Cloudy with a Chance of Insight


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Cloudy with a Chance of Insight

  1. 1. Cloudy with a Chance of Insight: An ISV’s Guide to Customer Usage Data Collection and Analysis in the Cloud wHitEpapEr Executive Summary “SaaS now accounts for a The right entitlement management service and user management tools can instantly whopping $9 billion share of improve your business processes and customer insight by simplifying your billing process, the roughly $30 billion cloud while tracking customer usage, feature usage trends, regional usage, and much more. Thesecomputing market – representing features ultimately provide critical data to assist organization-wide decision making. the largest segment in cloud Publishers of on-premise software have, for many years, experienced the benefits of mining computing.” usage data to improve their business. Vendors of SaaS applications, however, are experiencing -Forrester Research Inc., firsthand, some of the unique challenges of gathering this type of data for their hosted July 2010 applications. This paper focuses on SaaS growth and the challenges of gathering customer insights—whether on-premise or in the cloud. Also discussed are the types of data that can be useful, and examples that help illustrate the business value of harvesting and analyzing usage. The paper goes further to present SaaS vendors with robust solutions for gathering customer insight. SaaS and the Cloud are Here to Stay There is no doubt about it, cloud computing and SaaS are on the rise. Software vendors offering their application software as a service are part of a disruptive cloud-computing trend that has noticeably changed the software marketplace and the way we consume software. Industry analysts agree. Forrester Research recently reported that SaaS now accounts for a whopping $9 billion share of the roughly $30 billion cloud computing market—representing the largest segment in cloud computing.1 An ISV’s Guide to Customer Usage Data Collection and Analysis in the Cloud Whitepaper 1
  2. 2. Cloud taxonomy & Market Distribution Level of sharing Public Cloud IaaS PaaS SaaS PaaS Pure Cloud @global Market provider $460m $150m $9.0b $100m Virtual Dynamic Integration- Dynamic Dynamic Private infrastructure as-a-service apps BPO Cloud services services services @dedicated provider $4.5m $80m $3.0b $5.0m Extended Cloud Market Private infrastructure Middleware Apps BP Cloud virtualization virtualization virtualization virtualization @in-house tools tools tools tools data center $2.1m $250m $3.3b $2.1m Infrastructure Middleware Applications Information and processes Source: Forrester Research Inc. “The Evolution Of Cloud Computing Markets” July 2010 report ISVs realize that their business strategies need to include SaaS to stay competitive. In fact, a “60% of software publishers recent industry study, prepared jointly with IDC, revealed that 60 percent of software publishers recognize that their licensing recognize that their licensing practices will need to adapt to the cloud over the next couple of practices will need to adapt to years, and 30 percent expect that the change will be significant. 2 So let’s take a look at some ofthe Cloud over the next couple of the drivers behind SaaS adoption. years, and 30% expect that the change will be significant.” the Drivers of SaaS adoption According to Forrester Research, there are currently three megatrends that are transforming Sandhill Group Web Site, and reshaping the entire technology industry.3 And it is these trends that are also driving cloud October 2010 computing and SaaS adoption.“There are currently three mega- the industrialization of it – More than 70 years ago manufacturing processes weretrends that are transforming and industrialized and we see a similar transformation happening today in information technology. reshaping the entire technology IT processes and resources are becoming more standardized, more globalized, and more industry. And it is these trends commoditized. And as with any function that is not regarded as a core competency or that are also driving cloud differentiator, it’s either removed or outsourced. You move it somewhere else; You move it into computing and SaaS adoption.” the cloud, for example. Cloud computing is an interesting model and opportunity that supports the industrialization of the entire IT industry. Forrester Research, Inc. October 2010 technology Embodied in the Business – Over the years technology has become more and more embedded in our business processes. As a result, business people are much more involved in driving technology decisions and are actively involved in every step of the product selection process. Where in the past, IT made all technology decisions and implemented new systems, it is much more common today for business people to drive and be heavily involved in technology decisions. In fact some of the earliest adopters of SaaS were business people that sought out solutions to problems for which internal IT resources had not been allocated. technology populism – This driver describes our insatiable appetite for information and the ability to access that information from anywhere, at any time, and on any device. Cloud computing has given us this ability. Using the Internet and a simple Web browser, we can send e-mail, check a customer order, set up a new lead nurturing campaign, do our personal banking, buy a birthday gift, read a book, update our status, and more. And we can do all of this using any number of devices—PC, smartphone, laptop, e-reader, gaming system, tablet. Cloud computing makes it all possible. There is also the economic situation. We seem to be in the recovery phase now, but budgets are still tight and companies are restrictive in their spending in an effort to cut costs. We, in the software industry, know firsthand that the last few years have been quite a challenge. Forrester An ISV’s Guide to Customer Usage Data Collection and Analysis in the Cloud Whitepaper 2
