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Designing Products for the Cloud

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Everyone is talking about cloud computing and Software-as-a-Service (SaaS) these days. Almost every technology vendor has announced a cloud strategy – even the traditional software zealots. But what …

Everyone is talking about cloud computing and Software-as-a-Service (SaaS) these days. Almost every technology vendor has announced a cloud strategy – even the traditional software zealots. But what do cloud computing and SaaS mean for product managers? The impacts are more significant than you may think. From pricing and profitability measurement to sales and marketing, cloud is having a noteworthy influence on the day-to-day activities of product managers.

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  • time to market - operational in a few months, weeks or days rather than 1/2-2 year deploymentease of use - approachable graphical user interfacecomplexitylower cost of ownership - no investments in software, hardware or additional IT resources; shift from capital expenditure to predictable operating costseamless upgrades - do not require overhauling prior versions, supporting legacy versions, rewriting system interfaces
  • Liberal interpretation of the definitionexamples of usage- project based needs- development and testing environment- simulations- new startups- batch jobs- trade-strategy backtesting
  • Time to marketEase of useLower TCOHassle free upgrades
  • In some respects is harder Product requirements- SaaS applications are not easily customized- Flawed understanding of customer's requirements increases likelihood that SaaS product fails in marketResponsibility for collecting requirements, analyzing what they mean, converting into development priorities bear an even greater responsibilitySoftware can be customized by systems integratorHardware can be customized by a VARAfter upgrade every user on system will experience- usability problems- unwanted feature complexity- functionality gaps immediately.Product manager has greater responsibility for preventing upgrade errors- More detailed use cases, personas to measure design/value of new features
  • In some respects is easierSaaS Requirements Gathering- can be gathered directly from the customer- discussion forums, blogs or within application itself- augment traditional sources - customer interviews, surveysIs anyone doing this?usage tracking built-in to the product- time users spend; path taken through the application- track ROI from usage statistics on particular featuresis anyone doing this?communities of customers to share ideas- example Yammer
  • Conspicuous value- Value proposition must be immediately obvious, without a salesperson standing at customer's shoulder to explain- coolness factor- quick benefits- pain points highlighted in use cases or personas- built-in customer tutorials or training- TCO modelsTry before you buy- implementation moves from months to weeks- demo a product, move to sandbox, train in days
  • Lower gross marginsDon’t have a systems integrator who will invest time in sellingCannot pay same commission rates for new business
  • Financial expectations- Less capital investment- Scale gracefully according to demand- Fund more projects simultaneously- Total cost of ownership should be lowerAdvantages to CFOs- cash-flow friendly alternative to on-premise installation- financing alternative to one of the bastions of corporate capital expenditures: IT- operating expense that can be scaled up to meet rising business need or downscaled- on-premise is sunk cost that includes capex which must be carried on balance sheet as an asset that loses value as it depreciates- no balance sheet implications - no impact for return on assets- avoid taking on debt and keeping cash in company longer- IT can not offer predictability on what it will cost to add a user or process another transaction- preserve cash, incur no additional debt- enhance balance sheet strength and credit rating - direct more capital into revenue generating activities
  • pay-as-you-grow- commitment model with lower prices- pay-as-you-go with no commitment- subscription based pricing with no capacity tiers or restrictions?- Volume discounts as usage scales up- do you charge for additional modules- offer price protection options to lock in consumption guarantees - move between pricing bands at different points in time- comes a point at which usage-based pricing exceeds costs of purchasing software/hardware and operating- virtualized server - 12 to 96 cents per hour - CPU and related resourcesusage-based metrics- transactions- users- documents- purchase orderssubscription models- size of company - revenue or employees- casual versus power users- per business entity- bracketed tiers- tiered upon functionalityadd-ons- storage quantity limited- support options may vary
  • what to charge for upfront implementation fees or to waive?require minimum contract commitments or cancel at any time
  • Contract terms- known bugs, integration, performance and availability deficiencies- clear policies on storage use- disclosure of physical location- data management requirements- regulatory compliance- provide report on key availability and continuity metrics- transparency to financials- disaster recovery plans- license convers servicesion from on-premise to SaaS and back; equivalency ratios- freedom of speech to discuss issues with other clients- software escrow - custodians for source code, user data- commit to delivering APIs, web services- access to majority owned affiliates- combine contracts during mergers & acquisitions- transition and migration assistance- option to purchase the source code?
