Practical Advice on SaaS Marketing

SaaS solutions for business are not an impulse buy

2012-01-07T14:38:00.022-05:00

I don't know who first thought to put gum, candy and Slim Jims next to the checkout aisle, but it was a stroke of genius. While I'm standing there waiting to unload my shopping cart is the perfect time to tempt me to toss in a few inexpensive items that aren't on my list. I give in to the impulse.

Software-as-a service (SaaS) solutions for businesses are not gum, candy or Slim Jims. People do not buy them on impulse.

Most business software is bought after careful consideration. Sometimes it requires input from several decision-makers. Even buying a relatively inexpensive SaaS solution - if it's important to the business - usually takes time and follows a deliberate evaluation process.

A long term purchase process requires a long term sales & marketing process

Your marketing and sales process should match this deliberate evaluation process. If it requires several weeks or months to make a purchase decision, build a customer acquisition process that extends over several weeks or months. If a decision requires buy-in from people in several roles, build a process that reaches people in each of those roles.

Who hasn't heard a story like this? A gung-ho marketing team posts a compelling white paper on its web site. Dozens download the paper daily, providing their email address to do so. The happy marketers call those email addresses "leads" and shove them off to sales folks.

The overwhelmed sales people sort through this pile - gmail addresses and all - desperately trying to find a speck of gold among the dross. Good luck with that.

Getting from "downloader" to buyer is not a one-step process

A lot of these white paper downloaders probably are prospective customers... but not yet. They're still at the front-end of their decision-making process, just getting familiar with the options available to them. They have a long way to go before they're legitimate leads or qualified opportunities.

Next step for the "downloader" might be to look at the experience of others with this product and with alternatives. They'll want to hear customer stories. Then they may need to go through a technical assessment to answer questions about security and reliability. Next perhaps they'll download a trial or work with a freemium version if one's available. And after that... well you get the idea.

Don't waste expensive sales talent

Marketers should build a nurturing process that keeps prospects engaged and committed throughout this entire, multi-step process. Emails, webinars, white papers, blogging, customer stories or events might all be part of the program. Try some out and see what works best for you.

Be careful not to push the names of prospective customers over to sales executives too quickly. You don't want expensive sales people to do all the work to move "downloaders" into "qualified leads." You'll have a tough time keeping your customer acquisition costs under control, and you'll end up with an ugly finger-pointing marketing vs. sales battle. Who has the time or stomach for that?

This work by Peter Cohen, SaaS Marketing Strategy Advisors is licensed under a Creative Commons Attribution 3.0 Unported License.

Where to start with SaaS marketing

2011-12-11T11:01:00.009-05:00

So you say you want to launch a software-as-a-service (SaaS) solution. And you need to find some customers.

So where do you start?

If you're like a lot of folks, your first thought will be about a web site, search engine optimization, and adwords. Or maybe a webinar series or a social media campaign.

Any of these tactics might work in your customer acquisition plan, so they may be the place you end up... but they're not the place to start.

Why not?

Think a step ahead for a moment.

If you decide to build a new website, what will you say?

If you want to implement an SEO or pay-per-click campaign, which keywords will you target?

If you opt to host a webinar series, what topics will you cover?

If you want to blog or tweet, what about?

The place to start then: Figure out what you want to say and who you want to say it to.

To be more precise:

1. Who needs your solution?

2. What problem do they have that you can solve?

3. And why is your solution better than alternatives?

Until you can answer these questions with confidence and clarity, you're not ready to start.

This work by Peter Cohen, SaaS Marketing Strategy Advisors is licensed under a Creative Commons Attribution 3.0 Unported License.

SaaS Marketing Lessons from ShamWow!

2011-11-08T13:34:00.031-05:00

I've never bought a ShamWow!, but I love their TV ads. The hyper-enthusiastic pitchman, Vince, tells me precisely who should buy the product, what it does, why I desperately need it, and how to buy it... all in 60 seconds!

And what's true for super-absorbent towels is often true for software-as-a-service (SaaS) solutions. Sixty seconds may be all the attention you're likely to get from a prospective customer in your first encounter.

If a prospect finds their way to your website, blog, booth, Twitter feed, Facebook page, press announcement, outbound call, or whatever other form of marketing communication you use, figure that they'll give you about a minute to introduce yourself.

Use that time wisely.

Who should buy the solution?

First make it clear who should be using your solution. Explain, for example, that it's for" K-12 school administrators in Michigan," "property managers with less than 1000 properties" or "auto loan processors." The more specific, the better.

I know companies hate to narrow their market, but something that claims it's "useful to everyone," usually isn't appealing to anyone in particular. (See "Please don't sell me stuff I don't need")

What is the solution?

Give the prospective customer a "handle" to quickly grasp what the solution is. Put it into a recognizable category, for example, "it's a document back-up system," or "it's an inventory management solution." Of course, your solution is better than everybody else's in the category, but first you need to get the prospect thinking about the right category.

Once you get them in the right ballpark, then you can differentiate, as in "we're like Groupon, but much less expensive for merchants to participate,"or "we're a marketing advisory firm that specializes in SaaS for enterprises."

Why do you need this solution?

In classic marketing-speak, this refers to the axiom: "Talk about benefits, not features." Pitchman Vince tells me that ShamWow! will save me time and money cleaning my car, my boat, or my house. There's no mention of how it works or what it's made of, except to say that it's engineered to soak up lots of liquid.

Technology companies, SaaS companies included, often fall into the trap of rambling on about their technology - lots of talk about architecture, platforms, development languages, etc. that describe how the product works. Better to focus on the problems it fixes. At least in their first exposure to a product, most customers care about what it does, not how it works.

Why do you need to buy it from me?

Tell the prospect why they need to buy the solution from you. Explain why yours is better than alternatives. For SaaS solutions, the advantages are often that they're less expensive, easier to maintain, lower risk, easier to use, and faster to deploy. (See "SaaS advantages in a volatile market")

Don't focus only on product advantages, narrowly defined. In subscribing to a SaaS solution, the customer is buying into a long-term relationship, a promise that you'll reliably deliver a service over the life of the subscription. So talk about your reliability, security, and customer service. (See "Winning customer trust.")

And don't forget that the alternatives aren't always other automated solutions. The competition may well be home-grown Excel- or paper-based solutions.

How do you buy it?

Provide a clear path to action. ShamWow's directions - "Call now. Operators are standing by"- may not work for most business-to-business solutions. But your website should make it crystal clear what you want the visitor to do: "Download this paper," "Sign up for a free trial," "Contact us for a demo."

Selling an enterprise SaaS solution is usually a multi-step process. During the first engagement with a prospective customer, you want them to take the next step forward in the process. Make it very obvious where you want them to step.

Other ShamWow! techniques have already been adopted

Though you may not have thought much about lessons from ShamWow! for marketing a SaaS solution before now, some techniques have already been embraced. "Sign up now. Get two months free. No credit card required," isn't much different than "Buy now and we'll give you two mini-ShamWows at no extra charge!"

This work by Peter Cohen, SaaS Marketing Strategy Advisors is licensed under a Creative Commons Attribution 3.0 Unported License.

Get your SaaS customers off to a healthy start

2011-10-30T09:52:00.023-04:00

I recently switched to a new health club. It's better maintained, friendlier, and less crowded than my old club. I also like that there's no up-front membership fee, just a monthly subscription.

But making a change from my well-worn routine, set in place over 12 years, could have been a difficult jump. New location, new equipment, new people.

But all worked out well. Here's why.

On my first visit to the new club, the manager introduced himself, gave me a card with his contact information on it, and introduced me to an assistant manager who was at the front desk.

Then the manager showed me through the facility. He explained how to sign up for spin classes, where to find the jump ropes, and how to adjust the steam room controls.

Finally, he introduced me to a trainer to set me up with a workout regimen. We didn't go through every elliptical trainer, Bosu ball, and Cybex machine in the club, but the trainer put in place a basic program for me.

Renewals are vital for both health clubs and SaaS companies

Health clubs, like software-as-a-service (SaaS) businesses, depend on renewals. And the customer's first experience with the service - the on-boarding process - is critical. Get off to a good start and it's much easier to retain customers.

How did my new health club get this right and how can SaaS companies do the same?

Create a connection to a person with responsibility

On my first visit as a paying customer, I was introduced to the club manager, his assistant, and I knew how to reach them. I now had a direct connection to someone I could talk to with suggestions, complaints, or compliments.

It also works for SaaS companies. Let the customer know who they should talk to with any issues related to the service. It might be one person or it might be two or three (for example. one for support, one for billing, etc.) but try to make a direct connection. A simple letter - "Thank you for becoming a customer. If you need anything, ask me." - can suffice.

Help the customers help themselves

The manager showed me around the club and offered specific instructions on how to take care of basic tasks myself. Of course, I'd had a tour before I signed up, but he walked me through again, this time providing more detail on where things are and how things work.