  3. 3. points out that software maintence costs are often a popular place to cut. “Vendor managers, “Vendor managers facing facing onerous cost-reduction targets, want to reduce the amounts they pay to software onerous cost-reduction targets, companies for annual maintenance. They don’t understand how software companies can think want to cut the amounts they that their maintenance business should be immune from the recession.” 4 pay to software companies for annual maintenance. They What do companies do when money is tight? Many look for financial models where they can turn large upfront capital expenditures into more bite-sized ongoing operational expenses, have don’t understand how software small financial risks, and be agile enough to scale back expenses if they need to. Nothing to companies can think that their depreciate and zero on the balance sheet. Software as a service supports a financial model thatmaintenance business should be reduces financial risk and capital expenditures—a phenomenon that favors cloud computing. immune from the recession.” Gartner recently recognized these drivers, “We have seen slightly more emphasis on software Forrester Research, Inc. as a service (SaaS) due to tight capital budgets and the use of smartphones to drive May 2009 salesperson adoption.” 5 “We have seen slightly more the importance of tracking Customer Useage emphasis on software as a Monitoring and analyzing useage can help ISVs fine tune retention marketing strategies, enforce service (SaaS) due to tight contract compliance and improve customer relations. Proactively monitoring and optimizing capital budgets and the use license useage and compliance helps your customers eliminate the unnecessary cost of of smartphones to drive licensing under-used software or shelfware while also avoiding over-use situations and the salesperson adoption.” costs associated with “trueing-up.” Gartner, Inc. According to a recent Sandhill Group research report6, customer renewal was identified as a July 2010 top challenge by software CEOs in 2010. This reinforces how important it is for ISVs to more proactively mine useage data to gain valuable customer insights which have the potential to ensure contract renewals and even increase sales. “Customer renewal was Intelligence gained from usage data is invaluable when it comes to SaaS renewals and reducing identified as a top challenge churn. Used to develop and fine-tune ISV business strategy, this intelligence can help to by software CEOs in 2010.” prioritize development efforts, evolve business models, improve the user interface, add features, Sandhill Group improve training, and user documentation, introduce metered billing, and more. April 2010 the Challenges of Gaining Customer insights Some ISVs are accustomed to measuring and analyzing usage to help guide their business “Up to 60% of ISVs do not have strategies, and improve software product and service offerings, but many are not. A recent industry systems in place to accurately research study2 revealed that up to 60 percent of ISVs do not have systems in place to accurately assess how customers are assess how customers are using their software. Let’s take a look at some of the challenges. using their software.” Software On premise Sandhill Group Web Site, Gaining customer insight for on-premise software today is often times a challenge because so October 201 much of the sales process is self-service – via ecommerce resellers or downloads from the ISV’s Website. Fortunately, there are other channels in the traditional on-premise software business that provide the software vendor with a lot of these answers — though the feedback framework is a manual process with many dependencies. Typically there’s an implementation service provider who has a very strong link to the customer and knows exactly how the solution is used – at least in the first phase when it’s implemented. In addition, there is usually an account manager who has a pretty good understanding of the customer’s situation. And then there are help and customer service desks which sporadically receive feedback. Because this is a manual feedback framework, the commnunication often times breaks down. Another method to capture customer insight is implemention of a commercial software licensing and entitlement management solution. Many have functionality to capture and report on software license usage. If required, another method to gain usage intelligence is to initiate a software license audit.If required, another method to gain usage intelligence is to initiate a software license audit. So as you can see, for publishers of on-premise software, it can be a challenge to gain direct insights. An ISV’s Guide to Customer Usage Data Collection and Analysis in the Cloud Whitepaper 3
