should verify that your customers will accept a SaaS product. Depending upon your target market, there might be numerous ways in which they are not ready for your SaaS application. Whether it is by IT policy or by having the wrong attitude, you need to be aware.

That said, I think it is time to say that SaaS has crossed the chasm and is moving into mainstream adoption. Therefore, we feel the time has come to focus our messaging specifically on SaaS. Since few startups building on-premises software products, outside of infrastructure or security, are being funded it just seems that the time has come to be very specific with our message. Sure there might be some on-premises companies out there that we will miss out on working with, but the truth is on-premises software is not where our expertise lies. It is a stayed market with only a few possible revenue streams, it is a slow-to-react market due to the technology model, and it is not where we want to be. To re-iterate, Sixteen Ventures as a company, and myself as founder of this firm, are Strategic SaaS Product Development and Marketing experts.

This is truly an exciting milestone for Sixteen Ventures. In the coming weeks, we will have some more exciting announcements. New projects, new partnerships to talk about, and some great events and webinars to announce. Stay tuned.

Author: Lincoln Murphy (You should follow me on Twitter!)

SaaS Revenue Models and Tiered Pricing Strategy

Tue, 10 Mar 2009 07:59:40 -0500

Too often, the only revenue stream (of the 7 available) that Software-as-a-Service (SaaS) vendors take advantage of is Subscriptions. Even more often, the pricing strategy applied to the subscription revenue stream involves tiers or packages; different subscription levels (price, features, etc.) based on a segmentation of customers. The tiers are often created after an analysis of the market with a goal of adequately addressing each segment. Sometimes they are pulled from thin air.

Regardless of the strategy, almost without fail pricing tiers are tied to an underlying usage metric (determined during Revenue Modeling) as part of the differentiation between tiers. This leads to the unwanted effect of punishing users for increased usage of your system. If you are doing this do not worry, so is your competition. Most SaaS pricing models use this type of tiering to some degree.

To really set your offering apart, consider that subscription tiers should not punish usage by making users upgrade when they reach a certain threshold. Instead, each tier up should reward the users for reaching certain milestones with the need for the additional resources or functionality available in the next level. You want to make the user feel good about moving to the next step, not bad that they "over used" the system. That could have the opposite effect you want; they could stop using the system altogether.

Do you need help figuring out which of the 7 Revenue Streams your SaaS business can leverage? Are you trying to figure out how to apply a pricing strategy to the revenue model you've developed? If so, call us at (972) 200-9317 or contact us other ways today!

Author: Lincoln Murphy (You should follow me on Twitter!)

Updated "Start Smart" Seminar Slides

Mon, 02 Mar 2009 17:37:17 -0600

Those who can, do. Those who can't, teach, right? Not a chance.

Those who really can aren't afraid to help others and understand that there is plenty of room for others to be successful, too.

In anticipation of the upcoming series of seminars in the DFW, Texas area, we have updated the slides for the Start Smart seminar. One thing we've done is added an alternate title for the programmers in the audience "Stop Coding: Put Down the Keyboard and Do the Hard Stuff First!"

In addition to our seminars, Sixteen Ventures also works directly with entrepreneurs through various consulting engagements to help you bring your products to market and and build scalable and sustainable businesses around those products. Be sure to check out how you can leverage our capabilities to help you Start Smart in your Software Venture.

Start Smart: Positioning Your Software Venture for Success (v2)

View more presentations from sixteenventures. (tags: revenue saas)

Author: Lincoln

Platforms and Bet-Your-Business Decisions

Mon, 26 Jan 2009 14:00:09 -0600

Sixteen Ventures does not generally recommend technology to our clients. The technologies used by our clients should ultimately be determined by the delivery method (on-premises, on-demand/SaaS, etc.) dictated by the market, the resources they have available, etc. However, being in the business of software, there are some high-level recommendations we can make. Since we deal mostly with Software-as-a-Service startups these days, one of the major considerations our clients must face is whether to leverage a Platform-as-a-Service or to manage the infrastructure (or Cloud Computing resources) directly. That is not a decision that can or should be rushed into.

However, it is critical to keep in mind that choosing a platform can be a "Bet-your-business decision" and you better be on the winning side.