  • amazon ec2 spot instances- priced based upon supply and demand- demand is low and supply is high - instances cost a fraction of a cent per hour- supply is low and demand is high - instances cost more than a regular instance- set price caps for spot instances - automatically shut down once reaching threshold- when prices go back down automatically restart
  • Enterprise software- Constant increases in maintenance fees without corresponding increases in delivered valueInfrequent and expensive upgradesSAP upgrade is a material event to be reported to investorswhen to perform upgrades- expecting faster time to market***- must upgrade more frequently than traditional cycles- leverage agile development methodologies- access to latest features, bug fixes, regulatory updates at quick pace- venture capital expectations for new functionalitykey issues- Cisco - no end of quarter downtime- Switch from long requirements documents to on-going conversation, verbally or through written formats- how to patch bug fixes, security issues- agile development and SaaS both offer faster release iterations and greater responsiveness
  • The biggest challenge is that all customers must be upgraded at the same timeConcept of multitenant
  • Multi-tenant environment not designed for customizationKills the whole model of standardized infrastructure and applicationsyour customer does not understand cloud computing or SaaS- cherry pick the benefits of cloud; but retain the flexibility of "your mess for less" outsourcing
  • # of high profile outagesGreater visibility due to size and scope of outageService Level agreements- Customers have expectations of higher uptime and availability- Robust, massively redundant infrastructure of cloud- Outages are higher profile affecting broad range of customers
  • Success is built on trust. And trust starts with transparency. Trust.salesforce.com is the salesforce.com community’s home for real-time information on system performance and security. On this site you'll find:-Live and historical data on system performance -Up-to-the minute information on planned maintenance -Phishing, malicious software, and social engineering threats -Best security practices for your organization -Information on how we safeguard your data
  • Contract terms- known bugs, integration, performance and availability deficiencies- clear policies on storage use- disclosure of physical location- data management requirements- regulatory compliance- provide report on key availability and continuity metrics- transparency to financials- disaster recovery plans- license converts servicesion from on-premise to SaaS and back; equivalency ratios- freedom of speech to discuss issues with other clients- software escrow - custodians for source code, user data- commit to delivering APIs, web services- access to majority owned affiliates- combine contracts during mergers & acquisitions- transition and migration assistance- option to purchase the source code?
  • integration to 3rd party APIs and web services- customer's enterprise systems behind the firewalladditional plug-ins, widgets, web services to enrich the applicationUse to augment in-house applications
  • Subscription fees generate 80% of revenuesLess revenue from professional services (20%)Lower R&D costs (10-25% of revenues)Higher cost of sales and marketingLower margins than hardware or enterprise softwareGrowth of existing accountsMinimal churn and down-flexing
  • investor's proclivity for recurring revenue models-new metrics- cash flow- backlog- bookings/billings- deferred revenuesQRev[X] = Quarterly Recurring Revenue for period XQRev[X-1] = Quarterly Recurring Revenue for the period preceding XExpSM[X-1] = Total Sales and Marketing Expense for the period preceding XMagic Number = (QRev[X] – Qrev[X-1])*4/ExpSM[X-1]
  • Transcript

    • 1. Designing Products for the Cloud
      Considerations for Product Managers
      By Steve Keifer
    • 2. What is Cloud Computing?
      “A standardized IT capability (services, software or infrastructure) delivered via Internet technologies in a pay-per-use, self-service way”
      “Cloud computing is Internet-based computing, whereby shared resources, software, and information are provided to computers and other devices on demand like the electricity grid.”
      Source: Forrester
      Source: Wikipedia
    • 3. Confusion Abounds
      “The interesting thing about cloud computing is that we've redefined cloud computing to include everything that we already do.”
      “I can't think of anything that isn't cloud computing with all of these announcements.”