SaaS companies should do the same. Help new customers to find their way around the service. Walk them through the basics, so the next time they'll have the knowledge to manage it themselves. Better yet, they'll have the confidence to explore further and find new features on their own. A written guide on how to take the first steps, with lots of screen shots, can be helpful.

Deliver immediate value

On my first visit to the health club as a paying customer, a personal trainer got me started on a basic routine. She showed me how to use a few basic machines, adjusted the seats properly, and set a "don't hurt yourself" weight. She even wrote it down for me on "Personalized Workout" tracking sheet. This wasn't a $60 per hour personal training session... it was just part of the welcome process. Following that session, though, I had an established commitment to a new routine.

Likewise, SaaS companies should concentrate on getting their new customers to start to actually use the service. Make sure they know how to login. Help them enter data and walk them through a few basic tasks. Get them using the product and make it part of their routine.

Getting customers successfully on-board is critical to health clubs and SaaS companies. A positive initial experience likely means happy customers. And happy customers means more renewals. (See more on why retention is critical: "SaaS renewals and the multiplier effect")

By the way, on my 3-times per week visits to the health club, I've been making good use of the steam room. The spin class... not so much.

This work by Peter Cohen, SaaS Marketing Strategy Advisors is licensed under a Creative Commons Attribution 3.0 Unported License.

What do you mean by "marketing?"

2011-10-12T10:33:00.015-04:00

I'm not always sure what people mean when they say "marketing."

PR agencies sometimes call themselves "marketing agencies." So do some graphic design firms. Even the outfits that sell tchotchkes - the stuff you give at away at tradeshows, annual sales meetings, and holiday parties - call themselves "marketing firms."

It can be hard to tell what "marketing" is or what it's supposed to do.

Here's how I think about it: Marketing's job is to help acquire and retain customers.

Marketing supports the entire customer acquisition process:

generating awareness
building interest
attracting leads
nurturing leads into qualified opportunities
converting opportunities into paying customers.

And in the case of software-as-a-service (SaaS) companies, marketing is also responsible for helping to retain and renew existing customers.

Don't squeeze marketing

Yes, it's a broad scope of responsibility. That may explain why folks sometimes squeeze "marketing" into a narrower role.

For example, they call it "marketing," but they're really only talking about building visibility, and the sole focus is on search engine optimization or social media.

Or they call it "marketing," but the primary focus is on establishing credibility and thought leadership. These companies tend to rely heavily on webinars, white papers, and speaking at industry events.

Or they call it "marketing," but their entire task is to generate leads.

Of course, each one of these activities is part of the marketing function, but they are not all of it. And if companies focus solely on one isolated element, they may fail to achieve the overall goal: acquiring and retaining customers.

How can you tell when a company is confused or doesn't recognize marketing's broader role?

Counting the wrong things

For one, you'll see them counting the wrong things. If the primary assignment of marketing is to build visibility, they'll tend to focus on metrics such as "impressions," "followers" or "likes."

Counting these things might be important, but only if they're connected to the overall goal. How many impressions are required to generate a lead that can be nurtured into a qualified opportunity and eventually converted to a paying customer?

Lead tossing

A second symptom is "lead tossing." A marketing group that is tasked and rewarded exclusively for generating leads, for example, will often accumulate a long list of names, phone numbers and email addresses which they periodically toss over to the sales group.

Whether or not sales can actually close any of those leads and secure a paying customer isn't marketing's concern.

Pig in the python

When marketing's role is too narrowly confined, you'll often see a "pig in the python." That is, a large number of prospects stuck somewhere in the sales funnel. For example, marketing attracts lots of website visits, but few visitors provide enough information to become a qualified lead. Or marketing generates a lot of trialers, but the company can't convert them into paying customers.

In these cases, marketing is performing one particular task very well, but the overall process is failing.

SaaS firms in particular can't afford to pay for ineffective customer acquisition. If the role of marketing is too narrowly defined and doesn't span the entire customer acquisition and retention process, it will be difficult for a SaaS business to succeed.

This work by Peter Cohen, SaaS Marketing Strategy Advisors is licensed under a Creative Commons Attribution 3.0 Unported License.

Naming SaaS solutions and escaping the 1990s

2011-09-28T15:34:00.016-04:00

One afternoon in the Spring of 1993 in a conference room in San Jose, California I learned that product versions for software are meaningless.

Well, not exactly meaningless, but mathematically illogical, as in 1 + 1 = 4.

The product manager for Lotus 1-2-3 and I were briefing an influential Dataquest analyst on the forthcoming enhancements to the Lotus 1-2-3 for Windows spreadsheet. It was a major overhaul of the less-than-successful version 1.0 and 1.1 releases of the product.

Favorably impressed with nifty new features like instant charting and "Scenario Manager," the analyst suggested we abandon plans to label the new product "release 1.5" or even "2.0."

If we really wanted to make an impact, to heck with arithmetic. Skip a few steps entirely and call it "Lotus 1-2-3 Release 4."

And the tagline that adorned the tee-shirt read: "It's Not Just a New Version. It's a New Vision."

Version numbers are irrelevant for SaaS solutions

Which brings me to the naming conventions for software-as-a-service (SaaS) solutions.

When it comes to sticking version numbers on SaaS solutions, don't bother with labels like 1.1, 2.0, or anything-dot-anything.

Also drop any notions about using "Winter" release or a "Spring" release. These seasonal monikers work for beer; not for SaaS solutions. (I also suspect they're confusing to customers in the southern hemisphere.)

In the old world of desktop applications and on-premise software, we made a big deal about new versions. It helped us sell more software. Our version 4.0 must be better than the competitor's version 3.0. And it must be way better than our old version, 1.1.

It worked really well for awhile and companies made a lot of money on this upgrade cycle. Every couple years we convinced people to rip out the old stuff and buy some new stuff.

An old naming convention doesn't fit a new model

But the logic of the upgrade cycle, and the version labels that went along with it, don't fit with SaaS solutions.

In the SaaS model, solutions are upgraded regularly and the upgrades are delivered as part of the subscription. The user doesn't have an installed version that's outdated, because the user doesn't have an installed version at all.

And if the prospective customer is asking "Which version release will I be buying," you need to do a better job of educating them on the basics of SaaS.

The only people who should know or care about version numbers are in your customer support group. In order to diagnose problems, they may need to know precisely which version the customer has access to at any particular time.

But that doesn't require a big, bold label a la "Lotus 1-2-3 Release 4," "Oracle 8i" or "Windows 95." Version numbers on SaaS solutions are sooooo 1990s.

This work by Peter Cohen, SaaS Marketing Strategy Advisors is licensed under a Creative Commons Attribution 3.0 Unported License.

Old marketing tools in a new marketing world

2011-09-13T10:53:00.021-04:00

I was talking yesterday with a friend who I know from the old days doing public relations. PR back then was about preparing announcements, backgrounders and glossy photographs, arranging press and analyst tours (usually under embargo), and pitching stories over the phone.

Moderate success was a few column inches and a color screenshot in a trade publication. Big time success was positive coverage in The Wall St. Journal or The New York Times.

Things change... but not entirely.

The new PR

I work with clients who still use PR to generate visibility. Now press announcements are heavy with keyword phrases and sprinkled with links, and we send along photos as a .pdf or .gif. They're sent on to bloggers and news aggregators as well as to the shrinking pool of journalists with more traditional publications. The press announcements are also "self-published" via the company's own blog, newsletter or website.

Live events still live

Companies still do live events, too. Though there are plenty of options for people to virtually connect, sometimes face-to-face contact is better. Though events can be expensive - exhibit space, booth set-up, shipping & drayage, plus travel expenses - they can be effective if you clearly understand where events fit in the overall customer acquisition process. Though you may only talk to a handful of prospects at a regional event, if 3 or 4 of them convert to paying customers, it may be a great investment.

Events have also been infused with newer, social media elements. Nearly all of them label themselves with a Twitter hashtag, and the online conversations about the proceedings are every bit as rich as the in-person presentations. Sometimes more so.

Outbound calls are "social selling"

Even outbound telephone calling has had a social media facelift. There's a new concept known as "social selling." In contrast to the traditional cold call, outbound sales people use social media to better target and prepare for telephone conversations.

Here's my point:

Don't rule out marketing tools that you think may be too "traditional." PR, events, and outbound telephone calling techniques have all been "social media-ized," making them more "modern" and more effective. Try them, measure the results, and see if they fit into your SaaS marketing mix.

This work by Peter Cohen, SaaS Marketing Strategy Advisors is licensed under a Creative Commons Attribution 3.0 Unported License.

Tired brains are bad for SaaS

2011-08-27T11:12:00.015-04:00

Thinking too hard can tire out your brain.

Research has shown that our brains can suffer from "decision fatigue" after strenuous mental exercise. It's similar to the way our muscles get tired after strenuous physical exercise.

