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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 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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Designing Products for the Cloud

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

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