7 Saas Revenue Streams inFOCUS

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SaaS is not a Revenue Model or Pricing Strategy!

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7 Saas Revenue Streams inFOCUS

  1. 1. Draft 2 SaaS Revenue Modeling: Details of the 7 Revenue Streams http://saasrevenue.com Copyright© 2009 Sixteen Ventures / Lincoln Murphy. All Rights Reserved
  2. 2. SaaS is not a Revenue Model or Pricing Strategy! Monthly SaaS Subscriptions If you only leverage “subscriptions” you are leaving money on the table http://saasrevenue.com Copyright© 2009 Sixteen Ventures / Lincoln Murphy. All Rights Reserved
  3. 3. The goals in SaaS are different than in Legacy Software Producers Scalable Revenue Streams Consumers Understanding why* allows for proper Revenue Modeling *business scalability, increased CLV, leveraging multi-tenancy, etc. http://saasrevenue.com Copyright© 2009 Sixteen Ventures / Lincoln Murphy. All Rights Reserved
  4. 4. Pricing Strategy must be decoupled from Revenue Streams Revenue Model Pricing Strategy Decouple Pricing Strategy is applied to Revenue Model http://saasrevenue.com Copyright© 2009 Sixteen Ventures / Lincoln Murphy. All Rights Reserved
  5. 5. Architecture Marketing Revenue Model Pricing Strategy Decouple Understand where each piece fits into the overall SaaS Business Architecture http://saasrevenue.com Copyright© 2009 Sixteen Ventures / Lincoln Murphy. All Rights Reserved
  6. 6. How can you apply Pricing Strategy without knowing what Revenue Streams you’ll leverage? Revenue Model Pricing Strategy Decouple Use Pricing Strategy to drive users to Scalable Revenue Streams http://saasrevenue.com Copyright© 2009 Sixteen Ventures / Lincoln Murphy. All Rights Reserved
  7. 7. Legacy Software Customers Developers Channels Three basic elements http://saasrevenue.com Copyright© 2009 Sixteen Ventures / Lincoln Murphy. All Rights Reserved
  8. 8. Software-as-a-Service (SaaS) Customers Developers Channels Same elements http://saasrevenue.com Copyright© 2009 Sixteen Ventures / Lincoln Murphy. All Rights Reserved
  9. 9. Software-as-a-Service (SaaS) Producers Consumers Ecosystem Different approach http://saasrevenue.com Copyright© 2009 Sixteen Ventures / Lincoln Murphy. All Rights Reserved
  10. 10. Software-as-a-Service (SaaS) Producers Consumers Network Effect Ecosystem Very different approach http://saasrevenue.com Copyright© 2009 Sixteen Ventures / Lincoln Murphy. All Rights Reserved
  11. 11. Software-as-a-Service (SaaS) Producers Consumers Network Effect Key differentiators Ecosystem http://saasrevenue.com Copyright© 2009 Sixteen Ventures / Lincoln Murphy. All Rights Reserved
  12. 12. Legacy Software Business Structure Intellectual Marketing Property Business Technology Model Loosely-coupled, at best http://saasrevenue.com Copyright© 2009 Sixteen Ventures / Lincoln Murphy. All Rights Reserved
  13. 13. SaaS Business Architecture Intellectual Marketing Property Network Centricity Technology Business Model All aspects are tightly coupled http://saasrevenue.com Copyright© 2009 Sixteen Ventures / Lincoln Murphy. All Rights Reserved
  14. 14. Revenue Model Marketing Intellectual Property Network Revenue Centricity Model Business Technology Model Business Model contains Revenue Model http://saasrevenue.com Copyright© 2009 Sixteen Ventures / Lincoln Murphy. All Rights Reserved
  15. 15. Revenue Streams Products Subscriptions Ecosystem Revenue Network Model Effect Services Advertising Ancillary Revenue Model consists of Revenue Streams http://saasrevenue.com Copyright© 2009 Sixteen Ventures / Lincoln Murphy. All Rights Reserved
  16. 16. 7 SaaS Revenue Streams Products Subscriptions Ecosystem Network Effect Services Advertising Ancillary http://saasrevenue.com Copyright© 2009 Sixteen Ventures / Lincoln Murphy. All Rights Reserved
  17. 17. Less Scalable Revenue Streams Products Subscriptions Ecosystem Network Effect Services Advertising Ancillary http://saasrevenue.com Copyright© 2009 Sixteen Ventures / Lincoln Murphy. All Rights Reserved