Experiments conducted at German automobile dealerships put prospective customers through a kind of mental decathlon. They asked them to choose among four choices of gearshift knobs,13 choices of wheel rims, 25 engine and gearbox configurations, and 56 color options. After being forced to make a string of decisions, the subjects/ customers succumbed to "decision fatigue" and opted for the default option. They lost much of their capacity to make choices.

Too many choices can be exhausting, and the customer quickly opts for the path of least resistance. That may mean choosing a default option or it may mean choosing to do nothing.

What applies to cars, applies to SaaS too

When prospective customers' brains are tired, it's more difficult to sell automobiles. It's also more difficult to sell technology solutions.

That's a special problem for SaaS solutions, when it's critically important to acquire customers quickly and cost-efficiently. Anything that impedes purchases is a SaaS business killer.

What hoops have you set up?

What kind of decisions do you force your prospective customers to make? How many hoops do you ask them to jump through?

Walk through the process yourself - from start to finish - and count how many decision points your prospects confront. Often we're asking them to navigate through a tortuous labyrinth of options,... even before they buy anything:

Which of our solutions is most appropriate for your company?
Which version is the best fit?
How many seats will you need?
Would you prefer the free trial or the freemium version?
Which payment plan works best for you?
How long would you like to subscribe for?
Would you like paper or plastic? (OK I don't actually see that one very often for SaaS solutions.)

I agree that there's a legitimate desire to steer the prospect to the best solution to meet their particular needs. But be careful to balance that against the real danger of tiring them out. And offer default options when possible.

Very few exhausted and frustrated prospects become profitable and satisfied customers.

This work by Peter Cohen, SaaS Marketing Strategy Advisors is licensed under a Creative Commons Attribution 3.0 Unported License.

SaaS advantages in a volatile market

2011-08-10T10:00:00.024-04:00

For the last few years, NASCAR, Indy car, and Formula One drivers have been wearing a special head restraint, known as a HANS (Head and neck support) device. It's designed to prevent severe injuries from violent whiplash when the race car suddenly decelerates, as in a crash.

For business folks who have been whiplashed over the past few days by the sudden jolts in the stock market, this device might look attractive for more than just race car drivers.

But along with head and neck restraints to deal with volatility, businesses should be looking at software-as-a-service (SaaS) solutions as well. SaaS offers several valuable advantages in this uncertain market, and marketers should be touting them.

No long term lock-in

Many SaaS subscriptions run year-to-year or even month-to-month. Companies don't need to lock-in a long term commitment. They can assess their need for the solution periodically and easily make adjustments.

Greater flexibility

SaaS subscriptions often give companies the flexibility to add or subtract users as needed. There's no new hardware or software to bring up or take down. When expanding the business, companies can add users. When scaling back, they can subtract users.

Faster deployment

Most SaaS solutions can be deployed fairly quickly. Though it may take some time to input data, configure the solution and learn how to use it, the SaaS application itself is already up and running. The months required to install and customize on-premise applications is cut to days or weeks.

Coping with uncertainty

The bottom line: your prospective customers are trying to manage in an usually volatile environment. Show them how a SaaS solution can help.

This work by Peter Cohen, SaaS Marketing Strategy Advisors is licensed under a Creative Commons Attribution 3.0 Unported License.

Feeding the content monster

2011-07-27T10:48:00.016-04:00

Marketers beware!

There's a ravenous beast on the loose in marketing land, and it's hounding us mercilessly - days, nights, weekends & holidays - with an insatiable craving. "Feed me. Feed me. Feed me."

This beast inhales tasty blog posts for breakfast, devours hearty white papers for lunch, and feasts on entire websites for dinner. And in between meals, it snacks on a bottomless bag of tweets.

The name of this voracious beast - the Content Monster.

Cost-effective marketing requires lots of content

Cost-effective marketing, the kind that's essential for software-as-a-service (SaaS) success, demands content... and lots of it. Paid search, email marketing, PR, and other tactics can be very effective at building visibility and luring in prospective customers.

To work, though, they need a steady diet of content: white papers, webinars, video presentations, tweets, blog posts, press announcements, newsletters, presentations, comments on LinkedIn discussion groups, and whatever other bons mots that we can concoct.

There's an insatiable demand for content - a monster that needs to be fed.

A couple of ideas about how...

Watch your customers

One great advantage of the SaaS model is that you can, and in fact must, pay attention to what your customers are up to. You can learn a lot from them. See what they're doing with your solution and understand how they are using it to improve their business. You can pass along your observations and insights that may be helpful to others.

One note of caution: Sometimes it's best to share these observations about customers anonymously or in aggregate so you don't violate any particular customer's confidentiality.

Re-purpose your content

When you explore one substantial idea, make the most of it. Push it out through multiple media. An extended discussion covered in a white paper can also be presented as a webinar, which can be publicized via a press announcement. Bits of it can be doled out in a newsletter and through blog posts. Like an efficient and cost-conscious chef, let nothing go to waste.

Revisit good ideas

Just because you explored an idea once, doesn't mean your can't revisit it. If a topic was well-received 18 months ago and it's still relevant now, examine it again. Update it with a new angle, squeeze out a new insight, or garnish it with a fresh example.

OK Content Monster, you can go off and digest this tid-bit for now. I'm sure you'll be looking for more soon.
______________________________________________________________

This work by Peter Cohen, SaaS Marketing Strategy Advisors is licensed under a Creative Commons Attribution 3.0 Unported License.

The Girl from Ipanema and the SaaS value proposition

2011-07-12T10:44:00.029-04:00

The girl from Ipanema and Spinal Tap were stuck in my head - an unusual soundtrack that continuously looped through an entire weekend.

You know how that happens with a song. You catch a fragment in a supermarket or an elevator. And then without warning, there's a smooth bossa nova swaying through your brain and you can't turn it off.

As for Spinal Tap, an announcer on Sportscenter used the phrase, "he turned it up to 11." That set off the memory of spontaneously combusting drummers, a ridiculously tiny Stonehenge replica, and "it's such a fine line between stupid and clever."

When songs or movies pop into my mind, it's tough to get them out. Sometimes what works is to go directly to the source - listen to the whole song or watch the entire movie. Fortunately, that's easy to do now.

Thirty seconds and 99 cents later, "The Girl from Ipanema" was playing on my iPod.

A couple of clicks on two different remotes, and I navigated my way from Sportscenter to Netflix on Demand to watch "This is Spinal Tap."

What I want, when I want it. Instant gratification.

Software-as-a-service (SaaS) offers this same kind of instant gratification for information and applications.

Sales compensation information, marketing program ROI data, job applicant tracking, or an email newsletter service...all are just a click away.

Using SaaS applications like these, you can quickly get to whatever's on your mind or on your to-do list - anytime, anywhere. All you need is a browser and internet access.

There's lots of value in this instant access.

Too often though, the SaaS value proposition is focused on the cost advantages. But there's so much more to SaaS than that.

Make instant access part of your value proposition. Explain the benefits and advantages of solutions that are easily available anytime, anywhere.

Instant gratification... customers will pay for that.

This work by Peter Cohen, SaaS Marketing Strategy Advisors is licensed under a Creative Commons Attribution 3.0 Unported License.

Good news & bad news about SaaS

2011-06-29T14:53:00.008-04:00

The good news about the SaaS subscription model: long-term paying customers.

The bad news about the SaaS subscription model: long-term paying customers.

With the software-as-a-service (SaaS) business model, vendors can build a sustainable source of long-term, predictable revenue. As long as the subscription fees cover customer acquisition expenses and other costs, the model should support a profitable, growing business.

So far, so good. But there's a catch:

Long-term, paying customers require long-term care and feeding.

In exchange for collecting on-going subscription fees, the SaaS vendor takes on substantial on-going obligations.

Some of those depend on product development and operations. They need to keep the SaaS solution up and running, protect the customer's data, and add new features over time.

Marketing's role in retention

But marketing plays a role too. Those long term customers also expect on-going communications from the SaaS vendor. They want to know how best to use the system, what enhancements are being developed, and what other customers are doing.

And they don't want just one-way communications. Customers want a way to have input into what new features are built, and they want a way to share information with other customers.

This is where marketing comes in. (I warned you that we weren't off the hook.) Marketers need to take a role in building and maintaining communication channels with existing customers.

Talk to existing customers? For lots of marketers, this could be new territory.

A confession

When I was responsible for marketing traditional on-premise applications, I usually only thought about existing customers on two occasions: once at the annual user group meeting, and second when I needed a customer reference. That's it.

Nothing personal; it just wasn't my job. My main responsibility in marketing then was to find new customers. People who had already signed up and paid weren't my concern.

In the SaaS subscription model, it's all different. Retention and renewals are an essential part of marketing's job. Marketers need to focus on existing customers as much as on prospective customers.

In fact, in the SaaS world, existing customers are prospective customers.

This work by Peter Cohen, SaaS Marketing Strategy Advisors is licensed under a Creative Commons Attribution 3.0 Unported License.

