How to Optimize Your SaaS Revenue Streams - Rackspace SaaS & Cloud 2010

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

Who am I?
• Justin Pirie
1.Blogger- This Week in SaaS
2.Community- Run the biggest in SaaS
3.Social Media- #3 in SaaS inﬂuence
4.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:
1. Hire Programmers
2. Price it
3. Market it
4. Sell it
5. Receive large payments from customers


jo'nas

Legacy Software Business Architecture

Intellectual
Marketing
Property

Revenue
Technology
Model


Legacy Software Business Architecture

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


Legacy Software Customer Ecosystem

Customers Developers

Channels


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

SaaS Customer Ecosystem

Customers Developers

Channels?


• 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, Developers,

Channels,



Customers, Developers,

Network
Effect

Channels,


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

Legacy
• Disconnected Business Architecture
• Think Dilbert in Cubicles...


SaaS Business Architecture

Intellectual
Marketing
Property

Network
Centricity

Revenue
Technology
Model


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


SaaS Revenue Model

Intellectual Products
Marketing Property
Subscriptions Ecosystem

Network Network
Centricity Effect
Services Advertising
Revenue
Technology
Model Ancillary

Revenue Model made up of Revenue Streams

7 SaaS Revenue Streams
Products


Network
Effect


Ancillary


Scalable Revenue
Streams
Products


Network
Effect


Ancillary


Less Scalable Revenue
Streams
Products


Network
Effect


Ancillary


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


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:
1.Pay per use
2.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
1.Apps for the Apple iPhone- most successful
consumer ecosystem to date
2.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
1.Setup Fees
2.Partnership Fees
3.Arbitrage opportunities


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

Customer Customer Customer




Multi-Tenancy in SaaS - Its not just Customers!

Customer Partner Developer

Industry Customer Partner

Customer Developer Customer


Apple Photo via kylemay

SaaS Revenue Modeling &
Business Architecture

Lincoln Murphy, Managing Director Justin Pirie

+1 (972) 200-9317 +44 (0)7799 625 787
lincoln@sixteenventures.com jp@justinpirie.com
http://sixteenventures.com http://justinpirie.com

@lincolnmurphy @justinpirie

How to Optimize Your SaaS Revenue Streams - Rackspace SaaS & Cloud 2010

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