Sunday, February 28, 2010

Engineers are marketeers, too

In my last post, I went out on a limb, claiming that in a software-as-a-service (SaaS) business, customer support is actually a marketing function. Retaining happy customers and reducing defections through first-rate customer support is vital to SaaS success.

So now that I've climbed out on this limb, let me go even further:

In SaaS companies, engineers are marketeers, too.

I know that's an oddball idea, mixing engineering and marketing. So does Dilbert.

There's obviously lots of humor in the notion of "engineers as marketeers," but there's truth to it as well. In SaaS companies, engineers and the development team can contribute to successful marketing efforts in at least two ways.

For one, the SaaS delivery model connects engineers more closely to the market. They can see precisely what the customers are doing with the solution. And because it is maintained centrally, and not on each customer's site, updates can usually be delivered more easily and more quickly.

As a result, the engineers can respond more quickly to market requirements. There's no longer an 18-month or two-year gap between product releases as is common with on-premise applications. Following an agile development methodology, for example, the development team might be able fulfill a customer request or match a competitor's feature in a matter of several weeks. This capability puts engineers in much closer contact with the market. They are no longer separated from customer needs by a gaping chasm.

Though the lexicon of marketing jargon certainly doesn't need another entry, the term "market-driven engineering" may apply.

Let me suggest a second way that SaaS companies could enlist engineers as marketeers. They could build marketing activities directly into the product.

An example: I'm working with a client to provide a series of "tips & tricks" to be dripped out to prospective customers over the course of a trial subscription. The goal is to convert more trials into paying subscriptions.

We initially planned to simply deliver a new tip via email every week over the course of the trial. But a better idea emerged.

Why not build this marketing campaign directly into the solution?

The development team would code functionality into the product that would recognize when the customer was using a particular feature, and it would automatically present the relevant tip to the user at the precise time when it would be most valuable. The tips & tricks become more relevant and much more effective.

It's a useful illustration of how the development team can help the marketing effort. As odd a couple as they may seem, it helps when engineers think like marketeers.

Tuesday, February 16, 2010

Customer Support is actually Marketing

I won't start this post with a rant about a traumatic experience with customer support. There are so many stories of misery already out there - from "United Breaks Guitars" to entire web sites dedicated to wronged customer rants - there's no need for me to pile on.

But airlines, retailers, and technology companies beware: An enraged customer with a blog can be a dangerous thing. And that's not to mention the many others without a blog. They won't blast you publicly; they'll just leave.

Short-term customers cost money; they don't make money

For software-as-a-service (SaaS) companies, customers that just leave are a dangerous thing, indeed. When a SaaS customer leaves early in the relationship or doesn't renew a subscription, the SaaS business model is in peril. Those short-term customers cost money; they don't make money.

What this graph is showing is the payback (lifetime customer revenue) on $1 in customer acquisition costs (sales & marketing expenses) for several of the largest, publicly-held SaaS vendors. For all but two of the vendors, it requires more than one year of subscription revenues to earn cover the acquisition cost. In fact, even over a three year term, most have only barely recovered their sales & marketing costs.

For those interested in a thorough explanation of customer acquisition costs, lifetime value, and other key metrics, see the excellent post from David Skok of Matrix Partners: SaaS Metrics – A Guide to Measuring and Improving What Matters

$1 = 40 cents = a problem

To put it another way, in most cases if a customer departs after only a one-year subscription, the SaaS vendor has paid one dollar in customer acquisition costs to earn about 40 cents in subscription revenue. As the expression goes, you won't make it up in volume.

A company can make it up in length, though. That is, by extending the life of the customer subscription - reducing customer departures and enhancing renewals - the company can recover their sales & marketing costs.

Which gets us back to the issue of unhappy customers and specifically how SaaS companies can keep them from getting unhappy.

Keep customers informed. Let them know about enhancements to the service. Show them how the new features work and explain their benefits. This is what you do for prospective customers. Do the same for existing customers.

Publish a maintenance schedule and send warnings to customers when the service will be unavailable. In fact, some SaaS companies provide a page to check the status of a service at any point in time. And when the service does go down unexpectedly, provide a means to inform your customers that doesn't instruct them to log into the service. (Sounds obvious, but you'd be surprised.)

Monitor customer usage as an alert to possible problems. This is one of the great advantages of a SaaS solution. When customers stop using the service, it may indicate unhappiness. Reach out to the customer. And better to do it now; don't wait until the subscription is ready to expire.

Treat and train your customer support people like marketing people. They're not just techies fixing customer problems; they're critical to customer satisfaction and renewals. I know of at least one SaaS provider in which the customer support agents report to the Chief Marketing Officer. The customer support agents are measured not on "time to resolution," but on customer satisfaction.

This makes sense. In the SaaS world, retaining an existing customer is actually worth more than winning a new one.

Wednesday, February 3, 2010

Secrecy is over-rated

Just because Steve Jobs and Apple can go stealth, doesn't mean it works for most technology companies. Apple is the rare exception of a company that can roll-out a new product like the iPad in front of a global audience drooling with anticipation after keeping the device under wraps for months, although even Apple had difficulty containing leaks.

Time was, this was standard operating procedure in the technology market. New products were developed in secrecy, and new features were closely guarded behind non-disclosure agreements and embargoes until the grand unveiling. I participated in a few of these first-hand with Lotus 1-2-3 Release 4, Notes 3 and eSuite. (Drop me a note if you remember any of these.)

Things change

Most technology companies, though, have abandoned the secrecy around new products, and for good reason.

For one, all the cloak & dagger didn't really protect features from being copied and leap-frogged by competitors. Lotus 1-2-3 brought a long list of innovative features to spreadsheets... and most of them fairly quickly ended up in Microsoft Excel.

This kind of feature leap-frogging is especially true for software-as-a-service (SaaS) solutions, where new enhancements are often brought out quarterly. At that pace, a competitor may be able to knock off any particular innovation in fairly short order. Companies can certainly innovate to get ahead of competitors, but it requires constant innovation to stay ahead. One unique "killer" feature, by itself, isn't likely to stay unique for long.

Secrecy impedes customer input

One of the great advantages of SaaS solutions is the closer connection of providers to users. Because the provider is hosting the solution, it should better understand what users are doing with it and how it can be improved.

To take advantage of this closer connection and respond quickly and appropriately to customer needs requires an open channel of communication. It's difficult to have productive discussions about new features and functions with your user community, while covering the whole conversation under a cone of silence. Yes, it's possible to engage with a select few customers and carefully guard that input, but that eliminates one of key advantages of SaaS solutions over on-premise applications.

Secrecy does not engender trust

Customers of SaaS solutions are not buying a product; they are buying a promise. They are trusting the provider to reliably deliver a stream of functionality and enhancements over the life of the subscription.

To win the trust of prospective customers, SaaS providers are usually better off showing those prospects how they intend to enhance the service going forward. They should be open with enhancements due to be delivered in the short term. (Google makes these new services available as "betas.") For those enhancements scheduled to be delivered further in the future, providers should at least share their general direction. Showing prospects your track record of delivering on your promises will also help win their confidence.

Keeping secrets was essential in the struggle between KAOS and CONTROL, but for the SaaS market... not so much.