SaaS marketing, baseball and the batting order

2011-06-08T20:00:00.001-04:00

I recently read "Three Nights in August," a wonderful book about the "game inside the game" of baseball. The author, Buzz Bissinger, shadowed St. Louis Cardinal manager Tony La Russa through a three game series against the Chicago Cubs. Bissinger chronicles in detail the manager's thought processes and decision making through 27 innings.

It's not a story about dramatic home runs, sparkling pitching, or spectacular defensive plays. It's more about how La Russa decides when to put on a hit-and-run, who to intentionally walk, and when to go to the bullpen.

Which players and in which order?

A portion of the book describes La Russa putting together the line-up for each game. He analyzes who's hit well against the opposing pitcher, who's injured and needs rest, and which pitch hitters he wants to match up against certain relief pitchers late in the game.

Among these decisions, La Russa gives a great deal of thought to the batting order- who bats where in the line-up. It's a complicated process: who can take a lot of pitches and work a walk, who can steal a base, who can bunt, who can hit for power, who's right-handed, left-handed, a switch hitter, etc.

The challenge for the manager is more than just putting guys up at the plate who can hit. The goal is to construct a complete line-up, in the right order, that produces runs. It's runs, not hits, that win games.

Don't get lost in individual tactics

I hope I haven't lost the non-baseball fans among you, because there's a lesson in here for software-as-a-service (SaaS) marketers. It's about the customer acquisition and retention process.

What matters isn't just the performance of individual marketing programs or campaigns. What matters is whether the overall process produces long-term customers.

There's a tendency to focus too narrowly on individual pieces of the customer acquisition funnel or even more tightly on particular tactics:

Does this individual keyword draw more traffic?
Does this particular white paper attract more leads?
Does this version of the email convert more trialers into buyers?

Given all the sophisticated marketing analytics tools available, it's easy to see how marketers can sometimes get buried in the numbers.

Yes, you need to know which tactics are working and which are not. I encourage SaaS companies to try different things, measure their performance and make adjustments. Marketers trying to do their job without metrics will struggle.

Certain tactics fit certain roles

But it's also important to know the particular role of each tactic and each campaign. Some programs, for example, are designed to build visibility early in the buying process. Others are designed to retain existing customers. These are two different objectives calling for two different kinds of campaigns. If your goal is to reduce attrition, implementing a pay-per-click campaign, no matter how well-executed, probably won't help you.

It matters what happens before and what happens after

It's also important to know what activity precedes each individual marketing tactic and what follows it. Understand the entire customer acquisition and retention process from building initial visibility and attracting leads, through to converting leads into opportunities and into customers, and then retaining and up-selling existing customers. There's not much value in generating lots of leads from prospects if you have no process in place to convert those leads into buyers.

To go back to the baseball analogy (sorry I can't resist), there's no point in stealing a base and getting a runner into scoring position, if the batters behind him can't drive in the run.

This work by Peter Cohen, SaaS Marketing Strategy Advisors is licensed under a Creative Commons Attribution 3.0 Unported License.

Marketing numbers can lie

2011-05-24T15:04:00.000-04:00

I barely passed an accounting course in college. The only thing I remember was a joke about "debits by the window and credits by the door."

I didn't understand the joke then, and I'm still confused by T accounts now.

Thankfully, in a stint as a bank credit analyst, I did finally gain some fluency with business numbers. I learned to cope with, if not exactly love, current ratios, inventory turnover, and return on equity calculations.

This experience with numbers can come in handy in marketing.

Measure, measure, measure

There's plenty of room in marketing for creative designers and copy writers. But if you're managing a marketing group, you'll also need to know your way around a spreadsheet too. Measuring is a big part of the job.

Marketers, and software-as-a-service (SaaS) marketers in particular, can't afford to make decisions based solely on gut feelings or anecdotal evidence. They need hard, quantitative data:

Which marketing programs are driving the most traffic?
What keywords are producing?
What's the free trial-to-purchase conversion rate?
What's the return on social media?

Proceed with caution

Yes, gather and analyze quantitative data, but proceed with caution. Be careful in how you measure and what you measure.

One common measurement flaw is assigning a lead to one particular source. Salesforce.com and other systems have wonderful mechanisms to identify the source of each individual lead. It will tell you tell how many leads were generated by each source. And using that data, you can calculate the cost per lead per source and then make decisions on which programs to continue funding and which to stop funding.

The problem is that identifying a single source for any particular lead isn't really as simple as that. The fact is that over the course of the purchase process, most business customers are likely to touch your company through multiple sources, not just one.

The first contact may be through a keyword search, but later they'll read your newsletter, download a white paper, attend a webinar, and perhaps meet you at a tradeshow. How do you identify which single one of these activities is the sole "lead source?"

Leads are just the start of the process

The focus on leads and lead sources can also distort your view of what programs are really having an impact on your business. "Leads" are only the entry point in the sales pipeline. "Leads" need to be nurtured into "qualified opportunities" and then converted to "closed wins" in order to generate revenue.

If your entire focus is on counting "leads," you may be missing the bigger picture. Besides calculating "leads per campaign" and "cost per lead," marketers should also be tracking "cost per qualified opportunity" and" cost per closed win." You may find that campaigns that generate few leads actually produce many qualified opportunities and paying customers.

Remember, the goal of marketing isn't "leads," "followers," "friends," or "contacts." The goal is revenues.

This work by Peter Cohen, SaaS Marketing Strategy Advisors is licensed under a Creative Commons Attribution 3.0 Unported License.

The Amazon outage and SaaS marketers' response

2011-05-02T15:05:00.000-04:00

I'm sure the recent service outage at Amazon Web Services (AWS) had lots of engineers scurrying around, looking for a fix. I've been at a software-as-a-service (SaaS) provider when the solution's gone down. The operations and support people work through the night and weekends.

Marketing people aren't completely off the hook, though. They should be doing some scurrying around too.

It's not all bad news

First, though, some good news on the reaction to the AWS outage. There's concern, but not panic. The SaaS and cloud market seems to be mature enough by now to withstand this kind of episode. People understand the risks, but they know they can be managed. Occasional downtime - as long as it is only occasional - can be tolerated.

Marketers' role

But there's a reminder here that prospective SaaS customers are legitimately concerned about performance and reliability. Good marketers should be prepared to address those concerns, especially in light of the AWS outage. If they don't ask, CIO's and IT people aren't doing their jobs.

For one, SaaS marketers should clearly explain their company's reliability and performance policies and procedures. A comprehensive document explaining security procedures, data back-up, redundancy, and other processes should be readily available. You might even prepare a short version that covers the highlights.

CIO's and IT professionals should be educated early in the sales process. The IT group might not be the entry point for your solution, but if it's to be deployed broadly through the organization, assume that IT will eventually be a part of the evaluation. Educating and gaining their confidence early on in the process can be very helpful.

By involving the IT people early, you may, in fact, find that the prospective customer can't or won't deploy a SaaS solution for this particular application. There are applications or organizations for which SaaS simply isn't a good fit. Better to find that out sooner rather than later.

Communication is essential

In the midst of the outage and after, AWS has been communicating with its customers about the problem. They reported regularly on system status and provided post-mortem reports to explain what went wrong. Salesforce.com and other large enterprise SaaS providers do the same.

Publicly exposing our companies' mistakes is not a natural act for marketers. But in the SaaS world, it's vital to building the trust required to win and keep customers.

This work by Peter Cohen, SaaS Marketing Strategy Advisors is licensed under a Creative Commons Attribution 3.0 Unported License.

SaaS, Flexibility & Office Furniture

2011-04-24T20:02:00.000-04:00

I learned something recently about software-as-a-service (SaaS) from a table.

This isn't just any table. This is a bivi table made by Turnstone, a division of Steelcase that specializes in office furniture for small, innovative organizations.

This table starts as a work surface. With an add-on "back pocket," it becomes a workstation. Drag two of them together and it's a shared work area. Push four into a group and it's a conference table.

As the good folks from Turnstone explained, it's all about flexibility. Their research shows that small, innovative organizations are trying different things all the time, which means they're constantly re-arranging their working relationships. When the relationships are re-arranged, the furniture needs to be re-arranged as well. Fixed cubicles or walls just don't suit fluid organizations.

SaaS offers this same kind of flexibility, in at least two ways.

The SaaS model gives vendors the ability to respond flexibly to customer requirements. Combining agile development with SaaS delivery, these companies can more quickly deliver product enhancements to all their customers.

Companies using SaaS gain the benefits of flexibility as well. They're not locked into expensive hardware and software that become obsolete over time. And they can flexibly scale their usage of the SaaS resources to fit their needs. There's no need to buy what's required for peak capacity and let it sit idle the rest of the time.

I've talked before about the hazards of selling SaaS on the advantages of price alone. Marketers have many more benefits and advantages to talk about than that: rapid deployment, remote access, regular enhancements, etc. Flexibility should be on that list too.

This work by Peter Cohen, SaaS Marketing Strategy Advisors is licensed under a Creative Commons Attribution 3.0 Unported License.

