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Customer Experience for the Cloud


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Customer experience, support, and retention functions have become critical for software executives for driving recurring revenue growth, increasing ARPU and managing churn.

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Customer Experience for the Cloud

  1. 1. Chicago | San Francisco | Boston (877) 603-1113 | www.waterstonegroup.comCONFIDENTIAL: Not to be distributed or reproduced without permission Customer Experience for the Cloud Driving Recurring Revenue via Maintenance, Customer Support & Retention May 2014 Executive Summary
  2. 2. CONFIDENTIAL: Not to be distributed or reproduced without permission Customer Experience for the Cloud | May 13, 2014 1 Customer Experience for the Cloud MCR Maintenance, Customer Support & Retention As traditional software companies shift to subscription models and pure-play SaaS companies continue to scale, Maintenance, Customer Support and Retention (MCR) functions are essential to drive profitability within the subscription model. Effectively organizing and operating these functions is critical to delivering against customer expectations & growing recurring revenue. 1. Monetize Additional Offerings 2. Embrace New Delivery Channels 3. Proactively Manage Customer Success 4. Re-think Professional Services Opportunities to Improve MCR for the Cloud A laser focus on MCR is needed to drive recurring revenue and grow profitability
  3. 3. CONFIDENTIAL: Not to be distributed or reproduced without permission Customer Experience for the Cloud | May 13, 2014 2 Cloud services economics are highly attractive but require significantly more effort post initial sale than traditional models Traditional Software Economic Model Cloud Services Economic Model • Legacy technology providers benefit from a highly attractive economic model – high upfront perpetual license with ongoing revenue streams from MTCE • Economic model puts less pressure on efficient post- sales operations – key revenue generating focus of after- sales support groups is annual MTCE contract renewals • Economics of Cloud Services have significant implications for after-sales support and services functions • Lower upfront payments will require more efficient cost structure • Maintenance revenue must be replaced with other recurring revenues and be managed more proactively • Labor intensive nature of traditional support model needs to be replaced with digital and data driven assets * Source: Adapted from TSIA, 2013
  4. 4. CONFIDENTIAL: Not to be distributed or reproduced without permission Customer Experience for the Cloud | May 13, 2014 3 Customer Experience challenges as Cloud Offerings scale • Low upfront payment and lower switching costs places great deal of importance on renewals, cross-sales and expansion Driving Product Adoption Creating a common and consistent Customer Experience Adding new organizational capabilities and skill sets Optimizing Cost Structure & Driving Downstream Revenue • User communication and education needed as new features and functionality continually released • Business value and outcomes need to be clearly defined to ensure continual user engagement (given pay per user or use model) • Deliver a consistent and scalable customer experience leveraging low- cost delivery channels to manage costs • Proactive churn and account management must be developed given low customer switching cost • New competencies and skill sets needed to manage social/community and other digital channels (FAQ’s, KM, web portal) Cloud Pure Play Challenges Legacy companies transitioning to cloud face even more hurdles Additional Challenges for Legacy • Need to make up lost revenue -- maintenance revenue tends to drive the lion’s share of profitability (60%+ total revenue; 70%+ of total GM) • Address need to support hybrid model - both on-premise and cloud simultaneously • Professional services and other offerings need to support both offerings and business models • Creating a consistent customer experience for both legacy and cloud based offerings – and within traditional delivery channels as well as new digital channels • Need to maintain resources to support on maintenance sales and renewals