      Larry Ellison
      CEO Oracle
      Oracle World 2008
    • 4. Key Tenets of Cloud Computing
      • Infrastructure delivered as a Service
      • 5. Commoditized and standardized hardware and software platform
      • 6. Ability to quickly move, change, add and delete applications
      • 7. Massive scalability both upwards and downwards with same economics
      • 8. Pay by consumption units (e.g. gigabytes, CPU cycles)
      • 9. No upfront implementation fees or long term contracts
      • 10. Multi-tenant architecture with shared infrastructure
      Battle Between the Cloud Idealists versus the Cloud Washers
    • 11. Is Life Different in the Cloud?
    • 12. Impacts on Product Management
      “No member of the development effort faces greater change in moving into the SaaS world than the product manager.”
      “Not only are on-demand products different from their on-premise counterparts, but the development processes required to create, maintain and enhance a SaaS product are different.
      SaaS Dictates Different Product Management Priorities – November 2008
    • 13. Requirements Gathering
      Product Management Bears a Higher Burden for Understanding Customer Needs
      • SaaS applications are not designed to be customized
      • 14. Flawed understanding of customer's requirements increases likelihood that product fails in market
      • 15. Responsibility for collecting requirements, analyzing what they mean, converting into development priorities
    • Gathering Requirements
      Salesforce.com Idea Exchange
      • Launched in fall 2006 invited customers to item development priorities
      • 16. Users can vote to promote ideas for inclusion in upcoming release
      • 17. Instead of holding big meetings to wrangle over features, developers can move forward knowing what people want
      Salesforce.com Idea Exchange
    • 18. Try Before You Buy
      “Conspicuous Value” - Value proposition must be immediately obvious, without a salesperson standing at customer's shoulder to explain
      Customer should be able to demo a product, move to sandbox, and take online training in a matter of days
    • 19. Sales People or the Web?
      • A 30% cost of sale can’t be supported by most companies. It’s as simple as that.
      • 20. You can’t spend enough time with the customer to help with his education, and that means he’s on his own more often.
      • 21. The customer isn’t paused until the next sales meeting, waiting to be feted and wowed by your solution selling greatness.
      • 22. That’s now a small channel to his mind.
      • 23. He’s on the Internet, researching, browsing your website, browsing your competitors websites.
      Everyone is Researching Products & Price on the Internet These Days
      Nick Van Weerdenburg
      http://testdrivenmarketing.com/286/is-sales-become-marketing-technical-support
    • 24. Pricing is a Key Driver
      Advantages of Cloud & SaaS
      • No capital investment
      • 25. Limited upfront fees
      • 26. Scale up according to demand
      • 27. Scale down to reduce costs
      • 28. Predictability of future costs
      • 29. Fund more projects simultaneously
      • 30. Total cost of ownership should be lower
    • Cloud & SaaS Pricing Models
      Many Different Pricing Models
      • Usage-based metrics - transactions, users, documents, purchase orders
      • 31. Subscription models - size of company - revenue or employees; business entities
      • 32. Bracketed tiers
      • 33. Add-ons - new modules, storage, support
      Many Pricing Models Emulate Mobile Phone Schemes
    • 34. Implementation Fees
      Most significant cost outlays for providers occur upon activation or installation of the service
      Customers seeking to preserve cash and avoid large upfront payments
      Attracts customers with weak financial viability or poor credit history
    • 35. Contract Terms
      Customers want the flexibility to terminate contracts and switch to alternative vendors
      Investors want the predictability of long-term contracts with monthly recurring revenues and highly visible backlogs
    • 36. Commodity Pricing Models
      Supply and Demand
      • Demand is low and supply is high - instances cost a fraction of a cent per hour
      • 37. Supply is low and demand is high - instances cost more than a regular instance
      Price Caps
      • Automatically shut down once reaching threshold
      • 38. When prices go back down automatically restart
      “Pork-Belly” Commodities Pricing
    • 39. Billing Systems
      Cloud and SaaS pricing Innovation is Limited by Ability to Meter and Bill
      Can Billing Support:
    • Vendor Managed Upgrades
      SaaS and Cloud Offer
