This document discusses the differences between product-focused and service-focused business models. It argues that a service model, like running a restaurant, requires a different approach than a product model, like being a grocer. Key aspects of a successful service model include building a multi-tenant infrastructure, expecting slower incremental sales, doing continuous marketing, and getting real user feedback from usage logs. The document provides examples and lessons for each of these aspects to help product people transition to thinking like service providers.
4. …Newsletter on Startups & Products
The secret life of Product Managers
“Parenting and the Art of Product Management”
“Goldilocks Packaging”
“Sharks, Pilot Fish, and the Product Food Chain”
http://www.mironov.com/articles/
Recent survey about PMs and service-versus-product
http://www.mironov.com/more/survey_results/
4 www.mironov.com
5. Service-Model Thinking
Most of us have grown up as “product”
product managers
Service model: more than just hosting
Responsible for user’s positive experience
So… are you a Grocer or a Chef?
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6. Licensed Enterprise Software
…is like delivering groceries
Enterprise IT is responsible for:
Choosing the right items
Combining them correctly
Managing hours and uptime
Serving and helping users
Producing tasty results
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7. Hosted Software-as-a-Service
…is like running a restaurant
Serving complete meals
Many customers
Hours and availability
End users interact directly
Need repeat buyers
One bad experience is
never forgotten
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8. Product & Service Models
Product Model
One-time fee or license
With or without maintenance
Subscription Service Model
Monthly fee per user
Transaction Service Model
Per fax, per download, per transplant,
per report, per hour, per update…
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9. Four Key Service-Model Lessons
Being the chef, not the grocer:
1. Build a multi-tenant infrastructure
2. Expect slower, incremental sales
3. Do continuous marketing
4. Get real user feedback
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10. 1. Multi-Tenant Infrastructure
Personalized experience,
menu of options
“No excuses” availability
Privacy and security
Usage reporting and billing
Helpful written help with
human back-up
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11. Not a New Idea
Well-designed software should be host-able
But need to set priority for…
Details of user hierarchies
Reporting, billing, invoicing
Third party data
security obligations
See Luke Hohmann’s
Beyond Software Architecture
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12. New Kinds of Service Metrics
You need an Operations team and new skill set
Uptime SLA (“Application up 99.95% of the time except…”)
Response Time (“98% of log-in take <1.5 seconds…”)
System Capacity (“Add CPU when usage >60%...”)
Support Escalations (“P1 first response
within 15 minutes…”)
Reporting (“Billing reports showing
all customer transactions…”)
Software Updates (“Push software
weekly at 1AM Sunday with roll-back…”)
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13. 2. Incremental Sales Cycle
Initial subscribers sign up more quickly, but…
Easy, cheap trial is #1 benefit of service model
Pioneers are really in extended trial
First taste must be great
Revenue ramp is slower
…upsell to more users
…upsell premium features
13 www.mironov.com
14. No More Shelfware
Purchased but unused software
Product model: sell extra licenses now
Get revenue (commission) now
Lock up the customer
Screw future revenue
Much harder with
service model
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15. 3. Continuous Marketing
“Drop-and-run” licensing model
Ship CD, recognize revenue, move on
New “shared success” service model
We can’t grow your account
until you are happy
Constant upsell continuous marketing
Touch users early, often and honestly
Good news: you have actual user names
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16. Frequent, Helpful Contact
Friendly, low-pressure tone
Topic of the month
User profile (success
story of the month)
New features
FAQs
Support contacts
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17. 4. Getting Real User Feedback
Licensing model: second-hand feedback
Customer meetings, third party surveys, sales
issues, annual user groups, online forums, industry
analysts, product reviews…
What are their agendas?
Service model: your own log files
Precise, real-time, unemotional
What features are really being used?
Error reporting
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19. Dare to Taste Your Own Food
…use your own service if you can
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20. Take-Aways
“Wrapping It All Up”
Service model adds new
responsibilities and requirements
Initial revenue is slower
Installed-based marketing
never stops
You have actual usage data
You may be asked for a service
model soon. Grab your cookbook!
