Rackspace Feb 2010 with Text

How to Optimise Your SaaS Revenue Streams
Presented at Rackspace
SaaS and the Cloud 2010
London, 12th February, 2010
Copyright© 2010 Sixteen Ventures. All rights reserved.

Aim of Today
To help you make better revenue decisions
How did we get here from legacy?
What are the key differences in SaaS?
Revenue Streams available in SaaS
Better Revenue = More Profit
http://sixteenventures.com
Copyright© 2010 Sixteen Ventures. All Rights Reserved

Photo via caveman_92223

Who am I?
Justin Pirie
Blogger- This Week in SaaS
Community- Run the biggest in SaaS
Social Media- #3 in SaaS influence
Consultant- Specialise in SaaS product and market strategy

Why SaaS?
Richer user experience
Rapid implementation
Frequent cycles of innovation
Minimal upgrade hassles
Always on deployment
Subscription pricing
Scalability
Ray “R” Wang

But there’s a catch
Beware of the Recurring Revenue Mirage
It’s easy when you’ve had $120m in funding...
It’s a lot harder to acquire customers that people often think
It becomes the classic- market risk as opposed to technical risk

Image copyright Dru!

Making money in Legacy
It was easy:
Hire Programmers
Price it
Market it
Sell it
Receive large payments from customers

jo'nas

Revenue Model
Technology
Marketing
Intellectual Property
Legacy Software Business Architecture

Is Disconnected
Everything Siloed creating Value Separately
Little or no outward facing technology

Customers
Developers
Channels
Legacy Software Customer Ecosystem

Legacy Software Customer Ecosystem
Companies sold software primarily through traditional channels like Value Added Resellers (VAR’s)
VAR’s sold, installed and maintained the software for the end customer
Customers were disconnected from the Software Vendor

automatthias
akakumo

Customers
Developers
Channels?
SaaS Customer Ecosystem

The biggest change is that the web has become the de-facto delivery method for software
Channels haven’t gone- they’re just different
Key difference in SaaS is that Customers now produce data as well as consume it and developers produce software as well as consume customer data

bionicteaching

Bruce Tuten

Customers,
Producers
Developers,
Consumers
Channels,
Ecosystem

Customers,
Producers
Developers,
Consumers
Channels,
Ecosystem
Network
Effect

Network Effect
Is the KEY DIFFERENTIATOR for SaaS
Not just the “obvious benefits” listed before by Ray Wang- they can’t overcome satisfactorily the security, reliability, compliance, ROI arguments
Network Effects drive the true ROI of SaaS

Channels
Haven’t gone away completely- just are different
Value provided by traditional VAR’s is eroding
New type of Channel partner emerging who builds on the ecosystem, creating apps and widgets on your platform- Ecosystem

xetark

Revenue Model
Technology
Marketing

Legacy
Disconnected Business Architecture
Think Dilbert in Cubicles...

Network
Centricity
Revenue Model
Marketing
Technology
SaaS Business Architecture

Is Connected
If it’s disconnected, it fails.
Marketing has to talk to Sales who has to talk to Engineering who has to talk to IT.
Failure to connect leads to very public issues
Customer Acquisition Cost is the key indicator

Network
Centricity
Revenue
Model
Ecosystem
Advertising
Subscriptions
Products
Services
Ancillary
Marketing
Technology
SaaS Revenue Model
Network
Effect
Revenue Model made up of Revenue Streams

Subscriptions
Products
Advertising
Services
Ecosystem
Ancillary
7 SaaS Revenue Streams
Network
Effect

Products
Advertising
Services
Ecosystem
Ancillary
Subscriptions
Scalable Revenue Streams
Network
Effect

Subscriptions
Ecosystem
Ancillary
Products
Advertising
Services
Less Scalable Revenue Streams
Network
Effect

Products
Making Physical goods is hard...
You have to get every part of the process right!

jamesjyu

benchilada

mikebaird

mescon

kenjonbro

Example of Failure

Services
E.g. Consulting, Professional Services
Easy to do in small numbers
Hard to Scale

Amit Gupta

CharlesFred

albany_tim

At Scale
Everybody hates you (like SAP)
You become expensive (at least 3x cost of each person)
Questionable value if you’re delivering repeatable work that could be automated
Doesn’t sit well with the SaaS proposition

Advertising
Have you ever seen a beautiful SaaS app with great UX with Adwords?
Yes, Google Apps is cool
But Google has $25bn of revenue and $4bn of free cash flow a year, and they’re in the Advertising business- KEY DIFFERENCE

The idea that software on the Web is going to be largely funded by advertising is just so wrong-headed, I hardly know where to start.
Phil Waineright

Spiceworks
Is a great example of an Ad funded software company
They recognise what business they are in- Advertising
They have their own ad team and sell to their 125 customers- no adwords!
They have 850,000 users and have had $25m in Venture funding over last 5 years

Products
Advertising
Services
Ecosystem
Ancillary
Subscriptions
Scalable Revenue Streams
Network
Effect

Subscriptions
What can I say? The fundamental basis of SaaS
Truly Scalable Profitability

But Also Different
Recognise that there are also different types of subscription revenue:
Pay per use
Percentage
And others... The key is customers now transact through you- giving you opportunities to align payment and value

Ecosystem
Ecosystem creates lock in for your brand
Apps for the Apple iPhone- most successful consumer ecosystem to date
AppExchange for Salesforce- pre built integrations making it the de-facto CRM

Network Effect
The Key Differentiator between SaaS and legacy Software
@ray - the aggregated data aspect is often underplayed. To me there is the potential for that to have more value than the application itself.
Dennis Howlett

(c) computerworld

Ancillary
Don’t ignore other revenue opportunities
Setup Fees
Partnership Fees
Arbitrage opportunities

Subscriptions
Products
Advertising
Services
Ecosystem
Ancillary
7 SaaS Revenue Streams
Network
Effect

Network
Centricity
Revenue Model
Marketing
Technology

katerha

Multitenancy
A quick few thoughts
It’s not a technical argument
It’s a business architecture issue

Multi-Tenancy in SaaS - Single Instance for all Customers

Multi-Tenancy in SaaS - Its not just Customers!

jo'nas

Apple Photo via kylemay

SaaS Revenue Modeling &Business Architecture
+44 (0)7799 625 787
jp@justinpirie.com
http://justinpirie.com
@justinpirie

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Rackspace Feb 2010 with Text

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