      • Frequent upgrades
      • 46. Predictable costs
      • 47. Minimal downtime
      • 48. Minimal testing
      • 49. No customization
      • 50. Changes occur via configuration
      The Enterprise Software Upgrade Treadmill leads to Upgrade Fatigue
    • 51. Multi-Tenant
      Common, Shared Platform
      Single, Dedicated Platform
    • 52. Supporting Customization
      “This public cloud business is only a sustainable business model if a provider …does not follow the demand of its largest customers to offer more customized solutions”
      Source: Forrester Research - The Evolution of Cloud Computing Markets (July 2010)
      Big Customers Want to Bully Vendors
    • 53. Service Interruptions
      Workday's SaaS for human resources, financial applications and payroll was down for 15 hours
      September 2009
      Amazon EC2 cloud disruption in Northern Virginia data center for 5 hours
      December 2009
      Google 2 hour 20 minute outage for all enterprise applications due to power failure
      February 2010
      Overheating problem in Wikipedia's European data center caused 1 hour global outage
      March 2010
      Intuit Turbotax, Quickbooks Online, Quicken online sites for 36 hours
      June 2010
    • 54. Trust by Salesforce.com
    • 55. Customer Bill of Rights
      Transparency to
      • Availability metrics
      • 56. Performance concerns
      • 57. Known bugs
      • 58. Security breeches
      • 59. Financial results
      • 60. Regulatory compliance
      • 61. Technical interoperability
      • 62. Data center locations
      • 63. 3rd party providers
      Source: Altimeter Research - Customer Bill of Rights – Software as a Service
    • 64. Operational Requirements
      Who Owns Requirements for:
      • Service Level Agreements
      • 65. Backup & Recovery Policies
      • 66. Health & Performance Monitoring
      • 67. Disaster Recovery Strategies
      • 68. Call Center Response Times
      • 69. Data Center Maintenance Windows
      What is the Role of the Product Manager?
    • 70. Integration – Bridge to Other Apps
      Connecting Cloud and SaaS-based Products to Behind-the-Firewall Enterprise Applications
    • 71. Shareholder Expectations
      • More predictable recurring revenues and cash flow
      • 72. Multi-year contractual relationships with high renewal rates
      • 73. Opportunity to leverage economies-of-scale and shared resources
      • 74. Lower margins, but bigger overall spend
      • 75. Capturing the 3/4 of IT spend not addressable with selling a server or software license
      • 76. Lower R&D expenses due to single code base and minimal customization
      Valuations depend upon achieving expected financial metrics
    • 77. How to Measure Success?
      New Metrics for Cloud & SaaS
      • Rate of customer acquisition
      • 78. Growth of net new subscribers
      • 79. Annual recurring revenue per account
      • 80. Length of contractual relationships
      • 81. Customer lifetime value
      • 82. Number of users per account
      • 83. Current to initial contract value (Same store sales)
      • 84. Backlog
      • 85. New bookings
      • 86. Deferred revenues
      New Metrics beyond Revenue, Profit and Loss
    • 87. Additional Resources
      http://www.pragmaticmarketing.com/publications/topics/08/saas-product-management
      http://www.forrester.com/rb/Research/saas_dictates_different_product_management_priorities/q/id/45055/t/2
      http://www.quantumwhisper.com/product-management-tidbits/bid/19051/SaaS-Product-Management-Challenges
      http://techprodo.com/wordpress/?p=92
      http://blog.softwareinsider.org/2009/10/12/research-report-customer-bill-of-rights-software-as-a-service/
      http://www.forrester.com/rb/Research/how_secure_is_cloud/q/id/45778/t/2
      http://chaotic-flow.com/saas-competitive-advantage-saas-economics-101-e-book/
      Pragmatic
      Marketing
      Forrester
      Research
      Product Management Tidbits
      TechprodoBlogspot
      Altimeter
      Group
      Forrester
      Research
      Chaotic
      Flow
      SaaS Product Management
      SaaS Dictates Different Product Management Priorities
      SaaS Product Management Challenges
      SaaS Product Management – Is there a Difference?
      Customer Bill of Rights – Software as a Service
      How Secure is Your Cloud?
      SaaS Economics 101
    • 88. Contact Details
      More Thoughts on Product Marketing & Product Management
      Blog – http://outsideinmarketing.wordpress.com
      Twitter - @stevekeifer
      SlideShare – http://www.slideshare.net/stevekeifer
      LinkedIn – http://www.linkedin.com/in/stevekeifer
    • 89. Thanks Again To Our Sponsors!