Tuesday, July 27, 2010

Too many choices aren't necessarily a good thing

Because of the unusually warm weather here in the Northeast, my neighbor's farm has already started harvesting corn this summer. They plant different varieties throughout the season, carefully timing each planting to ensure that one or another variety is available from mid-summer into October. Earlier this month, they were harvesting a butter & sugar variety called "Temptation." This week, they started bringing in "Montauk." I don't know what's they'll bring in after that.

Whatever they're picking at the time, I buy it.

Not so with the lettuce, though. All the varieties seem to come in at the same time. Standing in front of open crates of green leaf, red leaf, oak leaf, romaine, buttercrunch, bibb, Boston, black-seeded Simpson - never mind the escarole, dandelions and other roughage - I'm stumped.

Too many choices. It's not always a good thing for farm stands... or for software-as-a-service (SaaS) providers.

Too many choices makes it more difficult to buy

SaaS is confusing enough as it is. In case you doubt this, peak into the over-heated debates about the precise definition of SaaS that erupt every few weeks on discussion boards. Adding to that confusion with lots of options doesn't help.

When prospects are confused, they usually don't buy. Or at least they don't buy until they are educated and not confused.

Collateral that explains the basics of SaaS to uninitiated procurement professionals can be very helpful. (See "Getting deals unstuck from legal and procurement.")

Better yet, keep it simple. Avoid the temptation to create a multi-page menu enumerating every possible permutation of feature, delivery mode, support option, installation method, ad nauseam.

Revenue now beats revenue later

Delayed purchases aren't good for any vendor, but they're especially harmful for SaaS providers. Under the SaaS business model, the costs of acquiring a customer are paid up-front, while the revenue comes in over the life of the subscription. The wider that gap between up-front payments and stretched-out revenues, the greater the strain on cash flow and the need for deep pockets.

Besides delaying purchases, too many options can also make it more difficult to support a SaaS application. If each customer has a unique configuration, it's more difficult and costly to maintain each customer. Upgrades, conducted one at a time, are a nightmare. The potential advantage of maintaining a standard deliverable, deployed to all customers, is squandered.

With too many options, something is likely to fall through the cracks for some number of customers. The result: customer dissatisfaction and lower renewals. Most SaaS providers can't survive low renewals. (See "SaaS Renewals and the Multiplier Effect.")

Believe me, as a marketer, I understand the appeal of "choice." Thirteen varieties of freshly-picked lettuce, displayed side-by-side, are beautiful. But I usually end up just buying the corn.

Thursday, July 15, 2010

Greta Garbo would be a poor SaaS marketer

I read an article this morning about Greta Garbo, the famously taciturn actress from the 1920s and 30s. Her closely guarded privacy is so different from most of today's actors, musicians, athletes and celebrity chefs, who use Facebook and Twitter to skillfully cultivate a broad audience of "friends" and "followers," by letting the world in on their every thought.

Personally, I'm more comfortable with the Greta Garbo approach. On personal matters, I try to be careful about sharing "too much information."

This reticence doesn't really work for businesses, though, and it's especially inappropriate for most software-as-a-service (SaaS) businesses.

Quite to the contrary, SaaS providers can often benefit from more sharing. Social media can be used very effectively to communicate with customers, prospects, analysts, and even employees about the company's plans. These companies should be actively using LinkedIn discussion groups, blogs, and other communication vehicles.

These newer forms of communication are particularly useful because they allow a conversation between the company and the customer. Unlike more traditional press announcements or web site postings, which are one-way proclamations, blogs and discussion groups allow comments and interactions. The audience can talk back.

I also like the more personal nature of these conversations. The participants sound like real people, not disembodied corporate entities. They have personalities.

If you listen, you can learn something

Participating in these on-going conversations can help SaaS companies in a few ways.

For one, they can help a company establish trust with its audience. As I've written about before, in subscribing to SaaS solutions, customers aren't really buying a product; they're buying a promise. This requires that the customer trust the SaaS vendor to deliver the service reliably, protect the customer's data, provide support, and enhance the service regularly. (See "Winning customer trust.") When done openly and honestly, talking and sharing usually helps a vendor build that trust.

An open conversation can also help a SaaS company to build better products. The feedback gained from customers and prospects can be used to enhance existing services or develop new ones. Think of the conversation as a kind of electronic suggestion box. Remember, of course, that someone should actually read and respond to the suggestions.

I've heard executives who have moved their companies from a traditional on-premise model to SaaS explain that one of the most valuable and unexpected benefits has been their ability to better understand what users want and to respond more quickly and accurately.

An open and on-going conversation between the SaaS provider and its customers can also boost the likelihood of renewals. The business model for most SaaS companies depends on high renewals to recover the initial customer acquisition costs. (See "SaaS renewals and the multiplier effect.") Conversations provide a mechanism to discuss forthcoming enhancements, service changes, or other plans under consideration. It shows customers a roadmap so they can make their own plans. It can give the SaaS provider a heads-up if there's likely to be push-back on proposed changes. And by the way, don't be at all surprised to hear candid negative feedback, along with the plaudits.

I've worked with a number of SaaS companies to take advantage of these new mechanisms to open and maintain a conversation with their customers, prospects and others. They do it not because it's cool and makes them feel like celebrities. They do it because it has a measurable positive impact on their business.

Greta Garbo was a wonderful actress, but probably would have been a lousy SaaS marketer.