Explaing SaaS and the Cloud on TV

2011-04-03T09:22:00.000-04:00

Microsoft is running an ad on television that I think may be trying to demonstrate the value of software-as-a-service (SaaS) and cloud computing.

It shows a mother who's having a problem composing a family photograph. To cut and paste different images into the photo, a la Photoshop, she appeals for help "to the cloud."

Huh?

You know the story of the blind men, each touching a different part of an elephant. One touches the leg and insists it's a tree. Another one touches the tail and claims it's a rope. A third one touches the elephant's trunk and is convinced it's a snake, and so on.

If we added the woman from the Microsoft "cloud" ad into this story, she'd be touching a discarded peanut shell that the elephant dropped a long way back on the trail. In other words, not even close.

It's sometimes difficult to explain SaaS and the cloud. One of the challenges confronting SaaS marketers is to educate all the buyers in the decision making process about this new mode of computing. Education is essential to winning the prospective customer's trust, and winning their trust is essential to winning their business.

In this effort to educate prospective buyers, the Microsoft "to the cloud"/photo-editing/discarded peanut shell TV ad doesn't really help. Sorry.

"It's bigger than the application"

A different ad running on television is actually more helpful to SaaS marketers... and it doesn't involve SaaS, the cloud, or even technology. It's from Starbucks.

The ad shows the process of creating a single cup of coffee for an individual customer, all the way from the plantation to the cup labeled with the customer's name, "Sue."

It closes with the tag-line: "You and Starbucks: It's bigger than coffee."

The message here: Starbucks is not just about the coffee. It's about the entire experience. They're marketing a relationship with the customer that goes beyond the product. In fact, they've even gone so far as to remove the word "coffee" from their logo.

That's a useful lesson for SaaS marketers. When it's done well, SaaS is marketed as more than just the application. It's about the entire customer experience: it's easy to purchase and deploy, simple to use, and painless to upgrade and maintain.

In addition to the features and functions, SaaS is about a commitment to deliver an increasingly useful solution reliably and securely over the life of the subscription.

It's bigger than the application.

This work by Peter Cohen, SaaS Marketing Strategy Advisors is licensed under a Creative Commons Attribution 3.0 Unported License.

Building connections to your SaaS customers

2011-03-27T10:49:00.000-04:00

I'm one in a million.

Actually, I'm number 172,370 in a million. So says the thank you note I recently received from Reid Hoffman, Co-founder and Chairman of LinkedIn, as a way of showing his appreciation to me and the other first million LinkedIn users. His note says, "I want to personally thank you because you were one of LinkedIn's first million members (member number 172370 in fact!*)"

The company just added its 100 millionth member and it wanted to celebrate the milestone by recognizing and thanking the first million LinkedIn early adopters.

Believe me, I'm not one of the most high-profile LinkedIn users, nor am I one of the most sophisticated users. And I'm definitely not one of the users spending lots of money with LinkedIn. But I've been recognized nonetheless.

OK, it's not exactly personal. My notification came via a mass email, over Mr. Hoffman's electronic signature, and with my name filled in via that "automatically fill in name here" function.

But there's something in this recognition gimmick that I like.

For one thing, I get to brag to you that I'm LinkedIn member number 172,370, and I can lord it over all of you who are 172,371 and higher.

But besides that, there is a lesson here that could be useful to software-as-a-service (SaaS) marketers.

It's about how to treat your customers. Remind them that they matter to you. Recognize them as special. Look for excuses to say "we know you're out there and we appreciate you."

With some thought, you could surely come up with a list of reasons to recognize them for some special achievement: people who use your application in an unusual way, most active users, newest users, users from places we'd most like to visit... whatever.

And you could probably find more personal ways to convey this recognition and appreciation than a mass email to one million of them.

There's the tried & true annual customer conference - always a great excuse to get to Orlando or Las Vegas.

But there are things that you can do besides these annual events to build an on-going relationship. For example, many SaaS companies find it valuable to host online customer communities, a place for the people using a solution to share ideas, ask questions, suggest enhancements, and interact with each other and people inside the company. See Constant Contact or Concur for examples.

Why do they bother setting up and maintaining these online communities? Because it helps the company. It builds an on-going connection, a stronger relationship between the company and the customer. The result - deeper loyalty, more positive referrals, a better understanding of customer requirements, higher renewals, and fewer defections. These are essential ingredients for a successful SaaS business model.

One more thing: To all you LinkedIn users who aren't in the first million, maybe you'll get your "thank you" note when the company adds its 200 millionth member.

Note: SaaS Marketing Strategy Advisors provides marketing services to Constant Contact.

This work by Peter Cohen, SaaS Marketing Strategy Advisors is licensed under a Creative Commons Attribution 3.0 Unported License.

Please don't sell me stuff I don't need

2011-03-10T11:39:00.000-05:00

My regular readers can skip the next two paragraphs. I need a minute to talk to my brethren in the PR community... privately.

To the PR folks who have been pitching me on stories about computer viruses, streaming music to cars, online advertising solutions, and 3D mice, please stop. If you've read my blog or newsletter, you'd know that I do not write about these topics. While I appreciate your generous invitations to talk with the CEO, download screen-shots, or receive a review copy of your client's book, they're wasted on me.

Let me pass along some advice that I was lucky enough to get from a seasoned PR pro and mentor early in my career. "Read the papers!" Read what the editor, analyst, pundit, or blogger writes about before you pitch a story to them.

Identify your buyers

OK, regular readers, you can come back now. I was just asking PR folks to please stop sending me stuff I don't care about. Actually, that's a good practice for all marketers. Know who your prospective buyers are and identify them explicitly. Skyward, for example, does a good job of this:

This item sits on the top of their home page. If you're not responsible for student, finance, or human resource administration for K-12 school districts, you're in the wrong place.

And what about companies that have multiple audiences? They can try to sort out each audience and direct them each down the right path. Concur, for example, asks on its home page whether visitors are a "small business" or "medium & large business."

Coupa takes this a step further and asks visitors to identify themselves by their needs, their company's size, and their role in the organization:

Why we "spray & pray"

Targeting is much more effective than a broad, undifferentiated approach, where you blast your offering out to anyone with an email address. But the 'spray & pray" approach persists. Why?

For one thing, it's cheap and easy. The marginal cost of adding 1000, 10,000, or 100,000 email addresses to your distribution list is insignificant. That's the secret behind spam.

Another explanation is poor metrics. If marketers are rewarded for "impressions," "visitors," or "contacts," they're more likely to focus on activities that cast a wide net. This, despite the fact that most of the "catch" has no use for the product and will never turn into a paying customer. Rather than rewarding marketers by "how many people walk in the door" or "visit the web site," measure "qualified opportunities" and "wins."

There's also the fear that marketing to a well-defined audience will scare off some prospects who are excluded from the explicit target. Marketers don't want to rule anybody out.

The truth is, though, there really aren't a lot of enterprise software-as-a-service (SaaS) solutions that can be used by everybody. When someone tells me that "this product can be used by anyone," I'm skeptical.

My advice: Find the people who truly can benefit and focus your marketing efforts on reaching them.

This work by Peter Cohen, SaaS Marketing Strategy Advisors is licensed under a Creative Commons Attribution 3.0 Unported License.

Social media is a good fit for SaaS

2011-02-24T09:37:00.000-05:00

NPR's Fresh Air host, Terry Gross, recently interviewed Biz Stone, the co-founder of Twitter. She asked him, once the founders created Twitter, how did it catch on.

Stone's candid answer, "Well, it didn't at first."

He explained that for the first nine months of the product's existence, the only people using it were friends and family. Most people they talked to about it decided that "Twitter is not useful" and "it's the most ridiculous thing we've ever heard of."

Now that the small group of "family and friends" has grown to about 200 million user accounts , it appears that somebody somewhere has found something useful to do with Twitter after all.

Besides letting followers know that you've just ordered pepperoni and pineapple on your pizza, your flight from SFO to Logan is stuck on the tarmac, or that you're heading to Tahrir Square to protest against the government, Twitter and the other social media networks can be useful for businesses as well.

And they're an especially good fit for software-as-a-service (SaaS) businesses.

Social media allows back & forth and side-to-side

For one, social media is interactive. Unlike more traditional outbound broadcasts, it allows conversations that go back & forth, and side-to-side. Companies can talk to customers, customers can talk back to companies, and customers can talk to other customers. In fact, it's possible that customers can talk to prospective customers.

This fits the SaaS model, which benefits from close proximity to customers. When companies stay close to customers, they're better partners: more responsive, more engaged, and better able to deliver what the customers want. This is essential to the long-term relationship and high renewal rates that are required for most SaaS businesses to be profitable.

Speak"humanese"

Social media communications tend to sound more human, less corporate. That's usually good for a long-term relationship. If customers sense that they're dealing with real people, not an anonymous corporate entity, they're probably more likely to renew. Even though you're marketing a business-to-business solution, you're still communicating person-to-person.