When choosing a platform to build, deploy, and deliver the application to your clients, the following are just a few things to very carefully consider:

Vendor Lock-in: how open is their system? what are the barriers to entry/exit? What kind of ramp-up time will my resources need? Do they leverage open technologies? Do they have proprietary programming languages or APIs that must be used?
Sustainability: Are they well funded? What is their burn-rate/runway? Do they have other paying customers?
Flexibility: Will the PaaS meet your needs after version 1.0 or will you need to change? Does their roadmap match yours?
Track record: Do they have any history to learn from? Have they learned from their past mistakes? Do they provide visibility and alerts?
Service Level Agreements: What are their guarantees since these directly affect what guarantees you can provide your clients?
Terms of Service: Can they kick you off if they deem you competitive?

Again, this is a “bet-your-business” decision so be diligent in your research on where to host. If you choose a company that could go away soon, be sure to avoid vendor lock-in. If you aren't worried about that, you should be since it is obvious that no business is "too big to fail" anymore!

So the catalyst of this post is that according to Techcrunch, Coghead, an early player in the Platform-as-a-Service (PaaS) industry announced on February 19, 2009 that they are shutting their doors. For the past few weeks there were rumors that they were for sale, with one possible buyer being SAP (who previously invested in the company). While it is never a good thing to see a company fail, and we wish the founding team all the best on a valiant effort, it is one of the things you as a software entrepreneur must know is possible. Nobody likes to fail, or expects to fail, but if you learn from that failure, then it was at least worth something.

What can a software entrepreneur learn from the failure of Coghead? First of all, you can see that even a company that is relatively well capitalized (around $11M over the last couple of years according to Crunchbase) from strong Venture Capital and strategic investors can still fail. Money isn't everything. You can also see that just because you leverage "cloud computing" (Coghead ran on top of Amazon Web Services), you can still burn through money quickly.

The reality is we have no real visibility into what is going on internally at Coghead so other than guessing or rumors, we can't know. So the lessons learned, until more details come out publicly, must be those that apply directly to your software startup.

What this failure does is show that choosing a platform to build and run your pure-play Web or SaaS business is a decision that should not be taken lightly. The biggest problem with Coghead is that it was proprietary, so applications built on the platform are not easily portable to other environments. You might be able to extract your data, but it is true that often the context of data is at the application level. Even if no SaaS businesses were built on the Coghead platform and it was used entirely for one-off custom or departmental applications, the fact remains that those are not easily portable.

Most PaaS companies streamline the "on-boarding" process but, for obvious reasons, make the "off-boarding" process a bit more complex. Often this is not by design or for nefarious reasons, but rather it is not something they want to encourage or it is not a priority on which to focus their often limited resources. Additionally, it is difficult since, as mentioned above, often the "context" of the data is in the application so simply extracting it is not enough.

No matter what, just remember that there are many decisions that will be made during the early phases of your software startup that will help reduce failure and set the stage for success later. Be sure to check out the slides from the Anchorage "Start Smart" seminar as it outlines some of the other things you need to be aware of. For SaaS or pure-play Web businesses, choosing the platform to deploy and deliver your application is definitely one of the earlier "bet-your-business" decisions that must be made.

Seminar in Anchorage, Alaska on February 11

Mon, 26 Jan 2009 13:00:09 -0600

Sixteen Ventures, in conjunction with the University of Alaska Anchorage's Small Business Development Center is bringing our message to the Last Frontier! We are going to explore the software startup scene in Anchorage, Alaska and bring our message of how to build your software business the right way. Any entrepreneur exploring the possibility of starting a Software Venture in Anchorage should attend this seminar. And its FREE, so there are no excuses.

Seminar Title:

Start Smart Positioning Your Software Venture for Success

Seminar Description:

A Software Venture built on a weak foundation will most likely fail, or at least not reach its true potential. This seminar will show entrepreneurs looking to build a scalable, sustainable business around a Software Product, how to get started the right way and increase the chance of success.

In this seminar we will explore the source of the Software Product idea, discuss ways to determine if the idea is marketable, discover who will buy and how they will buy it, what they will pay, and even how you will build the product. Too often, software companies are started based on ideas that the founder has, and also too often, those same companies fail because the founder was wrong. Before you can build a successful company, you must build a successful foundation.

