Making the SaaS model work for you as a vendor

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By Leo Valiquette

“Software as a service (SaaS, typically pronounced [sæs]), sometimes referred to as ‘software on demand,’ is software that is deployed over the Internet and/or is deployed to run behind a firewall on a local area network or personal computer. With SaaS, a provider licenses an application to customers either as a service on demand, through a subscription, in a ‘pay-as-you-go’ model, or (increasingly) at no charge when there is opportunity to generate revenue from streams other than the user, such as from advertisement or user list sales.”

Wikipedia

Offering customers this option versus the traditional model of selling boxes of CDs in shrink wrap is a “price of admission capability for software companies these days,” Rob Bell, director of service operation and corporate IT for Kinaxis, said at OCRI’s #smarTALKS event last night.

Bell was part of a panel that included Marc Brule, vice president of client services at Halogen Software, Aydin Mirzaee, co-CEO of ChideIT, and moderator Jeff Bennett, CEO and partner at ServiceVantage Corp. They discussed the transition from the industry’s traditional revenue model to a co-hosted SaaS model.

The key message? The SaaS model puts software vendors closer than ever before to the end users of their products. This is a paradigm shift that, perhaps paradoxically, creates fresh challenges and new ways to get it wrong even as it provides some distinct benefits for both users and vendors.

Here are the Top 10 takeaways from the discussion:

1. You can engage the end user at a client organization far easier than before as opposed to the traditional model, in which the client organization’s IT staff were often a barrier to entry, said Mirzaee. However, Brule added that at large corporations, the IT staff are still the gatekeepers who must be appeased, regardless of how the end users may be chomping at the bit.

2. Are you a low margin, high volume vendor? How about a high margin, low volume one? Maybe you’re somewhere in the middle. Regardless of where you fall on this spectrum, you must be prepared to meet customer’s expectations and be able to manage service and support in a way that will not kill your margins.

3. Regardless of how you respond to the previous point, the subscription model typical of SaaS has the benefit of smoothing out the peaks and valleys of revenue and cash flow. It is a far more regular and predictable model.

4. The vendor must regularly reach out to find new complimentary skill sets that will allow it to field a better SaaS product, said Brule. However, given how close the vendor is to the customer, it is better in the end to keep as much in house as possible. “No one is going to care about your customers as much as you do,” he said.

The one exception to this concerns security, said Bell. Engaging with third-party specialists is often the best way to test and ensure the integrity of your system against risk.

5. Word of mouth may represent your most powerful sales tool … and your greatest fear. This is particularly true in a high-volume, low-margin sales model, said Mirzaee.

6. Consider which model works best for your sales team. There are two sides to your sales effort — the hunters who secure new customers and the farmers who work to ensure existing customers renew or commit to an annual contract versus month to month. These two roles are better separated in a high-volume business, but may work better if combined in a low-volume business.

7. How do you maintain stickiness when it is so easy for the customer to “rip and replace” or when you are competing against giant vendors such as SAP or Oracle? Exceptional support and service is key, said Mirzaee. Another way is to maintain customer’s data, so that if they leave, they know their data is still there if they come back.

Also, add features and functionality to your product that make it an integral part of the client organization by supporting processes and departments other than its own core function, said Brule. Don’t design it to exist in a silo.

Lastly, and this comes back to the value of word of mouth, use existing customers as references to garner credibility, said Bell. Further to this, Bell emphasized the importance of staying in touch with customers and discussing the challenges they are facing. “Reach out to your customer on a regular basis,” he said. “Talking to them about what they are doing will tell if you are going to have a retention problem.”

8. Brule added that stickiness also starts at the outset of the customer relationship. At Halogen, nothing is sold without a training and implementation package to ensure full knowledge of the product is transferred to end users. This ensures the value of the product is realized by the customer and it doesn’t end up as shelfware.

9. When a customer does slip away, perform an exit interview. At Halogen, whenever a customer leaves, they get a call from the customer services group, said Brule. This can give telling insight into whether it was a shortcoming of the product that led to the loss of the customer, a shortcoming that could be addressed in future versions of the product.

10. Since the SaaS model puts the vendor so close to the customer, new iterations of the product can be implemented every few days with new features, functionality and bug fixes based on user feedback. But this also puts the onus on the vendor to be responsive and sympathize with where a customer is coming from. It is all part of the process of ensuring your product continues to evolve with the needs of the market.

“Treat every customer complaint or issue as an opportunity,” said Bell.

/// COMMENTS

2 Comments »
  • Marc Brûlé

    February 25, 2011 6:14 pm

    Thanks for a great recap Leo. I enjoyed participating in this talk and sharing Halogen’s perspective on how vendors can best meet customer needs when offering a SaaS model.

  • Leo

    February 26, 2011 10:53 am

    Thanks, Marc. It’s always all about the customer, isn’t it? As Eric Ries says, customer engagement minimizes your risk of total failure by checking your theories against reality.

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