  5. 5. CONFIDENTIAL: Not to be distributed or reproduced without permission Customer Experience for the Cloud | May 13, 2014 4 Waterstone Transformation Framework for MCR Embrace New Delivery Channels Re-think Professional ServicesProactively Manage Customer Success Monetize Additional Offerings • Shift the mix of customer support volume to lower cost delivery channels • Implement key technology enablers & drive customer usage of: ̶ Self-service tools, e.g., Knowledge Base, IVR ̶ Multi-channel technology, e.g., chat, mobile, social, voice ̶ Case management across support and infrastructure ̶ User community & social channels • Measure and report service delivery effectiveness, resolution and CUSAT for new channels, as historically done for Field Support, Call Center and Email • Implement an on-going process of driving # of users, feature adoption and penetration of premium tiers and offerings into Renewals function • Consider the following Customer Success roles: ̶ Customer Success Leaders ̶ Account/Renewal Managers ̶ Support Specialists • Use analytics to generate insights into user base and proactively manage customer experience • Re-define the offering portfolio to include anything that will drive additional revenue, e.g. ̶ Premium subscription tiers ̶ Expanded features ̶ Cross sell new applications or 3rd party offers • Manage the portfolio on an ongoing basis, including structured approach to new offering development and retirement • Consider ability of channels to sell-in new offerings • Position post-implementation optimization and performance improvement services to maximize solution value/ROI, achieve customer business outcomes, and enhance footing as a business partner • Accelerate time-to-value with packaged offerings designed to speed deployments (e.g., data migration/import) • Develop engaging and interactive training content and proactive real-time outreach at product “bottlenecks” to improve user experience • Use an expanded set of measurements (e.g., time to value, usage, adoption / go-lives) MCR for Cloud Four key imperatives to prepare for next stage of Cloud Services and recurring revenue growth
  6. 6. CONFIDENTIAL: Not to be distributed or reproduced without permission Customer Experience for the Cloud | May 13, 2014 5 Economic model will vary based on trade-offs made around the transformation framework Note: CAC Payback Period defined as reported sales & marketing cost divided by Average Gross Profit Per Unit; Churn rate: represents annual churn rate as reported or calculated based on retention rate Source: Waterstone Analysis CAC Customer Acquisition Cost ARPU Average Revenue Per User Churn Customer Cancellation Rate Payback Months to CAC Payback on GP Management teams should track & target improvement in four key metrics to improve cloud services economics… Company QCompany L Company K Company J Company E Company S Company P Company G Company A Company D Company O Company N Company U Company M Company C Company T Company I Company R Company H Company B Company F 0 5 10 15 20 25 30 35 40 45 0% 10% 20% 30% 40% 50% Churn Rate % (annual) CACPaybackPeriod(months) … informed by best practice companies and performance improvement benchmarks…. … which will guide decisions on new initiatives and investments within MCR functions
  7. 7. CONFIDENTIAL: Not to be distributed or reproduced without permission Customer Experience for the Cloud | May 13, 2014 6 Business and Operating Model MCR Drivers Execution • How are our revenue streams and margins being impacted as new offerings are launched, as we enter new customer segments, and/or acquisitions are integrated? • Do we have an operating model in place that will increasing profitability as we scale? • Offerings: Does our post-sale offering portfolio extend beyond “traditional” tier support? Are we taking a comprehensive view of all post-sale revenue generation opportunities? Are we successful in driving ARPU post the initial sale? • Service Delivery: Are we thinking comprehensively about our service delivery channels across mobile, social & self-help? Are we confident these channels are not actually driving volume to higher cost channels? How do we measure the effectiveness of these channels (CSAT, Resolution Rate, Time to Resolve)? • Customer Success: Are we focused simply on getting a renewal or are we driving customer engagement and usage of our offerings? Is there clear organizational resources and leadership accountable for account services? • PS & Adoption: Does our services portfolio meet target attach and usage rates? Are they being utilized an ongoing basis (not just at point-of-sale)? • What is the plan and timing for driving these performance improvements? • Are we tracking the right set of customer experience metrics to measure progress? Do we have improvement targets that are well communicated across the organization? Key Questions for Customer Experience Executives Opportunities for transformation and performance improvement
  8. 8. CONFIDENTIAL: Not to be distributed or reproduced without permission Customer Experience for the Cloud | May 13, 2014 7 Learn more about Customer Experience for the Cloud and how Waterstone has helped SW companies transform MCR functions Waterstone MCR Contacts Singu Srinivas Partner Neil Jain Partner Chicago | San Francisco | Boston 877-603-1113