Increasing customer stickiness

In my blog on SaaS challenges, i had mentioned that one of the key challenges that ISVs face today is "Customer Retention". Lets look at some of the possible ways to retain customers

1. Provide some on-premise features like backup of critical data
2. Provide capabilities for the customers to integrate their application / data with your hosted product. Today we are seeing on-demand integration products from BridgeWerx and Informatica which would help you to do this.
3. Usability is a key aspect, customer should find it very intuitive to use your service. Google bosts of a simple user interface as one of the reason why it is able to retain and attract customers
4. Expose all your features also through well documented web-services
5. Provide confidence to the customer about the quality of your service by providing rich SLA's
6. Instill confidence in him that he will be able to leave you at any point of time by providing a transition path as a part of contract
7. Provide a platform for him to extend your features
8. Make your application truly multitenant and ensure that the application has high responsiveness in the order of milli-seconds
9. Make the application easily customizable through meta-data.
10. Last but not the least, price it attractively for the customer, be more innovative than the user/month pricing model

There is still a lot more to this list.

Technorati tags: SaaS, Software as a Service

A Critical view on SFDC acquisition of Kieden

In my post The Power of App Exchange I had covered about the positive aspects of the acquisition of Kieden by Salesforce. On a second thought, i think that Salesforce as a platform provider should not have done this. As a platform provider people expect Salesforce to be neutral with all its partners. Assuming there is one more competing application (to Kieden) hosted on Salesforce.com, by this acquisition salesforce will almost kill that product. Appexchange was created for partners to build complimentary applications to Salesforce's CRM application (and now extended to ISV's through their OEM edition), partners have spent time and effort in innovating such complimentary services. Assuming salesforce builds/acquires some of these services into its application natively, the partners will be forced to sell their services against SFDC's services, which will be impossible. I think its time that Marc Benioff recognizes the potential of the platform and eco system he has built and not try to destroy it.

Technorati tags: Salesforce.com, SFDC, Kieden, Marc Benioff, AppExchange

Mashup between Business Services and SaaS

Business Services and SaaS are complimentary services. Business Services could be the next logical step for a SaaS company once the revenue opportunity plateaus.

The recent intended acquisition of Employee Ease (A SaaS provider for HR apps) by ADP (A business services company in HR space)is a significant move in this area. There is a good opportunity for increasing revenue from existing customers by providing complimentary services.

Its time that offshore BPO's in India also look in similar lines by extending their outsourced BPO services with SaaS capabilities, using which they can provide better value to the customers and hence increase their revenue potential and also will help them to productize their service offerings.

Technorati tags: Employee ease, ADP, offshore BPO

The power of App Exchange

Salesforce announced that they are acquiring Kieden, company which has a product to measure the effectiveness of  search engine marketing (Google). The software is hosted on App Exchange and the company is just 9 months old with around 45 customers. This acquisition might be the begining of a new trend where salesforce could acquire few of its appexchange partners to extend the feature of SFDC's CRM application. This is a tremendous motivations for smaller web 2.0 companies to create powerful mashups in App exchange platform and become acquisition targets for Salesforce.

Technorati tags: Salesforce.com, SFDC, Kieden, Search engine Marketing

SaaS Challenges

In the previous post, I had written about some of the benefits of SaaS. This post I will cover some of the challenges (as on date) associated with this model.

Challenges to ISV's

Revenue model: Revenue for a SaaS application is based on subscription or pay-as-you-go. By adopting to such a pricing model, It will take longer time for companies to break even than a on-premise software where couple of big deals will help them break even. Convincing the investors for a delayed but a sustained cash flow is a challenge (some good success stories like salesforce.com has helped to remove this inhibition).

Building the right Architecture: Building a service oriented, single instance multi-tenant application is a key to be successful. Unless the application is efficient for multi-tenant delivery, it cannot scale up and the optimization points will be limited. This will have an impact on the cost and subsequently in the price of the application.

