Chefs and Grocers (SaaS Models)

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© 2008, Enthiosys Inc, www.enthiosys.com, 650.528.4000
Grocers and Chefs:
Service-Model Thinking for
Product-Model Folks
with
Rich Mironov
CMO, Enthiosys
rmironov@enthiosys.com

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An Unapologetic Product Guy
• CMO at Enthiosys, a product mgmt consulting firm
– Innovation Games®
and customer needs assessments
– Market-driven roadmaps
– Business model analysis and pricing strategy
– Interim executive / Agile PM coaching
• Early brand name experience
– HP, Tandem, Sybase
– MBA Stanford, BS Physics Yale
• Repeat offender at start-ups
– iPass, Wayfarer, Slam Dunk, AirMagnet

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Product Bytes Newsletter
• Monthly thought piece on the secret life of
product managers
• Focus on technology, organizations and start-ups
– “Parenting and the Art of Product Management”
– “The Accidental Agilist”
– “The Roadmap Less Traveled”
– “So Your Product Wants to Be a Service...”
– “Avoiding the Post-course Correction”
– “A Planetary View of Agile Product Management”
• http://www.Enthiosys.com/insights-tools/

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Service-Model Thinking
• Most of us have grown up as “product” product managers
• Shift to hosted services is led by consumer online and
social networking players
• Service model is more than just hosting an existing
desktop or server-based application
• Responsible for end user’s positive experience
• Most of what we’ve learned from product managing
licensed software is different in the SaaS world

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Licensed Enterprise Software
…is like delivering groceries
Enterprise IT customers are responsible for:
• Choosing the right items
• Combining them correctly
• Managing hours and uptime
• Serving and helping users
• Producing tasty results

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Hosted Software-as-a-Service
…is like running a restaurant
• Serving complete meals
• Many simultaneous customers
• End users interact directly
• Hours and availability matter
• Need repeat buyers (WOM)
• One bad experience is
never forgotten

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Product & Service Models
• Licensing (Product) Model
– One-time or annual fee
– With or without maintenance
– Pay before you play
• Subscription Service Model
– Monthly fee per user
• Transaction Service Model
– A la carte
– Per fax, per download, per transplant,
per report, per hour, per update…

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Five Service-Model Lessons
Being a chef, not a grocer:
1. Presentation (UED) really matters
2. Build (rent) multi-tenant infrastructure
3. Daily, not annual, releases
4. Expect slower, incremental sales
5. Do continuous marketing

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1. Presentation Matters
• Traditional IT product customers buy via
second-hand experiences
– Demos, data sheets, feature lists, references,
development specs, futures, salesmanship
– “Let me tell you how good it’s going to be”
• Service-model prospect try your service
– End users, not through intermediaries
– Immediately, anonymously
– Skip tutorials, FAQs, marketing text
– Is free version compelling?
– 5 second rule, easy enough for Mom

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UED is Your Friend
• User Experience Design
– a/k/a UX, UXD, UI, information architecture…
– Maps out exactly how user interacts with your app
• Product managers are not UED professionals
– More than just “arts and crafts,” “taste” or button color
– Detailed, thoughtful application-wide design for how users
interact, how ideas are shown, how data flows
• Consumer online service set the standard
– Social networking, online email, user communities
– Corporate software vendors have arrived late
– Corporate user expectations are defined by off-hours apps

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Read Your Logs
• Enterprise PMs are used
to having no usage data
• Web activity logs tell you
exactly what’s happened
• Did a navigation change
improve feature usage?
• Test, measure, adjust,
test, measure, adjust…

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2. 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 and user
forums

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Not a New Idea
Well-designed software should be host-able,
but typically is not set up for…
• Massive scalability, data distribution
• Multi-level self-service (user, admin)
• Reporting, billing, invoicing
• Complex user/partner hierarchies
• Third party data security obligations
• Automated alerts, capacity planning
See Luke Hohmann’s
“Beyond Software Architecture”

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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-ins 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…”)
Most licensed software companies
lack these skill entirely

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Get Yourself a Platform?
• Dozens (hundreds) of companies offer flavors of
SaaS hosting and platform services
– Blending of traditional “managed service” and
“software-as-a-service” labels
• New kinds of application hosting
– Cloud computing (Amazon, 3tera), email (gmail),
social networks (Ning), BPM (Cordys)…
• Determine your strategic value
– Unique application knowledge and time-to-market?
– Will you compete with your platform partner?
– Assess business risk, switching costs

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3. Daily Release Cycles
• Product folks traditionally think about quarterly updates
and annual feature releases
• Agile creates 2-4 week release opportunities
– Continuously move small features off backlog
– Multiple teams can produce daily updates
• SaaS deployment means you control production and
staging versions of software
– Users get new code with every browser refresh
• Operational process burden to make updates perfect
– Data integrity, UED consistency, failover, rollback

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The Opposite of Release Trains
• “What’s the smallest possible change I can serve
up today that will improve user experience or
application function?”
• “Can we create operational procedures to safely
push small changes daily or hourly?”
• “Taste test: let’s assign 2% of users to the new
version and compare results.”

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4. Incremental Sales Cycle
Initial subscribers sign up more quickly, but…
• Easy/free 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

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No More Shelfware
• 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 models
– Easy to count users
– Discounts last forever

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• “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
5. Continuous Marketing

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Frequent, Helpful Contact
Friendly, low-pressure tone
• Topic of the month
• User profile (success
story of the month)
• New features
• FAQs
• Support contacts,
sales contacts

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Dare to Taste Your Own Food
…use your own service.

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Take-Aways
“Wrapping It All Up”
• Service model adds new
responsibilities but gives you
direct user feedback
• User experience is crucial
• Software happens continuously
• Revenue ramps more slowly,
so installed-based marketing
never stops
• Have your cookbook and
chef’s hat ready!

Q&A
Rich Mironov
RMironov@Enthiosys.com
CMO, Enthiosys

Chefs and Grocers (SaaS Models)

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