Friday, June 18, 2010

Product naming gets even more complicated

I used to say that the only thing more painful than product naming is root canal. But a few months ago I actually had a root canal, and with the anesthesia and painkillers, it wasn't so bad. Product naming is now back on top of my "most painful" list.

And the pain only gets worse when you're marketing both a software-as-a-service (SaaS) solution and an on-premise application.

Let's consider just one very basic question:

Should you use the same name for both the SaaS and on-premise products?

Using the same name for both does have the advantage of putting all your brand visibility efforts behind a single label. It's difficult enough to get prospective customers to remember your product name; it's even tougher to get them to remember two names.

A single product name for both the SaaS and on-premise products also works well when you're trying to be "product agnostic." That is, you market the same set of features and benefits for both solutions and let customers choose which model they prefer.

"They're the same, only different."

But here's the downside. Even though both solutions go by the same name, they don't deliver the same features, benefits and advantages.

For one, enhancements are delivered differently. The SaaS customers typically get new features more frequently and automatically. So though the SaaS and on-premise solutions may have started out the same, they grow apart over the life of the SaaS subscription.

The SaaS solution also differs from on-premise in the way it's deployed, supported, upgraded, and paid for. You might call both by the same name, but they're fundamentally different. By trying to market them as nearly identical, there's a good chance that you'll understate key benefits of your SaaS solution.

The naming strategy should fit your business strategy

I've seen companies try a few different ways to navigate through this naming challenge. Some keep the SaaS and on-premise products separate, and they use two different names. This works, for example, when the company is targeting completely different markets with the two solutions, and they don't want any confusion about who should buy what.

Other companies use a common overall product name, but they add on labels that distinguish the SaaS version from the on-premise version. For example, the SaaS solution is called "Acme Express," or "Acme Small Business Edition," while the on-premise one is called "Acme Enterprise." This scheme does have the advantage of building visibility for a single name, but it may limit the market opportunity for the SaaS product.

Yet a third version is to use identical names. This might work if you're trying to emphasize "customer choice," though you do run the risk of confusing the customer as I noted earlier. "Same name, different solution" might also be appropriate if your strategy is to migrate on-premise customers over to SaaS. That's a heavy lift, but keeping the same name may make it a little lighter.

The takeaway here is that a product name isn't something you tack on at the end of the process. It's an integral part of your overall strategy. Different naming strategies fit with different marketing and business strategies. Choose wisely.

And might I suggest you have painkillers handy.

Thursday, June 3, 2010

Three deadly SaaS marketing mistakes

I'm sure there are hundreds of ways to sink a software-as-a-service (SaaS) company with poor marketing, but I want to focus on three that can be particularly effective... and not in a good way.

1. Spending money to lose money

In this money-losing scenario, the SaaS company spends more on acquiring a customer than they can earn back in revenues from that customer.

Drew Houston of Dropbox shared an example of this deadly hazard, detailing his company's experience with an Adwords campaign. Despite the common wisdom that Adwords and search engine marketing yield surefire success, careful analysis found that the campaign cost on average between $233 and $388 to attract a customer. The product sold for $99.

His succinct analysis: "Fail."

For the mathematically-inclined, the problem can be expressed as


in which CAC is customer acquisition cost (i.e. sales & marketing costs) and CLV is customer lifetime value.

Either side of the equation could be at fault. I've seen (and even participated in) some high-priced customer acquisition campaigns: clever but expensive direct mail programs, luxurious events, and expensive give-aways.

On the CLV side, a low subscription price, poor renewals, or an inability to convert free trial users into paying customers might be to blame.

In either case, the outcome is the same: You're spending $1 to earn less than $1. As the expression goes, "you won't make it up in volume."

2. Racing against the clock

This is a variation of mistake #1, and equally deadly. A company's CAC exceeds annual revenues, which means it's burning cash in the short term. But they're betting they can reduce CAC, steeply ramp up revenues, and stop burning cash... before it all runs out.

I've seen this strategy work, as in the case of SuccessFactors, where the company's CAC exceeded revenues for a period of time. CAC/annual revenue reached 112% at one point, but over time has come down to a more sustainable 53%. They out-grew the cash burn.

This strategy requires deep pockets, patient (read "fearless") investors, and lots of attention. When CAC consistently exceeds annual revenues, companies introduce more risk into their business plan. They need to rapidly accelerate revenues, and gradually taper down sales and marketing expenses, while constantly monitoring their cash. They're racing against the clock.

3. Bailing with a teacup

While mistakes #1 and #2 involve over-spending on customer acquisition, "bailing with a teacup" involves under-spending. In this scenario for failure, companies set out a huge task for sales and marketing, but then short-change them of the resources they need to do the job. Spending too little can sink a company as easily as spending too much.

Much is expected of sales and marketing: build positive visibility, generate and cultivate leads, close business, retain and re-sign customers. There's heavy lifting to be done here, and it requires adequate funding. Though there's good reason to be cautious about spending, trying to do everything on the cheap may come up short. Figure out what really works, and commit to paying for it.

SaaS companies will typically spend much more on sales and marketing as a percentage of revenues than their licensed software brethren. Concur, for example, spends 31% of its annual subscription revenues on sales and marketing, and spends 54%. For nearly all companies, customer acquisition costs will be the single largest expense on the income statement.

Companies should be prepared to make the required investment to fund marketing and sales appropriately. If they don't have the resources they need, or they're unwilling to make the commitment, it may not be worth spending anything at all. Bailing with a teacup won't keep the ship afloat.

When I talk to companies about SaaS marketing, I often use the "navigation" metaphor. (By the way, that explains the "compass" logo on my website.) I explain how to recognize dangers and discuss strategies to steer around hazards. The three I talked about here - "Spending money to lose money," "Raising against the clock," and "Bailing with a teacup" - are among the most treacherous. This SaaS marketing stuff is not for the faint of heart. Be careful out there.