This seminar is part of Sixteen Venture’s goal to reduce the number of software startup failures. This seminar will change the way you approach your software venture, guaranteed.

Seminar Agenda:

2 hours

Pre-Game Prep (20 Mins)

Idea Due Diligence (30 Mins)

10 minute break/Q&A

Technical Resource Engagement (20 Mins)

Revenue Model (10 Mins)

Marketing Strategy (10 Mins)

Missing Pieces (10 Mins)

10 minute Q&A

Hope to see you there!

Alaska Seminar Report

Mon, 26 Jan 2009 13:00:09 -0600

The Start Smart seminar in Anchorage on Wednesday February 11, 2009 at the University of Alaska Anchorage Small Business Development Center was a fantastic success. The turnout included several entrepreneurs with great ideas for software ventures, all at various stages of development, and some folks from the investment side of things as well. Knowing that our seminar might be a catalyst for local investment by Alaskans in Alaskan companies and not just an educational event would be an even greater honor.

During the visit to Anchorage, we learned that software is one of the few products that can be manufactured there and exported at a reasonable cost. Other than oil, very few products are made in Alaska and exported due to the high cost of shipping. While it is true that software or other types of IP can be exported inexpensively, the fact is that local investors do not seem interested in anything "above the ground," preferring to invest in the proven Alaskan petroleum industry.

Further, for non-petroleum companies that do land investment, it is most often from investors outside of Alaska and the founder and their companies are often forced to move to be closer to the firm that invested. This is not unique to Alaska as this happens everywhere, including here in Dallas. This will continue to be a problem in places where there are more entrepreneurs than there are people (VCs, angels, etc.) to fund them. While an entrepreneur would love to be loyal to their hometown, ultimately it comes down to money and they go where the money is.

Anchorage, luckily, has some very driven entrepreneurs and "venture catalysts" helping to bring together the local investors and the entrepreneurs. The type of seminar we did there really helps set the expectations of the entrepreneur and helps them understand what investors, whether in Alaska or not, are looking for when you come to them for investment. Knowing how to "Start Smart" is the key to having a successful venture regardless of your need for external funding. However, if you are seeking external funding, knowing the right things to do in starting your company is absolutely critical.

Hopefully we can go back to Anchorage and do this again to an even larger audience. We will also be bringing our "Start Smart" message to other cities in the very near future, including another one in Dallas later this month.

Here are the slides from the seminar:

Start Smart: Positioning Your Software Venture for Success

View more presentations from sixteenventures. (tags: software venture)

Two Goals: Reduce Failure, Increase Success

Wed, 21 Jan 2009 14:50:09 -0600

Sixteen Ventures was created to help founders of Startup Software companies do two things:

Reduce the chance of failure
Improve the chance of success

These two items are very different. Without first eliminating the mistakes that lead to failure early in the process, anything done to focus on success later in the process will ultimately be met with failure.

You can look at the first item, reducing the chances of failure, as building a building with bricks rather than a deck of cards. No matter how sturdy the building looks on the outside, if its foundation is paper thin, failure is not a matter of "if" but "when."

The main thing to remember is that your product must add value. If you cannot explain what value your product adds and to whom, you should really figure that out before you move any further. Once you know who and why, the next items to figure out are what and how... in other words, what will those users need and how will they buy it. The latter will decide both delivery model (deployed, SaaS, hybrid, etc.) and distribution model (direct, channels, etc.).

Last and certainly not least is the Revenue Model... how will your venture make money? It is critical to have some idea of this when building the product, and it is often only possible to fully extrapolate the revenue points after the vision has been documented and vetted with market representatives. Therefore, skipping the process of detailing the vision (drawing screens, doing workflows, etc.) and moving right to building the product will end up costing you money down the road. This could be a direct cost by having to re-write the software to fit the correct revenue model or it might be indirect through lost revenue from the poorly designed product.

By simply exploring all of those options prior to building a product and "going to market" the chances of failure have been greatly reduced. There are no guarantees on the upside; even if you do everything possible to reduce the chance of failure, the venture still might not succeed. However, it is possible to eliminate mistakes that have certain failure written all over them.

Now it is time to build on that foundation and seek out Success Strategies for step two.