Let current customers help acquire new customers

Social media's viral nature is also a good match for SaaS companies. At its best, social media lets current users "sell" the service to prospective customers. One user loves your product and tells ten other Facebook friends, Twitter followers or LinkedIn connections. They in turn tell their friends, followers and connections. All of this holds down your customer acquisition costs and accelerates your sales cycle... both very important to the SaaS business model.

It's not just about technology

If you've not already adopted some of these social media tools to help market your SaaS solution, pick one and give it a try. You can find lots of resources about how to use these tools.

But don't just adopt the tools. Adopt the attitude. To engage with customers, nurture a long term relationship, and act and sound like a real person isn't just about technology; it's a state of mind.

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Photo of the week

I know some folks liked the photo from my neighbor's farm taken over the summer. Here's what it looks like in February.

How not to calculate a SaaS marketing budget

2011-02-07T09:30:00.000-05:00

I hear this question often from software-as-a-service (SaaS) providers: "How much should we spend on marketing?"

If these marketers have experience working in the traditional, on-premise licensed software world, they're usually familiar measuring marketing spend as a percentage of annual revenue.

That metric is often used to allocate and track marketing budgets for licensed software companies, and they typically spend somewhere between 5 and 8 percent of annual revenues on marketing.

Unfortunately, in most cases neither that metric nor that benchmark are very useful for SaaS providers.

SaaS marketers are usually better off with a metric more appropriate to the unique SaaS business model: marketing spend as a percentage of the lifetime value of the customer.

That measure better accounts for the fact that revenues extend over the life of the subscription, and they aren't recognized in a large up-front license fee. (I've written extensively on this topic and the impact on marketing. See, for example, "Three deadly SaaS marketing mistakes.")

But what if you choose to stick with the old standard marketing as a percentage of annual revenue? What are the consequences of using the wrong metrics and benchmarks? A few bad outcomes are possible:

Under-funding: A business fixated on measuring marketing as a percentage of annual revenue is likely to under-fund marketing and choke off the fuel for customer acquisition.

Over-pricing: To bump up annual revenues to better cover customer acquisition expenses, the company may over-price their solution relative to the value perceived by the customer.

Over-promising: A business plan that shows artificially low spending on marketing relative to annual revenues may be attractive to investors on paper, but disappointing in reality.

Under-funding: A plan that expects an unrealistically rapid return on marketing spend is likely to be under-funded and unable to sustain marketing activity over an extended period of time.

Inadequate attention to renewals: A SaaS company focused on annual revenues vs. lifetime revenues may be ignoring existing customers and securing renewals in favor of attracting new customers.

Swinging for the fences: A focus on high short-term returns may lead companies toward magic bullet, quick-fix marketing solutions and spending a burst of money on programs that will likely flop.

Bottom line: If you measure the wrong thing, you'll probably do the wrong thing.

SaaS makes a mess of the org chart

2011-01-23T14:12:00.000-05:00

SaaS messes up organization charts. It takes those boxes that represent separate departments and it smushes them together.

Let me give some examples.

Marketing & Sales: The marketing organization and the sales organization used to work separately, though they'd occasionally meet to cast blame back & forth. "Your leads are worthless; Your sales guys don't follow up," ad nauseam.

But the SaaS model requires an ultra-efficient customer acquisition process, and there's a penalty to pay for that kind of friction. SaaS companies can't afford to run marketing programs that generate leads that the sales force can't or won't follow up on. A disconnect means wasted leads, lost sales, squandered resources, and lots of nasty finger pointing.

Customer Support and Sales: Customer support and sales were also once considered neatly separated on the org chart. Sales brought in new customers, tossed them over to the customer support people, and moved on.

Not so in the SaaS world. Because SaaS customers can leave once their subscription expires and the company's success depends on renewals, the customer support organization is selling as well. Their ability to deliver quality support and a positive experience is critical to renewing customers and reducing churn.

There's no point in sales working hard to bring new customers in the front door only to have an inadequate customer support organization lose them out the back door. Given the high cost of customer acquisition, SaaS companies usually can't afford to win customers more than once.

User Experience and Marketing: I'll add one more example of org chart boxes getting scrunched together in the SaaS model: the user experience (UX) team and the marketing group.

Those clever and creative UX folks who make solutions usable share the same goals as the marketing team: clarity and simplicity.

The UX designers are trying to make applications easy to use. This is especially critical for broadly-deployed SaaS applications such as expense reporting or talent management.

Trying to patch over a confusing UX by providing lots of training and customer support is very expensive and doesn't fit the SaaS model well. Just a handful of long support calls might suck up whatever profit would be gained in a monthly subscription fee.

Similarly the marketing team is striving for clarity and simplicity. Confusing messages that target the wrong audiences will miss the most likely prospects. Worse, they'll bring in inappropriate prospects that won't eventually purchase your product. These bad leads cost you money; they don't make you money.

But the connection between UX and marketing goes beyond the fact that they share common goals. They actually depend on each other.

It's a waste to hide an elegant UX behind a heap of marketing mumbo-jumbo. If prospective customers are unable to quickly grasp how a solution could be helpful to them and why it's better than alternatives, they're not likely to go beyond the company's home page, brochure, or announcement to actually look at the product.

By the same token, no amount of clear messaging can save a complicated UX. If the product is hard to use, it's hard to sell... and even harder to renew.

Good UX demands good marketing and vice versa.

2011: More of the same... only worse

2011-01-05T15:43:00.000-05:00

What's new for 2011?

Not much, really.

If you were looking for my "top ten" list of dramatically new trends for the new year, sorry to disappoint you.

What I expect is that we'll see many of the same things we've been seeing for awhile in software-as-a-service (SaaS) marketing... only more of it.

More confusion

Customers will confront more confusion about SaaS, PaaS, IaaS, cloud computing, private clouds, public clouds, hybrid clouds, etc. Much of that is a natural consequence of a still-emerging market, with every vendor, analyst, pundit, and guru trying to put their own spin on things.

For SaaS marketers that means you should continue to educate prospective customers. To put a twist on the old Sy Syms maxim, "an uneducated consumer isn't likely to be a customer at all." Help prospects to understand the basics of SaaS and you'll gain their confidence and accelerate the sales process.

More noise and distractions

It will be even more difficult to cut through the clutter this year and capture prospects' attention. Speaking from my own experience, there's ever more stuff coming at me through my email, phone, mobile device, web browser and TV screen. And at the same time, I think my attention span is getting shorter.

Marketers will need to get their messages across with laser-sharp clarity. If prospects can't figure out in less than a minute what problem you solve and why they should pay you money for it, they'll move on.

Over the course of the year, I'm planning on doing a "one-minute drill" on selected SaaS vendors' marketing messages to assess how well they articulate their benefits and advantages in under 60 seconds. Stay tuned.

More pressure on marketing costs

Companies learned a lot about cutting costs in the past couple of years, and many learned to do marketing on a shoestring. Be assured that our friends in the finance group noticed that marketing folks could do more with less. Or at least we could do something with less.

Bottom line, don't expect a huge marketing budget windfall in 2011.

If they haven't already, marketers will need to put processes in place to regularly measure the success of each program. The cardinal rule still applies: the cost of acquiring a customer can't exceed the lifetime revenues that the customer will generate.

And keep in mind that programs and tactics that worked well last year may not work so well this year.

More competition

One great thing about SaaS is that it's getting easier and less expensive for new companies to build an application. One terrible thing is that it's getting easier and less expensive for new companies to build an application.

I've seen a handful of clever developers build an application on top of Force.com in a matter of months. Easy access to outside platforms and infrastructure at "pay-as-you-go" costs makes it lots easier, cheaper and faster.

For existing SaaS solution providers, expect a continuing influx of start-up competitors who think their solution is a little bit better than yours.

Add to this that more large, on-premise application vendors won't ignore the SaaS challenge any longer, and those that have been dipping their toe in the water will likely take the full plunge soon. If they do it well, these deep-pocketed vendors can make a big splash.

For you existing SaaS vendors, prepare yourselves: sharpen your value messages, hone the customer acquisition process, and engage your existing customers.

More engagement with existing customers

With the growing use of social media, customers expect more interaction with their vendors. They want to know more about what features are available, how best to use them, and what's coming in the future. And they want an opportunity for a conversation, not a one-way outbound broadcast.

SaaS marketers should communicate regularly with customers through all appropriate channels. For SaaS businesses that rely on renewals (and that's most of you), existing customers are also prospective customers.

In addition to email, newsletters, events or whatever else has worked in the past, try out social media. Facebook and Twitter are becoming more widely used, even for business-to-business companies. Though you want to be careful not to be too casual, you may find that the more "human," less "corporate" tone of social media is refreshing.

Have a happy and prosperous new year.

3½ ways to lose customers in 2011

2010-12-27T09:39:00.000-05:00

If you’re marketing a SaaS solution and have had enough with year-end wrap-ups, predictions for the new year, or sure-fire tips for success in 2011, here’s the antidote:

3 ½ ways to lose customers in 2011.

