7 Saas Revenue Streams
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7 Saas Revenue Streams

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How to use all the SaaS revenue streams, as a start-up, to your advantage in the marketplace.

How to use all the SaaS revenue streams, as a start-up, to your advantage in the marketplace.

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    7 Saas Revenue Streams 7 Saas Revenue Streams Presentation Transcript

    • Draft 03/10 SaaS Revenue Modeling: Details of the 7 Revenue Streams http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved
    • Legacy Software Customers Developers Channels Three basic elements http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved
    • Software-as-a-Service (SaaS) Customers Developers Channels Same elements http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved
    • Software-as-a-Service (SaaS) Producers Consumers Ecosystem Different approach http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved
    • Software-as-a-Service (SaaS) Producers Consumers Network Effect Ecosystem Very different approach http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved
    • Software-as-a-Service (SaaS) Producers Consumers Network Effect Key differentiators Ecosystem http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved
    • The goals for a SaaS vendor should be different than a Legacy Software vendor Producers Scalable Revenue Streams Consumers Understanding why* allows for proper Revenue Modeling *business scalability, increased CLV, leveraging multi-tenancy, etc. http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved
    • Legacy Software Business Structure Intellectual Marketing Property Technology Revenue Model Loosely-coupled, at best http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved
    • SaaS Business Architecture Intellectual Marketing Property Network Centricity Revenue Technology Model All aspects are tightly coupled http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved
    • Revenue Model Products Marketing Intellectual Property Recurring Ecosystem Network Network Centricity Effect Services Advertising Technology Revenue Model Ancillary Revenue Model consists of Revenue Streams http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved
    • SaaS is not a Revenue Model or Pricing Strategy! SaaS ≠ Monthly Subscriptions If you only leverage “subscriptions” you are leaving money on the table http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved
    • Architecture Marketing Revenue Pricing separate Model Strategy Understand where each piece fits into the overall SaaS Business Architecture http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved
    • Pricing Strategy must be separated from Revenue Streams Revenue Pricing separate Model Strategy Pricing Strategy is applied to customer-facing portions of the Revenue Model http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved
    • How can you apply Pricing Strategy without knowing what Revenue Streams you’ll leverage? Revenue Pricing separate Model Strategy Use Pricing Strategy to drive users to Scalable Revenue Streams http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved
    • Agile Revenue Generation is key... Architecture Marketing Revenue Pricing separate Model Strategy Revenue Model + Vertical Specific Pricing = Agility http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved
    • 7 SaaS Revenue Streams Products Recurring Ecosystem Network Effect Services Advertising Ancillary http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved
    • Less Scalable Revenue Streams Products Recurring Ecosystem Network Effect Services Advertising Ancillary http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved
    • Scalable Revenue Streams Products Recurring Ecosystem Network Effect Services Advertising Ancillary http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved
    • Traditional Marketing Mix Revenue Intellectual Model Property Product Price Network Centricity Marketing Mix Technology Marketing Place Promotion Price is a function of Marketing, which is applied to in-built Revenue Models http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved
    • Revenue Metrics Modules Users Storage CPU Units Reports Products Transactions Files etc. Metrics Recurring Ecosystem Network Effect Services Advertising In SaaS, metrics are built into the application; This is a key differentiator from Legacy or ASP Models Ancillary Each revenue stream contains metrics http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved
    • 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, along with timeframes (monthly, annual, etc.), during Pricing Strategy based on marketing goals http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved
    • Revenue Metrics Metrics Different bundles for different market segments 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. Separating Revenue Model & Pricing Strategy improves agility and allows pricing to be aligned with market requirements; critical when tightly focusing on a target market segment or when entering adjacent markets http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved
    • 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? These are tied to your company and your market! http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved
    • Key Concepts in SaaS Revenue Modeling 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 revenue much on 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://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved
    • Revenue Stream Scalability Index Symbol Definition Scalable Revenue Stream Less-scalable Revenue Stream Not Scalable in most cases Scalability refers to margins per revenue stream; the more a revenue stream can benefit from economies of scale & improve margins with growth, the more “scalable” the revenue stream. Its not possible to eliminate all of the non-scalable streams (nor should you), but their value should be improved and the price charged should reflect that. http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved
    • Products Recurring Recurring Ecosystem Network Pros Cons Effect Services Advertising Ancillary 1-Infinity Scaling Revenue Recognition -Examples - Captive Audience for upsell High initial CAC Subscriptions Per User, Per Churn / Customer Predictable revenue stream Month Retention Per Transaction Flexibility in pricing for Usage-based different markets No large up-front payments Capacity-based Pre-paid Credits Downside guarantee on Cannot be idle; must focus CLTV on CLTV/ARPU growth http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved
    • Products Ecosystem Recurring Ecosystem Network Effect Services Advertising Ancillary Pros Cons Unwanted 1-Infinity Scaling interdependencies can -Examples - grow if unchecked Affiliate Sales Improved value for Lack of visibility into value Channels ecosystem partners chain for clients APIs White Label Exposure to ancillary & Need to market to end- Licensing users to create demand in adjacent markets front of channel partners http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved
    • Products Ancillary Recurring Ecosystem Network Effect Services Advertising Pros Cons Ancillary Some options are complex Super margins and not applicable early Overuse of add-on “fees” -Examples - Often not tied to any 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 in a Multi-tent them with fees that have Float environment and have no no underlying value direct exposure to the associated with them clients http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved
    • Products Network Effect Recurring Ecosystem Network Effect Pros Cons Services Advertising Ancillary Fully leverages data collected in Privacy concerns require multi-tenant environment disclosure of intentions by vendor -Examples - An asset that increases Requires planning up front an execution early on data collection Anonymized/ exponentially in value as usage of otherwise value is lost until the system grows linearly Aggregate Data capture begins Reports Leverage ecosystem partners to develop reports or add value to Vendor must be diligent in adhering to regulations, Benchmarks data through APIs governance, and privacy laws APIs Does not require a “critical mass” Careful planning to determine when network effect data of users as many think for becomes valuable & to whom network effect data to be valuable required http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved
    • Products Products Recurring Ecosystem Network Pros Cons Effect Services Advertising Ancillary Can be high margin Requires capital to produce Can produce vendor lock-in 1-1 or 1-few on each transaction -Examples - Can develop ancillary revenue Support costs are high Equipment streams Logistics, supply chain Devices Will improve value of Network management, returns, support, Appliances Effect Data through automation etc. add to overhead in dealing with hardware Hardware Inbuilt support for channel relationships can allow the Installation & support are difficult hardware partner to integrate (OEM) the product w/SaaS http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved
    • Products Services Recurring Ecosystem Network Effect Pros Cons Services Advertising Ancillary Core-competency for professional services companies moving to 1-1 or 1-few SaaS -Examples - High price Exception, not rule-based Programming Installation Often high-margin Human-centric and humans don’t scale efficiently Content Creation When more repeatable processes are inbuilt to SaaS application, Takes away resources from more Training services in less demand, but can working on more scalable revenue be more expensive since they are streams more specialized http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved
    • Products Advertising Recurring Ecosystem Network Effect Pros Cons Services Advertising (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 Ads only work when they You don’t have to manage cash are the main revenue De-values core product flow stream and not an afterthought. When ads work, the main customers Clients don’t have to pay you to Difficult to plan and forecast sales of the company are the use the product you built (impressions? clicks?) advertisers and the revenue generated is part of the There are close to 3B sets of Too much inventory (each screen) recurring revenue stream eyeballs, if you only get 1% of and not enough demand those to click... http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved
    • Wait... what about Free? If you have to ask... Download the Reality of Freemium in SaaS paper (PDF) today! http://saasrevenue.com Copyright© 2009 Sixteen Ventures / Lincoln Murphy. All Rights Reserved
    • Appendix A: Case Studies in SaaS Network Effect & Ecosystem Revenue Modeling http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved
    • SaaS Case Studies SaaS Product Description of the SaaS offering End-Customer Description of the SaaS vendor’s end-customer Who did the end-customer buy from, listen to, etc. that the End-Customer’s SaaS vendor could leverage, and help, in an effort to secure the Trusted Advisors end-customer relationship What benefits the clients derived from the network centricity Network Effect of the SaaS solution, including aggregate data How the Vendor derived value from, and added value to, its Ecosystem ecosystem, including VARs, SIs, Distributors, etc. Revenue Streams How the Vendor makes money http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved
    • SaaS Case Study #1 - SCM/EDI Vendor SaaS Product Retail Supply Chain / EDI End-Customer Small to Medium Consumer Packaged Goods manufacturer •Big Box Retailers End-Customer’s •Freight Brokers Trusted Advisors •Third-party Logistics Providers •Manufacturers reps Benchmarks on retail category performance available to all of Network Effect the end-customers’ Trusted Advisors Pre-built EDI maps, access to discounted & expedited shipping, Ecosystem visibility for intermediaries and interested parties Recurring (monthly & per-transaction), Ecosystem, Network Revenue Streams Effect Data, Services http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved
    • SaaS Case Study #2 - Pharmaceutical Distributor Vendor Managed Inventory Control System (internal product SaaS Product re-architected & exposed as SaaS) End-Customer Fragmented network of small independent pharmacies •Pharma Distributor that created the SaaS product End-Customer’s •Industry Association Trusted Advisors •Product Suppliers (whom the Distributor buys from; value- pull) Sophisticated inventory system allows distributor to aggregate Network Effect order history and current inventory for all pharmacies Use aggregate data to predict restocks, share that w/ vendor Ecosystem to get better terms for the pharmacy client Ancillary (float interest), Ecosystem (distributor commissions), Revenue Streams improved margins), Network Effect Data (suppliers pay), Services, Products (hardware device) http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved
    • SaaS Case Study #3 - Healthcare Revenue Cycle Mgmt SaaS Product Revenue Cycle Management End-Customer Fragmented network of small independent hospitals •Hospital Industry Associations End-Customer’s •Independent Consulting Firms Trusted Advisors •Complementary Software Vendors •Insurance companies and Government Payors Revenue & Collection Benchmarks against similar-sized Network Effect Hospitals (per-bed) Medicare, Medicaid, and Commercial Payer clearinghouse, Ecosystem Channel partners (visibility into their customers’ usage of system) Recurring (per-transaction, % collected), Ecosystem, Network Revenue Streams Effect Data, Services, Products http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved
    • SaaS Case Study #4 - Restaurant Menu Management SaaS Product Managed Care Menu Management (ancillary market) End-Customer Small Assisted Living Facilities End-Customer’s •Food Distributors Trusted Advisors •Industry Association •Assisted Living Management Companies Aggregate menu item usage data to help negotiate better deals Network Effect for end-clients (through channel partners where applicable) Directly monetized relationship with Food Distributor Ecosystem (channel) to salvage unprofitable existing relationship w/o getting in front of partner or negatively affecting end-client Recurring (Annual per-location), Ecosystem (Distributor Revenue Streams visibility), Network Effect Data, Services, Products http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved
    • SaaS Case Study #5 - Mail Center Management SaaS Product Mail Center Management & Package Tracking End-Customer Large Corporate & Fortune 500 mailrooms •Mailing Industry Associations End-Customer’s •Shipping Carrier Auditors Trusted Advisors •Industry Consultants •Complementary Software and Hardware Vendors Most Mail Center managers are in a position to justify their existence so benchmarks against other Mail Centers helped Network Effect prove operational efficiency, Complementary vendors and industry associations found data useful, too shipment tracking, spend management & procurement, carrier Ecosystem audits Recurring (per-transaction), Ancillary (carrier audits), Revenue Streams Ecosystem, Network Effect http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved
    • SaaS Case Study #6 - Treasury Management SaaS Product Treasury & Cash Management End-Customer Large Corporate & Fortune 500 mailrooms •Industry Associations End-Customer’s •Anti-Money Laundering Groups Trusted Advisors •Banks •Consultants Aggregation of transactional details across industries, locales, Network Effect etc. Benchmarks on interest, float, sweeps, etc. against similar industries Anonymous Aggregated (A/A) data used by Anti-Money Laundering groups to “teach” their software patterns, Banks Ecosystem and Consultants leverage A/A of their clients & others in the system to judge performance and offer guidance, upsell, etc. Recurring (per user, per-transaction), Ancillary (float, Revenue Streams brokerage/forex commissions), Ecosystem, Network Effect Data http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved
    • SaaS Case Study #7 - Bank Spend Management SaaS Product Bank Spend Management End-Customer Local and Regional Banks & Credit Unions •Industry associations End-Customer’s •Local & Regional Printing Companies Trusted Advisors •Complementary Software Vendors •Office Supply vendors Aggregate orders across bank branches allows vendors to aggregate order history and current inventory for customers, Network Effect customers get group purchasing power through aggregation under one SaaS vendor in addition to core product value Office Supply vendors gain visibility into the buying behavior of specific target market, complementary software vendors gain Ecosystem visiblity into transaction history of customers for inclusion in their product Recurring (per branch, vendor visibility), Ancillary, Ecosystem Revenue Streams (vendor commissions, API), Network Effect http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved
    • Appendix B: Seven SaaS Revenue Streams Worksheet http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved
    • http://sixteenventures.com Seven Revenue Streams Worksheet Consumers Original Other Stand-Alone Producers Producers Consumers Recurring Ecosystem Network Effect Ancillary Products Services Advertising Copyright© 2010 Sixteen Ventures. All Rights Reserved
    • Follow @lincolnmurphy on Twitter Share this with your colleagues, too: Twitter LinkedIn Facebook If you need help with your Revenue Model, Pricing Strategy, Distribution or other SaaS Business Strategy issues contact Sixteen Ventures and get started today! (972) 200-9317 http://saasrevenue.com