Customer Retention: There is no lock-in for the customer in this model. Whenever the customer wants to use an alternate service provider, he can do it very easily, there is no/less switching cost. It is very important to keep the customer happy by introducing new services, increased usability, application performance and availability.

Sales channels: Still there is no clear definition on how VARs, SI's will have a role to play in this model. The sales channel is still not well defined and not perfected for better output.

Challenges to Customers

Security: One of the major concern for enterprise customer is Security. IT organizations still prefer to have control over most of their critical data. A few service providers are allowing customers to take on-premise backup of their critical data. This might be the way to go forward for critical business applications.

Loosely defined SLAs: Not many of the major SaaS provider have concrete SLA's . Also, when new applications are built by aggregating multiple services (from multiple providers), it will become difficult to have a single unified SLA across these service. Service providers delivering such composite applications are also limited as of now.

Re-aligning the IT organizations: Traditionally IT organizations have been actively involved in any software buying decisions. Now in the new model, people think that IT department is no longer required in the purchasing decisions, which might not be a right thing to do, as still they own substantial amount of software run in-house and there is a lot of integration needs between on-demand and on-premise software. A new definition of IT organizations role needs to be created.

Integration with Legacy application: Companies have already been used to the benefits of data integration and SOA. There are very few infrastructure tools available today to integrate on-demand solution and on-premise solution. Of-late we see a few solutions being created to address this space like Informatica on-demand for data integration and BridgeWerx Business Integrator for integrating on-demand and on-premise applications. Service providers should start supporting such tools in the future to increase adoption rates

The challenges doesn't end here, but the post does. If you feel that I have missed a few things, please add them in your comments.

Technorati Tags: SaaS, Software as a Service, Salesforce, SaaS Challenges, BridgeWerx, Informatica

Benefits of SaaS

This post covers what I promised before - benefits and challenges in SaaS. Let’s start with good things first and look at the benefits of this model.

Benefits to ISVs

1. Revenue is stable and is not driven by new releases
2. Since the services and products are marketed and sold via internet (search engine based marketing, aggregators like JSDN), the entry cost for ISV’s is less (except for the infrastructure to deliver the service, where the ISV’s has options of partnering with specialist and pay them also in a subscription / usage based model). Allows entrants to compete with biggies.
3. Its easy to get your customer – customers will be willing to try and adapt your services at a faster rate than the traditional software as their entry cost is low.
4. Better knowledge of the customer - Vendor gets immediate and elaborate feedback on the way his application is used by the customer. Such information helps the vendors to understand and provide what the customer is looking for proactively.
5. No need to maintain multiple version of the product on multiple environments
6. Distribution of upgrades is not painful
7. Options for new revenue streams around infrastructure, complimentary software and other service offerings especially BPO

Benefits to Customers

1. Pricing is based on subscription / value based (My colleague Sagar is writing a blog on Software Marketing. He has posted an interesting article on software pricing, if you are interested to read more click here). Hence the customer need not pay any upfront license cost and rather align his cost with his annual budgets.
2. Less impact in IT: As there are no deployment and implementation needs, there is less impact in the IT infrastructure and support. .
3. Quick and Reliable implementation
4. Rollout the solution before buying – all services provide an extensive trial period where in the organization can rollout a solution and test them in real-life scenario before buying
5. No lock-in - Customers have the option of breaking the relationship and moving to a different vendor. Since there is no upfront cost and the cost is primarily subscription based, if they find a better service or low cost they can always move
6. No need to pay for bugs in the application – traditionally the customers after paying for the software, also pays for the bugs in the software in terms of maintenance and support fees. In the new model the cost of hosting, maintenance and licensing are not separated, customer only pays a fixed subscription fees.
7. This new model has created a level playing field, in which the software tools which were traditionally available only to big players (reason being huge License cost, lack of IT support and infrastructure) is now available for SMB’s too

I will stop here for this post. We will look at challenges later. In the mean time if you feel that we can cover some specific topics in SaaS, do let me know.

Technorati Tags: SaaS, Software as a Service, JSDN, Benefits of SaaS