Ignore them

Once you’ve won a customer, consider your marketing job complete. Focus on the prospects, not the ones who are already sending in a check every month. Leave them out of the loop on product and service enhancements, and ignore their suggestions for improvements. Just remember to turn on the charm a few weeks before the end of the subscription.

A corollary to ignoring existing customers: oversell them

Pitch them on renewing and upgrading with every single interaction. That includes unresolved customer support issues. Nothing an exasperated customer wants to hear about more than a discount… if they renew their service for another 3 years.

Hide from them

If your service goes down, your communications to customers should go down as well. Keep them guessing about your system’s status, and let them rely on other uninformed customers for information. Shrug off their concerns and don’t even consider an apology.

Surprise them

Add new features and functions without warning. Better yet, remove certain features without warning. Make major changes to the user interface. These are especially effective for applications used only occasionally, such as annual performance review solutions.

OK, back to the traditional new years' self-improvement resolutions. Pardon the interruption.

Free is not a SaaS Marketing Strategy

2010-12-14T19:17:00.000-05:00

I like free stuff as much as the next guy. Just check out my t-shirt collection - all free giveaways from technology companies. In fact, many of these t-shirts have outlived the product or company they're promoting. (Remember Lotus Improv or Prime Computer?)

I even use free software. I have free gmail and Twitter accounts, and nobody at Google sends me a bill for using the Blogger application that I'm using to write and host this blog post.

There are some good reasons that software companies use "free" as a marketing tactic. It can attract visibility and generate interest to fill the top of the sales funnel. It can help qualify leads into opportunities and covert opportunities into paying customers. Extending a subscription "free of charge," at least temporarily, can even be effective in retaining customers and reducing churn.

But beware: "Free" by itself, is not a marketing strategy.

Giving away your product, whether in the form of a "free trial," a "freemium," or plain old "free forever" can be an effective tactic, but it cannot be the sum total of the plan.

Among other things, a marketing strategy needs:

a clearly-defined target market: people or organizations with a problem they want to solve
a solution that meets the needs of that target market: a way to solve the problem
a solution that's better, faster or cheaper than alternatives.

This value proposition is a required foundation of any marketing strategy. Without it, you may have an intriguing idea or a clever technology, but you don't have something on which to build a business.

In addition to the value proposition, the marketing plan needs to specify a way to acquire customers cost-effectively. You can't spend more on acquiring customers than the revenues those customers will generate over time.

Given the nature of the SaaS model, this is a particular challenge for SaaS companies. They are typically spending money up-front on sales and marketing, but earning it back over an extended period of time via subscription fees. The marketing plan will need to specify how to make that equation work.

Don't fall into the trap of thinking that "free" is the answer to all your marketing needs. An effective customer acquisition and retention plan means much more than giving away your solution through your website. "Free" doesn't relieve a company from thinking hard about its target market, value proposition, or delivery mechanisms.

What are you customers saying about you?

2010-11-27T11:11:00.000-05:00

Have you purchased a new car lately? You can find out everything you need to know about any make or model without ever stepping foot on the lot. All data on features, colors, and accessories are available from the manufacturers' sites, and detailed pricing information is readily accessible from sites like Edmunds.com.

You can also find out about particular dealers. Better yet, that information comes from actual buyers. These folks will tell you about their entire experience buying and servicing their new cars. A simple Google search led me to these candid reviews of my local VW dealer on Yelp!

Some they should be proud of...

I went into the dealer with all these worries, and the sales guy, John, was quick to show me that there nothing to worry about there. No sales pressure whatsoever. No haggling, no tricks, and they were very nice and patient through the whole process. Brandon V.

Others not so much...

Super rip off and no customer care - this place charged me 2 hours of labor for a 0.5 hour job, and were unapologetic when I argued about it.... I talked to the service manager and he defended the 2 hours to bolt two pieces of metal to the frame. This place is worthless. I'd never go back. Ken H.

Ouch!

SaaS providers should let their customers talk to prospects, too

As you might expect, most of the customer opinions you'll find online relate to B-to-C businesses. But there's an opportunity for companies selling to enterprises to jump in here, too. In fact, for SaaS companies it might make a lot of sense.

For one, SaaS providers should be conscientiously attending to the needs of their existing customers as a on-going imperative. Renewing existing customers when their subscriptions expire is usually critical to the success of the business. If they're doing their job properly, SaaS providers should have a large pool of satisfied and well-informed customers willing to express positive opinions.

Relying on happy existing customers to help sell new customers should also help SaaS companies with another business requirement: cutting the cost of customer acquisition.

Let your prospects connect directly to existing customers. Don't ask your Sales folks to carry the entire burden of closing a prospect. SaaS providers should open their customer forums to anyone, and actively encourage their prospects to log in and ask questions. Besides the usual link to Sales - "Contact us for more information", why not add "Contact our customers for more information," and provide a direct link to the Customer Forum?

I know that can be a scary notion, and you shouldn't expect customers to shill for you. But they will tell a credible story. And if, on balance, they report that their vendor (that's you) has treated them fairly and delivered good value, you've got nothing to fear.

Proximity to market

2010-11-07T14:34:00.000-05:00

I've heard of CEOs delivering pizzas and Jolt Cola to software developers. I know about companies that have sent flowers to developers' families, with apologies for keeping them away from home on nights and weekends. I've even seen a company treat the entire development team to a week-long Caribbean resort vacation, all-expenses-paid.

Why this largess? Believe me, it's a lot more than just an outpouring of TLC to the folks who design, write and test code.

No, it's all about time. Specifically, time-to-market. Companies see value in prodding, cajoling and rewarding development teams for shipping product and hitting a deadline. The thinking goes that faster-to-market equates to competitive advantage.

I'm not convinced that time-to-market, and specifically first-to-market, always conveys much advantage over the long term. There are plenty of examples where the second or third vendor into a market eventually walks off with the lion's share. Think Microsoft in desktop applications or Google in search.

Proximity-to-market more important that time-to-market

Time-to-market is probably even less important for software-as-a-service (SaaS) companies. What matters more for them is proximity-to-market.

"Proximity-to-market" refers to the ability of SaaS providers to stay close to customers so as to be in a position to accurately read and analyze customer needs and to respond quickly.

The SaaS model presents providers with at least two significant proximity-to-market advantages:

1. The ability to observe customer behavior closely

A hosted SaaS solution provides the vendor an opportunity to know precisely how the customer uses it. The provider can directly observe, for example which features are being used, which are neglected, and which cause customers to review the "support" FAQs? On-premise solution vendors can try to accumulate this same information by observing behavior or through customer surveys, but it's more difficult and less accurate.

2. The ability to respond quickly

SaaS providers that follow agile development methodologies typically have the ability to respond rapidly to signals from customers. They can develop new features or fix existing ones. Moreover, they have an effective mechanism to deliver these enhancements quickly and without significant disruptions. SaaS vendors typically don't face the long development cycles and upgrade issues that confront on-premise vendors.

SaaS providers should leverage these proximity-to-market advantages. Stay in touch with customers through moderated forums or social media networks, analyze customer support requests, track usage patterns, and use whatever other means you have to observe customer behavior and sentiment. Analyze and prioritize the information, and feed it to the development team. It goes well with pizza.

Customer Service: Timing is Everything

2010-10-25T09:00:00.000-04:00

In an ideal world, you'd all be delivering software-as-a-service (SaaS) solutions so simple to learn and easy to use that customers would require no help. And you'd be so flawlessly reliable that users would never experience any service downtime or performance flaws.

The fact is, though, most of us live in the real world, not the ideal world. And in the real world, bad stuff sometimes happens: Customers get confused, a feature doesn't work, service goes down.

How you respond to these inevitable events matters especially in a SaaS business. Success depends on existing customers renewing their subscriptions. One quick way to lose existing customers is to deliver poor customer service.

When it comes to customer service, timing is everything, or at least it's really important. Two recent experiences will help illustrate my point.

Get out in front of the problem

I use an on-line service from Carbonite to back-up my files. The process happens automatically in the background, and unless I need help restoring data (not yet, fortunately), I have no reason to contact them for support.

Apparently, though, as the company upgraded its software, some customers did have reason to call, and they experienced delays in getting through to support people.

Carbonite's CEO, David Friend, addressed the issue publicly and proactively, sending this note to all customers.

Dear Peter,

In the past couple of weeks our response time to customer inquiries has been much too long. This is because a major upgrade to our software, which includes a wide array of improvements, generated much more demand than we anticipated. With that came a surge of questions that had to be fielded by our customer support team, which in turn lengthened our response times.

As the only online backup company that provides free chat, email and phone support, the quality of the support we provide is very important to us. So if you had to wait a long time for a response from us, we’re very sorry to have let you down. As of today customer support answer times have improved greatly and will soon be back to normal.

Thank you for your business, and again, we appreciate your patience and understanding.

David Friend, CEO
Carbonite, Inc.