  4. 4. Software in the CloudIn the SaaS environment, these channels do not really exist. With cloud computing, there istypically no implementation service provider. In most cases, there won’t be a dedicated accountmanager. So where do the questions get answered? With SaaS, customer insights need to comedirectly from the customer site. To enable this communication, the software needs to have afeedback mechanism that answers questions about usage – what is used and how it’s used.These types of insights help ISVs adopt licensing business models, and further improve thesoftware service.In this case, of course, the vendor is responsible for the data collection, the security of this data,and the compliance and governance processes for which the data is collected.To complicate things even further, the dynamics of the channels have totally changed. A SaaSsolution from a software vendor typically sits on a platform. Often times the platform belongs tothe SaaS vendor but it doesn’t necessarily have to come from the same software vendor. If the SaaSvendor does not have a middleware stack, he will leverage another platform as a service, from aPaaS vendor. And that vendor may leverage the infrastructure from someone else, an infrastructureas a software (IaaS) vendor. There might be another telecom vendor involved, a service vendor. Andthat is the interesting (and sometimes confusing) part of cloud computing. Each of these vendorscan actually be the customer-facing entity that packages everything together and delivers it tothe customer. The cloud presents many challenges for all partners in this ecosystem when tryingto gain customer insights to improve solutions and portfolios and strategies.Linear vs. Continuous Business processesIn the traditional on-premise software business the various business activities and businessprocesses are linear in nature. These linear processes that stop at certain points work in favorof the ISV. When maintenance contracts expire, customers either renew or consider upgrading tothe newest release.On-premise Business processes are Linearrisk & Operations Management process Business Risk Invest Tracking Plan AssessmentThe risk and operations management process begins with the business plan, risk assessments,investment and finally, tracking.Development process (1x per year on average)Development follows release cycles of about one year on average. The planning step is first,followed by development, testing, and then software release. Once released, the planning for thenext release starts. Planning Development Testing Releasepricing & Licensing process (1x every 5 years)Pricing and licensing models are set about once every 5 years on average. First there is upfrontlicensing revenue and then a continuous maintenance stream. Licensing MaintenenceAn ISV’s Guide to Customer Usage Data Collection and Analysis in the Cloud Whitepaper 4
  5. 5. Sales processthe sales process begins with an rFi and progresses to an rFp, offer, negotiation, and signature. RFI RFP Offer SignatureService & Support processThe service and support process starts with implementation, moves to a support package withfixes, and then on to upgrade. Implement Fixes Support Pack UpgradeSaaS Business processes are ContinuousSoftware as a Service business processes are continuous, with the invent, develop, license,deploy, and support process are running in parallel. There is no escape from the customer for theSaaS vendor. The customer is in constant consumption mode, and the software vendor needs tostay in contact at all times to provide continuous ongoing services. InventSupport Develop CLOUD Deploy LicenseWith the SaaS business model, since the revenues are streaming and the investments are alsodone on a continual basis, SaaS vendors operate using a continuous portfolio planning process.The development process is a continuous process that requires continuous risk management.Even though business plans are created up front, they are very fluid and can adjust, based uponcustomer insights, with each development iteration.SaaS license models are pay-as-you–go, and are typically based upon usage—by the month,day, hour, etc. With the right customer insight, cloud computing offers ISVs the opportunity tochange this metric and actually choose one that is more aligned with the customer’s businessvalue objectives. Examples include reduction of the sales cycle, inventory levels, increase insales volumes, or any other metric that can be directly measured.The sales cycle is also continuous and operates via different Web-based channels. Likewise,channel support is continuous.Measurement Leads to insight StrategiesCustomer insight can help you in four direct and measurable ways. It can help you build a betteroffering. It can help you find new ways to do business. It helps improve customer satisfaction. Itimproves your sales relations.An ISV’s Guide to Customer Usage Data Collection and Analysis in the Cloud Whitepaper 5
