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

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

  1. 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.
  2. 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
  3. Photo via caveman_92223
  4. 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 http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved
  5. http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved
  6. Why SaaS? • Richer user experience • Rapid implementation • Frequent cycles of innovation • Minimal upgrade hassles • Always on deployment • Subscription pricing • Scalability Ray “R” Wang http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved
  7. http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved
  8. 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 http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved
  9. http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved Image copyright Dru!
  10. 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 http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved
  11. http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved jo'nas
  12. Legacy Software Business Architecture Intellectual Marketing Property Revenue Technology Model http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved
  13. Legacy Software Business Architecture • Is Disconnected • Everything Siloed creating Value Separately • Little or no outward facing technology http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved
  14. Legacy Software Customer Ecosystem Customers Developers Channels http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved
  15. 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 http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved
  16. http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved automatthias akakumo
  17. SaaS Customer Ecosystem Customers Developers Channels? http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved
  18. 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 http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved
  19. http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved bionicteaching
  20. http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved Bruce Tuten
  21. SaaS Customer Ecosystem Customers, Developers, Channels, http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved
  22. SaaS Customer Ecosystem Customers, Developers, Network Effect Channels, http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved
  23. 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 http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved
  24. 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 http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved
  25. http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved xetark
  26. Legacy Software Business Architecture Intellectual Marketing Property Revenue Technology Model http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved
  27. Legacy • Disconnected Business Architecture • Think Dilbert in Cubicles... http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved
  28. SaaS Business Architecture Intellectual Marketing Property Network Centricity Revenue Technology Model http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved
  29. 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 http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved
  30. http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved
  31. 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 http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved
  32. 7 SaaS Revenue Streams Products Subscriptions Ecosystem Network Effect Services Advertising Ancillary http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved
  33. Scalable Revenue Streams Products Subscriptions Ecosystem Network Effect Services Advertising Ancillary http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved
  34. Less Scalable Revenue Streams Products Subscriptions Ecosystem Network Effect Services Advertising Ancillary http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved
  35. Products • Making Physical goods is hard... • You have to get every part of the process right! http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved
  36. http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved  jamesjyu
  37. http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved benchilada
  38. http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved mikebaird
  39. http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved mescon
  40. http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved kenjonbro
  41. Example of Failure http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved
  42. http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved
  43. http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved
  44. http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved
  45. Services • E.g. Consulting, Professional Services • Easy to do in small numbers • Hard to Scale http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved
  46. http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved Amit Gupta
  47. http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved CharlesFred
  48. http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved albany_tim
  49. 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 http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved
  50. 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 http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved
  51. http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved
  52. 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 http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved
  53. http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved
  54. 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 http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved
  55. http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved
  56. Scalable Revenue Streams Products Subscriptions Ecosystem Network Effect Services Advertising Ancillary http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved
  57. Subscriptions • What can I say? The fundamental basis of SaaS • Truly Scalable Profitability http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved
  58. http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved
  59. http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved
  60. http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved
  61. 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 http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved
  62. http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved
  63. 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 http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved
  64. http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved
  65. http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved
  66. 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 http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved
  67. http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved
  68. http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved
  69. http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved
  70. http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved
  71. http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved (c) computerworld
  72. Ancillary • Don’t ignore other revenue opportunities 1.Setup Fees 2.Partnership Fees 3.Arbitrage opportunities http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved
  73. http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved
  74. http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved
  75. http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved
  76. http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved
  77. 7 SaaS Revenue Streams Products Subscriptions Ecosystem Network Effect Services Advertising Ancillary http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved
  78. SaaS Business Architecture Intellectual Marketing Property Network Centricity Revenue Technology Model http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved
  79. http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved katerha
  80. http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved
  81. Multitenancy • A quick few thoughts • It’s not a technical argument • It’s a business architecture issue http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved
  82. Multi-Tenancy in SaaS - Single Instance for all Customers Customer Customer Customer Customer Customer Customer Customer Customer Customer http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved
  83. Multi-Tenancy in SaaS - Its not just Customers! Customer Partner Developer Industry Customer Partner Customer Developer Customer http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved
  84. http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved
  85. http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved jo'nas
  86. http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved Apple Photo via kylemay
  87. 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
  88. Piero Sierra

Editor's Notes

  • This is what he
    sold our customers
  • Why are we here?
  • So
    why does making money out of a SaaS business feel like an uphill climb with no end in sight?
  • IP- Secret Sauce-
    most of time and value in here



    Technology- infrastructure- small- internal focused



    Revenue model is completely disconnected from everything else- sell it however you want



    As is marketing
  • Loosely-coupled, at best
  • Loosely-coupled, at best
  • Loosely-coupled, at best
  • Loosely-coupled, at best
  • IP- Secret Sauce-
    most of time and value in here



    Technology- infrastructure- small- internal focused



    Revenue model is completely disconnected from everything else- sell it however you want



    As is marketing
  • Can’t have silos



    Technology is more
    important- infrastructure, security, governance, compliance taken over for customers



    Marketing needs to be tied into the technology- self service, nurturing



    Revenue model needs to be built into the app. Must be aware of this early on. Support the right metrics and segmentation
  • Things that make up the revenue
    model of SaaS
  • Subscriptions = £- this can be per use
    or
    per month- aligned with your market



    Ecosystem- Channel sales,
    affiliate, API monetisation, Apps. Everything Leveraged



    Network Effect- Monetising the data through use. Anonymous, Benchmark



    Ancillary- anything else! Float/discounts/affiliate sales/ setup fees. Get paid before paying etc.
  • Products-
    computers, appliances, anything physical



    Services- difficult to scale profitably. Onboarding- 80 / 20 rule- roll the 80% repeatable stuff into the app. Only deliver the 20% that is actually custom. Increased value and you can increase price, increase margin.
  • Advertising- Unless you’re in the advertising business- it’s hard. Inventory is finite and hard to execute well. Spiceworks have 125 customers which are advertisers and 800,000 users. Done properly advertising doesn’t belong in this bubble.
  • Subscriptions = £- this can be per use
    or
    per month- aligned with your market



    Ecosystem- Channel sales,
    affiliate, API monetisation, Apps. Everything Leveraged



    Network Effect- Monetising the data through use. Anonymous, Benchmark



    Ancillary- anything else! Float/discounts/affiliate sales/ setup fees. Get paid before paying etc.
  • Things that make up the revenue
    model of SaaS
  • Can’t have silos



    Technology is more
    important- infrastructure, security, governance, compliance taken over for customers



    Marketing needs to be tied into the technology- self service, nurturing



    Revenue model needs to be built into the app. Must be aware of this early on. Support the right metrics and segmentation
  • Every business is different- I don’t know
    the governance and compliance issues at play in your business
  • Network Effect!
  • Ecosystem!
  • Did we reach the goal?
  • Hi-
    My Name’s Justin Pirie






    Alternative Photo:

    http://www.flickr.com/photos/piero/2204978222/

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