Following part 1, here is part 2 including the second half of Waineright’s important lecture:
Waineright starts the revenue generation and pricing discussion, by explaining that a difficult issue for the SaaS vendor is to find a clear relation between the expenses and revenues generated by the subscription fees. He is not elaborating on that point but summarizes it by saying that the specific ISV, as well as the specific industry market, will need to find their way by learning on the go.
I think that there is place to continue investigating this point. I found that SaaS vendors are struggling on a daily basis with calculating and optimizing their low profit margin, obviously this has a clear impact on their business life. Discussing monetization strategies, he presents five ways to generate revenues: subscriptions, advertising, transaction fees (revenue share on the transactions made), digital good and aggregated data (selling information about the customers and industry benchmarks). These options are clearly driven from the economies of scale benefits and in my opinion we must learn them by heart.
“I don’t quite understand it”
The next discussion was about subscription strategies including freemium.”I don’t quite understand it” Waineright says. I can add that acquiring lot of “freemium subscribers” can be a good option for a startup company to prove abilities and value but for an ISV who wishes to generate revenues, the freemium is not an option. The clear conclusion here is that freemium is only a marketing tool that has a cost and that must prove its benefit though there are better tools to achieve a cost effective sales promotion. Waineright says that people expect to get the same service level as if they were to pay for the service (such as Gmail users) and that ..
“there is a huge delta between using something for free and deciding to pay for it as a customer”.
Waineright is adding that there is still the administration cost and that eventually there will be an investment on the infrastructure to support the collection of payments (if the SaaS vendor starts delivering as only a freemium service). For this matter he exemplifies his points using study cases such as Box.net , Malichimp and Intuit. The latter demonstrate a success story with 60% of revenues that are generated from its SaaS operations.
In the last part of his presentation, Waineright suggests to use a trust advisor that can help with strategic guidance in order to do the right things. Due to the character of this lecture and the lecturer’s nature,a as well as from my personal experience I find this suggestion to be very important specifically for software vendors that are finding themselves “forced” to move to the cloud. SaaS is here more than 10 years and although it is just now starting to spread, you are able to find experts in this industry and they will be able to assist. Waineright is summarizing with the following 5 tips:
- Find your prospects – measure carefully your service values and focus on the potential customers’ users that will get the most from the application.
- You are a service provider – SaaS vendor does not deliver toolkits anymore but a “working service”.
- Pricing model must be kept simple and aligned with the service value proposition.
- Simple packaging of the application is important in order to get new customers on-board quickly and continue on with leveraging the upsale capabilities.
- Don’t forget to collect the cash!
The end of the presentation includes Q&A . One of the questions was “why are SaaS companies not profitable?” Learn more by listening to the lecture audio. I want to thank SafeNet and IGT for arranging this event as it was very inspiring. I also want to thank Mr. Phil Waineright on sharing this valuable knowledge with us.