  6. 6. Building a better New ways to do offering business CUSTOMER INSITE FOR.. Improved Customer Improved sales Satisfaction relationsLet’s now take a closer look at the benefits of customer insight and investigate some real-worldexamples of each of these.Customer insights Help You Build a Better OfferingBuilding a better offering really touches many different parts of your software company—fromR&D to Marketing to Sales Support.Product investment is multi-faceted and is typically handled by product management. As aproduct manager, you want to know which features to invest in. Very often, you are dealing witha list of hundreds of features and user stories, which need to be prioritized. Knowing whichfeatures customers are actually using makes prioritization much easier.As a product manager, you also want to be sure that you are maximizing your R&D investmentby improving the features that customers are actively using. And just as important is to divestefforts on the features that none, or very few of, your customers are using.Another consideration, if you have a broad range of products that support a broad range ofplatforms, is to use licensing to better understand which platforms your customers are using.This, of course, helps during the planning stage. For example, it could help you decide whether torelease your Windows version and your Mac version at the same time. However, if only 10 percentof your customers are using the Mac version, you may then decide to delay the Mac release infavor of adding or enhancing another feature or functionality.Some ISVs develop and monetize content as part of their software offering. Here it’s importantto understand what content to further invest in. Take, for example, a software company thatbuilds software to help you design various rooms in your house. This ISV provides the designsoftware, and then monetizes the various room packages (content)—kitchen, living room,bathroom, etc.Another consideration is version investment. For this, you’ll need to know the following:• How many versions back do I support?• How long do I support it?• How much do I invest in moving a customer from one version to the next?• How many customers are on that old version?Monitoring usage data is invaluable in providing this type of insight and can help you betterinvest in your software product. You’ll also gain a better understanding of your customers, whichleads to a better-marketed offering. What do we mean by that?If you know your regional trends, you can reach out more effectively to those regions that areusing a feature in a particular way. For example, if you have a popular feature in Japan, then yourmarketing message for that feature in that region should be clearly emphasized. Conversely, inChina a different feature may be popular so you would put more emphasis on that message.Understanding where features are popular, helps you better target your message. In addition,through the use of software license management, many ISVs use product registration to captureinformation such as industry vertical and the roles of those using the software.An ISV’s Guide to Customer Usage Data Collection and Analysis in the Cloud Whitepaper 6
  7. 7. Once you identify the vertical market, you can then look at your customer base and determinewhich markets and roles within the companies are using which features, or which markets usewhich bundles of your software. Any insight that you can acquire can help you fine-tune yourmessages to better market and promote your products.Beyond R&D, and beyond marketing, usage data can help you in other areas, such as sales andsupport. If you have high or low growth in a region, it might trigger you to invest more salessupport there. If you determine that you don’t have the support team necessary to hit yourgrowth objective, then you’ll need to invest properly to do so. As you can see, building a betteroffering involves means more than just R&D.Customer insights provide You with New ways to Do BusinessCustomer insights can provide you with new ways to do business. In the cloud there’s a lot oftalk about consumption. And consumption has really changed the game. So far we’ve seen threedifferent consumption models. 1. time-based consumption. Software vendors are selling tokens of time to use their software and creating token bundles based upon how the customer wants to consume the software— per day, per week, or per year Let’s look at an example of an ISV offering project management software—software for projects that can go multi-year, with many different contributors per project. What we’ve seen is that these tokens (of time) are consumed by many individuals coming on and off of those projects at different points in time – an interesting model to adapt. 