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22. PM Survey Recap
Time permitting… see
http://www.mironov.com/more/survey_results.htm
23. 180 Responded to PM Survey
Pricing Model
Product/license 48%
Subscription 23%
Transaction 19%
Free, advertising, other 10%
Job Role
Product (service) management 38%
Product (service) marketing 12%
Corporate marketing 7%
R&D, sales, consultant, other 43%
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24. Top-Line Observations
Products slanted toward enterprises/government
Services have more share of small/medium business
Subscription service sales cycles 33% shorter
Transaction services 49% shorter
Service PMs make little use of app logs to understand
customers
24% vs. 1% for products
PMs say that customers use only half of features
We're dramatically overloading our offerings!
Service PMs use product registrations more than user
profiles to identify users
24 www.mironov.com
25. Selling and Upselling
33% faster close cycle for subscriptions
Service tilt toward small/medium businesses
Different upsell models…
Product Subscript Transxn
Selling new versions/upgrades 76% 46% 38%
Selling more units 83% 46% 50%
Higher-priced subscriptions 28% 83% 44%
Adding more users 47% 68% 29%
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26. Understanding Users
“We know which features/functions our
customers use via...”
Product Subscript Transxn
Personal discussions 56% 49% 53%
Tech support calls/cases 38% 32% 24%
Enhancement requests 27% 17% 11%
Transaction/activity logs 1% 24% 21%
Sales team feedback 29% 24% 29%
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27. Over-Featured Products?
“I think my typical customer uses...”
Product: 48% of available features
Subscription: 48% of available features
Transaction: 52% of available features
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Chef says “I think you’ll like this combination!” and “How would you like that cooked?”
Restaurant must serve many diners, with each getting a pleasant personalized experience. Fixed but extensive menu gives some personal choice (features, options). With applications, need limited range of personalization depending on app. Application preference levels: each user, each customer, supervisory roles, how deep? Availability: must keep restaurant open for posted hours, even if few diners. Nothing worse than coming there, finding doors locked. App hosting: always up except for very limited maint hours. Privacy and security: must protect each user’s data from others and from provider’s employees, may include existence of subscription. (Option for private dining room. Do not see other diners.) Charged for what was ordered/eaten, varies by diner. (Prix fixe is a possibility.) For applications, clear pricing model and back-up details if transaction- or usage-based. Local language, currency, time zone? etc Upset diners never come back. Frustrated users never forget. Allow customers to brand/customize look? Truly helpful online help: licensed software “help files” are generally worthless; online services are held to a higher standard. Human support: all online help eventually fails. Now what? [Alternate analogy: hotels versus sleeping at home. Must provide level of security and privacy to match home, plus services to make visit attractive.]
Conceptually, well-designed software applications should be hostable. In practice, companies that don’t plan to host apps soon trade off the many detailed requirements for other features/needs. E.g. multi-level permissions that let a customer’s master-admin see and sub-manage preferences for all users at that company, without seeing any users at other companies. If you are serving a very large customer, this might require 2-3 levels of admin scope.
Completely new skill set and operational experience required. Classic software licensing companies don’t even have a department to assign usage costs. Generally requires a new “Operations” group with hosting or IT experience, plus new sets of processes (testing, release, roll-back, incremental update, etc) SLA: Service Level Agreement Analogy: Chef has to correctly cook and serve meat, while grocer depends on customers to safely prepare, serve, decide portions, plan for number of eaters, cost out foods…
Compare to your first 5 minutes in a new restaurant: atmosphere, first taste of food, service, noise. Very easy to be turned off on first visit. One bad taste and you’ll never be back. Must be hugely impressive to recommend to friends Now consider visit to survey tools site; search engine; music page; online office supply… most early subscribers to a service are really just trying it out. Ready to cancel within 30-day test period or otherwise run away.
Installed base marketing: Read and re-read your privacy policy Be prepared to fix any problems they report iPass example: Must get each end user to install laptop software. “ What can we do to help?”
Top responses to AirMagnet newsletters were usually not to specific month’s content. Instead were: how to get upgrades, tech support contact info, upcoming releases, sales contacts for add’l software copies, unsolicited success stories. Reponses to specific items/articles were secondary.
Most feedback processes are heavily weighted by the objectives of the reporter. Sometimes difficult to tease out the actual information.
Alternative to “seeing if the dogs eat the dog food”