  18. 18. Scalable Revenue Streams Products Subscriptions Ecosystem Network Effect Services Advertising Ancillary http://saasrevenue.com Copyright© 2009 Sixteen Ventures / Lincoln Murphy. All Rights Reserved
  19. 19. Revenue Metrics Modules Users Storage CPU Units Reports Products Transactions Files etc. Metrics Subscriptions Ecosystem Network Effect Metrics are built into the application Services Advertising Ancillary Each revenue stream contains metrics http://saasrevenue.com Copyright© 2009 Sixteen Ventures / Lincoln Murphy. All Rights Reserved
  20. 20. Revenue Metrics Metrics Pricing Bundle #1 Pricing Bundle #2 Pricing Bundle #3 Modules Users Storage Modules Users Storage Modules Users Storage CPU Units Reports CPU Units Reports CPU Units Reports Transactions Files etc. Transactions Files etc. Transactions Files etc. Metrics from any or all revenue streams that are represented in the application are bundled during Pricing Strategy based on marketing goals http://saasrevenue.com Copyright© 2009 Sixteen Ventures / Lincoln Murphy. All Rights Reserved
  21. 21. Revenue Metrics Metrics Different bundles for different markets Pricing Bundle #1 Pricing Bundle #2 Pricing Bundle #3 Modules Users Storage Modules Users Storage Modules Users Storage CPU Units Reports CPU Units Reports CPU Units Reports Transactions Files etc. Transactions Files etc. Transactions Files etc. Decoupling Revenue Model & Pricing Strategy improves flexibility and allows pricing to be aligned with market requirements; critical when entering adjacent markets http://saasrevenue.com Copyright© 2009 Sixteen Ventures / Lincoln Murphy. All Rights Reserved
  22. 22. Revenue Metrics Metrics Different bundles for different markets Pricing Bundle #1 Pricing Bundle #2 Pricing Bundle #3 Modules Users Storage Modules Users Storage Modules Users Storage CPU Units Reports CPU Units Reports CPU Units Reports Transactions Files etc. Transactions Files etc. Transactions Files etc. But what are these metrics? How are the pricing bundles determined? http://saasrevenue.com Copyright© 2009 Sixteen Ventures / Lincoln Murphy. All Rights Reserved
  23. 23. Key Concepts in SaaS Business Architecture Move any repeatable SaaS is about Rules, processes common to not Exceptions all clients into the SaaS application Critical to focus as Be aware of all much on revenue revenue streams when streams beyond the architecting system application as within even if they will only the core product be used in the future http://saasrevenue.com Copyright© 2009 Sixteen Ventures / Lincoln Murphy. All Rights Reserved
  24. 24. Revenue Stream Scalability Index Symbol Definition Scalable Revenue Stream Less-scalable Revenue Stream Not Scalable in most cases http://saasrevenue.com Copyright© 2009 Sixteen Ventures / Lincoln Murphy. All Rights Reserved
  25. 25. Products Subscriptions Subscriptions Ecosystem Network Pros Cons Effect Services Advertising Ancillary 1-Infinity Scaling Revenue Recognition Captive Audience for upsell High initial CAC -Examples - Per User, Per Month Churn / Customer Recurring Revenue Per Transaction Retention Usage-based Capacity-based Flexibility in pricing for No large up-front payments different markets Pre-paid Credits Downside guarantee on Cannot be idle; must focus CLTV on CLTV/ARPU growth http://saasrevenue.com Copyright© 2009 Sixteen Ventures / Lincoln Murphy. All Rights Reserved
  26. 26. Products Ecosystem Subscriptions Ecosystem Network Effect Services Advertising Ancillary Pros Cons Unwanted 1-Infinity Scaling interdependencies can grow if unchecked -Examples - Affiliate Sales Improved value for Lack of visibility into value APIs ecosystem partners chain for clients White Label Licensing Channels Need to market to end- Exposure to ancillary & users to create demand in adjacent markets front of channel partners http://saasrevenue.com Copyright© 2009 Sixteen Ventures / Lincoln Murphy. All Rights Reserved