2. Execution-based consumption. Number of executions is another consumption-based model. How many times are you going to use a feature or an API, for example? When we talk about PaaS, what traditionally was sold as middlewarerequired a perpetual type of license. Now those offerings can move into an execution type of scenario. How many times are you going to use a certain API call to provide you value? And I can monetize that. 3. Content-based consumption. The third type of consumption is content. An example of thisis a CAD or a design type of software where you can use modules based on the design, and then monetize those on an execution basis, such as the number of times that you use a particular design.In addition to these consumption models ISVs are also supplementing their perpetual models byallowing peak concurrency. For example, you have an enterprise customer that has purchased100 concurrent licenses to consume your software, Which means 100 people can use thesoftware simultaneously. As time goes by, and in the cloud especially, it’s important to rememberthat no one wants to experience a denial of service. Even if you go over your license limit, youdon’t want to be denied service, especially if you’re in the middle of a business process.Instead, as a software vendor, you can allow your customer to overdraft their concurrencylimit, and then monetize that overage. For example, your customer licensed 100 users, but forevery user over that limit, they will pay a per-day rate. And, of course, you can supplement andmonetize your content in much the same way as it is continually updated.The most important thing to understand with this approach is that usage gives you a uniformpolicy for monetizing your value across any delivery method. So as technology is moving forward,mobile usage is changing how people are consuming services, and the value and the demandson those services. Virtual environments are also affecting business-to-business applications.For traditional on-premise installed applications, and as services move to the cloud, we needto be aware of how customers want to consume them. Usage is a uniform way to do businessregardless of the delivery platform. Whether you’re consuming the service from a mobile deviceversus an on-premise install, versus the cloud, it doesn’t matter. Usage-based consumption isthe foundation for new, flexible, and profitable ways to do business.An ISV’s Guide to Customer Usage Data Collection and Analysis in the Cloud Whitepaper 7
  8. 8. Customer insights improve Customer Satisfaction.From a customer’s point of view, I need to know what I purchased, where it’s deployed, whatlicenses are installed, and who is using those licenses. I also want to know how long mylicenses are being used and if we’re efficiently managing our costs. Having this knowledge isadvantageous because these are the things that are constantly going through your customer’smind. Being able to provide this usage information and the licensing capabilities that makeit clearis extremely valuable—so valuable that it’s a feature you can monetize. It’s also acompetitive featurethat can be used from an asset management aspect of licensing andusage for your customers.Software information and knowledge helps you become a more proactive partner and give you abetter understanding of deployment issues. For example, if you perform a licensing audit and seethat after three months only 5 of the 100 licenses that were purchased are actually deployed andinstalled, there may be a technical issue a lack of training. Perhaps your customer has raised anissue with technical support that has not made its way to you.As a business leader, gaining an understanding and being able to perform those types of checksallows you to become a proactive partner rather than just another vendor in reactionary mode.You can reach out to customers and say, “I noticed this issue. Is there something we can do tohelp you? Would training help? Is there a technical problem?”Monitoring usage information can also help you to better understand where your customersare running into errors. What messages are they encountering? Are they encountering thosesame messages repeatedly? Customer insights can help you improve your products, yourdocumentation, and your training.Mining usage information can also help you make your software easier to use. Understandinghow users interact with your interface, knowing who’s using which parts, allows you to removecomplex components of your interface, streamline it, and provide your customer with the bestinterface possible.Historical usage data can also provide for better support planning. It gives your support team anidea of what your adoption rate is when you release a new version or what the gap is from whenyou release a new version of software to when the majority of customers actually start using it.Having this information up front helps support teams better schedule training so they are betterprepared to support the customer, especially in global environments.Customer insights improve Sales relations.Having a consolidated view of your customers, their contracts, and their software and servicelicenses can help improve your sales relations. As a business owner or sales person, having thisinformation at your fingertips, without having to look through the multitude of contracts that havebeen signed over the years, gives you the insight to know who’s on support, what licenses theypurchased, and where they are being deployed to avoid regional price erosion problems.ISVs selling to global customers may sell a license that gets deployed in China for $10.00 perseat. That same license, if deployed in the U.S., carries a price tag of $50.00 per seat. Havingand monitoring usage information allows you to better understand where those licenses arebeing deployed, so if you’re selling to a global company, and that customer buys in