  27. 27. Products Ancillary Subscriptions Ecosystem Network Effect Services Advertising Pros Cons Ancillary Some options are complex Super margins and not applicable early Overuse of add-on “fees” Often not tied to any -Examples - can hurt other revenue underlying cost Processing Fees streams Setup Fees Discounts / Float are tied Other Fees directly to the proxy You can really turn away Discounts nature of the SaaS vendor clients by nickel & diming Float in a Multi-tent clients with fees that have environment and have no no underlying value direct exposure to the associated with them clients http://saasrevenue.com Copyright© 2009 Sixteen Ventures / Lincoln Murphy. All Rights Reserved
  28. 28. Products Network Effect Subscriptions Ecosystem Network Effect Services Advertising Pros Cons Ancillary Fully leverages data collected in Privacy concerns require multi-tenant environment disclosure of intentions by vendor Requires planning up front an An asset that increases -Examples - exponentially in value as usage of execution early on data collection Anonymized/ otherwise value is lost until the system grows linearly capture begins Aggregate Data Reports Leverage ecosystem partners to Vendor must be diligent in Benchmarks develop reports or add value to adhering to regulations, data through APIs governance, and privacy laws APIs Careful planning to determine Does not require a “critical mass” when network effect data of users as many think for becomes valuable & to whom network effect data to be valuable required http://saasrevenue.com Copyright© 2009 Sixteen Ventures / Lincoln Murphy. All Rights Reserved
  29. 29. Products Products Subscriptions Ecosystem Network Effect Services Advertising Pros Cons Ancillary Can be high margin Requires capital to produce Can produce vendor lock-in 1-1 or 1-few on each transaction -Examples - Equipment Can develop ancillary revenue Devices Support costs are high streams Appliances Logistics, supply chain Hardware Will improve value of Network management, returns, support, Effect Data through automation etc. add to overhead in dealing with hardware Inbuilt support for channel relationships can allow the Installation & support are difficult hardware partner to integrate (OEM) the product w/SaaS http://saasrevenue.com Copyright© 2009 Sixteen Ventures / Lincoln Murphy. All Rights Reserved
  30. 30. Products Services Subscriptions Ecosystem Network Effect Services Advertising Pros Cons Ancillary Core-competency for professional services companies moving to 1-1 or 1-few SaaS High price Exception, not rule-based -Examples - Programming Human-centric and humans don’t Often high-margin Installation scale efficiently Content Creation Training When more repeatable processes are inbuilt to SaaS application, Takes away resources from more services in less demand, but can working on more scalable revenue be more expensive since they are streams more specialized http://saasrevenue.com Copyright© 2009 Sixteen Ventures / Lincoln Murphy. All Rights Reserved
  31. 31. Products Advertising Subscriptions Ecosystem Network Effect Services Advertising Pros Cons (mostly tongue-in-cheek) (all serious) Ancillary You don’t have to convince people Ads for SaaS products are part of that your product has value a hope-based strategy -Examples - You don’t have to manage cash De-values core product Contextual flow Pay-per-click Ad Networks Clients don’t have to pay you to Difficult to plan and forecast sales Text use the product you built (impressions? clicks?) Display There are close to 3B sets of Too much inventory (each screen) eyeballs, if you only get 1% of and not enough demand those to click... http://saasrevenue.com Copyright© 2009 Sixteen Ventures / Lincoln Murphy. All Rights Reserved
  32. 32. Follow @lincolnmurphy on Twitter Share this with your colleagues, too: Twitter LinkedIn Facebook If this is a SaaS Revenue Model emergency put down the mouse and call us: (972) 200-9317 http://saasrevenue.com

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