Asia but isselling into a high-priced market like in the U.S., it highlights a problem that you can discusswith your customer.And, of course, there are always up-sell opportunities. Understanding where a customer is inregards to their licensing limits helps you better approach them about purchasing additionallicenses. If you see through the usage information that a license is being moved from onecomputer to another, to another, to another, and it’s an on-premise node-locked license, or aSaaS license is getting reassigned to many different users day in and day out, that might indicatea usage issue that the customer is at their limit and is trying to stay compliant. That type ofinformation enables you to go back and have an informed conversation, and better understandtheir needs.An ISV’s Guide to Customer Usage Data Collection and Analysis in the Cloud Whitepaper 8
  9. 9. Customer insights can also help bring you closer to your customer. Having a better understandingof what your customers are using and how they’re using it, while also giving them the abilityto understand their usage, sets a foundation for easy return-on--investment conversations,as well as how they are mapping the value of what you’re providing to the cost of what you’recharging for it, which can improve the relationship.Being More proactive – a Customer insights ChecklistTake a look at the checklist that follows. Ask yourself these questions. These are just some ofthe insights that can be gained by monitoring software usage data–actionable intelligencethat will not only help improve your business processes and strategies but will also improvecustomer intimacy and in turn, reduce churn. Who are my customers? What have they purchased? How do they consume my service? Do they know what they purchased? Which features are they using? Which features are they not using? When are they up for renewal? Do they need more licenses? Do they know what upgrades are available? Do I know how to improve my product & service offering? Can I monetize my offering based on usage? Can I suppory consumption-based billing?This checklist is by no means all inclusive but it should get you thinking in the right direction.Feel free to add to the checklist based upon your own objectives.Sentinel: the Solution for Customer insights in the CloudBefore SaaS, data collection was a premium feature of most software licensing and entitlementmanagement systems, used to forecast trends and make informed business decisions. In thecloud, usage data is not only used for business intelligence but is vital for supporting businesscritical processes, such as billing. It is, therefore, essential that cloud service providers are ableto easily track, organize, and report on service usage.While cloud service providers are running into many of the same challenges faced by on-premise software delivery several decades ago, the software licensing and entitlementmanagement systems used for on-premise applications are not the perfect fit for SaaS.SafeNet Sentinel®Cloud ServicesSentinel Cloud Services make it quick and easy for SaaS providers to define their service catalogs,provision and control user access at the feature level, measure service usage for billing andbusiness intelligence purposes, and instantly adapt their service catalog to embrace new andevolving market opportunities.An ISV’s Guide to Customer Usage Data Collection and Analysis in the Cloud Whitepaper 9
  10. 10. DEFINE DEFINE A versitile service catalog for maximum market penetration ADAPT PROVISION PROVISION Contracts & automate business processes to maximize efficiency CONTROL Service authorization to ensure service agreement compliance MEASURE Service usage for billing support & instant business insight ADAPT Service offering on-the-fly to embrace new & evolving markets MEASURE CONTROL Sentinel® Software Monetization Solutions SafeNet has more than 25 years of experience in software protection, licensing and entitlement management, enabling software monetization of applications delivered on-premise, embedded within a piece of hardware, or hosted as a service in the cloud. The Sentinal product portfolio includes, Sentinel HASP, Sentinel RMS, Sentinel EMS, and Sentinel Cloud Services. Bibliography 1 Source: Forrester Research Inc., “The Evolution Of Cloud Computing Markets,” July 2010 2 Sandhill Group, Software Pricing and Licensing Trends - 2010 3 Forrester / SafeNet, Inc. Webinar, “Customer Insight – Usage Data Collection and Analysis in the Cloud,” October 2010 4 Source: Forrester Research, Inc. “Yes We Can (Cut Our Software Maintenance Costs)”, Duncan Jones, May 8, 2009 5 Source: Gartner Inc., Magic Quadrant for Sales force Automation 2010, Robert Desisto, July 28, 2010 6 Source: Sandhill Group, Software CEO Outlook 2010: New Decade, New Realities, April 2010 the ≥ Sentinel Online ≥ Twitter ≥ LinkedIn ≥ YouTube ≥ LicensingLive ≥ BrightTalk ≥ Retweet this Document Contact Us: For all office locations and contact information, please visit Follow Us: ©2011 SafeNet, Inc. All rights reserved. SafeNet and SafeNet logo are registered trademarks of SafeNet. All other product names are trademarks of their respective owners. WP (EN)-08.10.10 An ISV’s Guide to Customer Usage Data Collection and Analysis in the Cloud Whitepaper 10