P.S. If your Carbonite software hasn’t yet been upgraded to version 4.0, it will be upgraded automatically soon. If you have any questions or concerns, please contact us or simply reply to this email.

I'm putting lots of trust in this company to protect my vital data and to help me restore it if I have a problem. I pay them for peace of mind. This kind of note - candid, reassuring, and proactive - bolsters my confidence in them. When it's time to re-subscribe, I'll have no reason to look elsewhere.

It's not always the right time to sell something

My web site, SaaS Marketing Strategy Advisors, is hosted by Network Solutions. I selected their service because it provided a complete package, including domain names, a web site builder, web hosting, and email addresses, plus 24-hour, 800# customer support.

With my limited HTML expertise, I usually call the customer support line at least once every month for help. I'd grade the support "barely satisfactory." Their agent usually gets me through a partial solution... and then I figure out the rest through trial & error on my own.

Though I can live with the mediocre service, at least for now, what I have an especially hard time with is the pivot into "sell mode" at the end of every single customer support call. No matter whether my problem has been completed resolved, or I'm more confused and frustrated than when I started, the agent invariably pitches, "Renew your subscription now, and I can save you money."

A bit of advice: This is not always the best time to try to sell something. Confused and frustrated customers just want to fix their web site and get on to running their business. They aren't really in the mood to pull out their credit card to re-up for another year.

I know it's in the script folks, but can you please make room for some common sense?

SaaS market consolidation; Blame Wimpy

2010-10-08T11:49:00.000-04:00

There’s been a lot of consolidation in the software-as-a-service (SaaS) market lately, and I think I know who’s to blame: Wimpy. You may remember that he’s the character in the Popeye cartoons famous for promising “I’ll gladly pay you on Tuesday for a hamburger today.” Stay with me and I’ll explain.

It’s easy for new SaaS firms to get rolling

The SaaS model makes it much easier and less expensive for companies to build new solutions. By leveraging resources available in the cloud and agile development techniques, it is usually takes much less money and less time to develop a new SaaS application than it took to build a traditional on-premise application.

Forget about spending several million dollars over two or three years. I've seen companies with a handful of clever developers bring highly-functional products to market in a few months.

It’s growing a customer base that’s difficult

But getting a functional product out the door is just the start. Once the solution is ready for market, there’s lots of difficult and expensive work still to be done - namely, acquiring and retaining customers.

Look at any of the well-established SaaS firms and you’ll see that customer acquisition expenses far exceed product development expenses. According to financial statements of nine large SaaS companies, sales and marketing expenses average 44% of annual subscription revenues. By contrast, product development expenses average only 12% of annual subscription revenues.

In customer acquisition, size matters

In the effort to acquire and retain customers, size matters. For SaaS companies, being bigger has several advantages:

1. Bigger usually means deeper pockets.

Here’s where the “Wimpy Effect” -“I will gladly pay you on Tuesday for a hamburger today” - applies.

To acquire customers, SaaS providers have relatively large expenses for sales and marketing people and programs, and most important, these expenses are incurred up-front. But the payback occurs over the life of the subscription.

Or as Wimpy might explain, "I'll gladly pay you over the next several years for lots of delicious sales and marketing today."

SaaS providers need to pay for sales and marketing now, while they’re waiting for revenue later. They need resources, notably cash, to bridge this gap.

Larger companies with greater resources can usually cover a larger gap. They can wait longer for revenue and cash flow than smaller companies.

2. There are economies of scale.

Even with effective inbound marketing and the availability of relatively low-cost vehicles like webinars, electronic newsletters, blogs and other social media outlets, marketing can be expensive. These new tools and techniques still require resources: people to set them up, develop content, assess impact, convert leads into qualified prospects into customers, etc.

But it’s usually more cost-effective for larger companies to use these tools and techniques than small companies. Why? Because the marginal cost of reaching additional prospects can be low or even zero.

The cost of preparing and sending an email newsletter to 10,000 people isn’t much higher than sending it to 100 people. Whether a business has thousands of “friends” or “followers” or only a dozen, the cost is virtually the same.

What this means is that larger providers can spread the sales and marketing costs over a large base. In effect, they have a lower average customer acquisition cost. Low average customer acquisition cost/customer lifetime value is a formula for SaaS success.

3. Credibility matters.

When customers purchase a SaaS solution, they’re not just buying a product; they’re buying a promise. They are entrusting the SaaS provider to deliver a reliable, high-value, frequently-enhanced solution over the life of the subscription.

And because buyers are committing to a long-term relationship, they are particularly scrupulous in assessing the reputation and credibility of the SaaS provider. In general, buyers are more comfortable acquiring solutions and entering relationships with larger, more established, better financed providers. It may not be fair, but that’s how it goes.

The SaaS business model favors consolidation

The economics of the SaaS business model and the advantages of size help explain the inclination toward consolidation in the SaaS market. We’ll continue to see plenty of small SaaS companies come to market, and some will get large enough, fast enough to go it alone.

But as they try to grow and finance the cost of acquiring customers, many of these companies will find that it makes more sense for them to be part of a larger company, and they’ll get bought.

Blame it on Wimpy.

Bad SaaS nearly killed my fantasy football league

2010-09-28T08:14:00.000-04:00

My fantasy football league has survived an NFL strike, pre-Internet scorekeeping, and 30 years of trash talk. But we were nearly sacked this season by lousy software.

A few years ago our league moved away from manually tabulating results. We got tired of checking the newspaper on Monday, Tuesday and sometimes Friday mornings, calculating scores with a calculator, updating the standings, adding the league Commissioner's colorful commentary, and mailing it out via U.S. Postal Service. (I did mention this league has been around for 30 years, right?)

We moved into the modern world with a software-as-a-service (SaaS) application that automatically keeps track of rosters, scoring and standings. We chose this particular web-based fantasy football league management application mostly for its simplicity. It had enough functionality for our purposes and, more important, it was easy to use. It was perfect for guys like me that spend less then 3 minutes per week on it, and only for 16 weeks per year. We've even been willing to pay an annual fee for the application to avoid the advertising clutter that comes with the “free” services.

Don't forget who you're selling to and why they buy from you

Apparently, our SaaS provider forgot about who they were selling to and why we were buying. Sometime in between last season and this one, they larded up their application with non-essential functions and a cluttered user interface. Lots of radio buttons and drop-down menus, a smattering of drag-and-drop, and an array of timers and alarms that didn't seem connected to any particular action.

Which brings me to our league's near-death experience. All these changes made it extremely difficult for us to conduct our player draft for the season. Only through extraordinary patience, an exhaustive search of the site’s FAQs, and lots of trial & error, did we finally complete the process... just moments before the start of the season.

Keep it simple and avoid surprises

Listen up, SaaS providers!

1. Don't load your application with lots of bloat-ware that most people don't use. One of the reasons people buy SaaS applications is because they're easy to learn and easy to use.

2. Keep user interfaces simple and easy to navigate. Avoid needless clutter. This is especially true for applications that are used only occasionally.

3. Avoid wholesale changes to the user interface. Make changes gradually. The SaaS delivery model makes smaller, more frequent releases practical.

4. If you are going to make major changes, provide your customers ample notice beforehand. Customers don't always like surprises.

5. Think about offering guidance to your customers on how to navigate the new interface or use the new features. Provide a short instructional video, for example.

6. Stay in touch with your customers. Listen to what they want and pay attention to what they do. The ability to monitor user behavior is one of the great advantages of SaaS.

A bad user interface is bad for business. If you make your product hard to use, you should expect lower revenues, a longer sales cycle, higher support costs, and lower retention.

An accessible user interface doesn't mean limited functionality

I'm not saying that you should omit necessary functionality. But if you think high functionality requires a complicated user interface, think again. At a Mass Innovation event earlier this month, I saw a sophisticated screen-sharing application, JoinMe, with a control panel that looks like something from an old cassette recorder. They called it “ridiculously simple,” and it was.

I’m happy to report that we did navigate our way through the SaaS provider's poor user interface and our Creep Football League lives on for another season. It’s too early to tell how my team, the Out-of-Staters, will fare, but we’re already looking at new SaaS solutions to manage the league.

==================================================================

A post-script to this story. A few days after I published this post, Constant Contact, a SaaS provider I work with to publish a monthly newsletter, provided an excellent example of how to notify customers in advance of changes to the user interface.

Dear Peter,

As we told you recently, we've improved the editing tool that lets you create and format your email newsletters. You should see it in your account in the next few days.

Here are some things you should know beforehand:

Check out the tutorial and FAQ about the improvements so you can get a jump on using them. Important! Be sure to read our recommendation about copying some of your campaigns in the blue box to the right.

It looks a lot like the previous editor, so it should feel familiar to you. It's now just easier to use.

Just in case, we've set up a special dedicated support line for you to call if you have questions about copying your campaigns or using the editor. That number is 800-275-3019.

Again, you will have the new editor in your account very soon. Thank you for your patience as we bring this new improvement to you, and thank you for being our customer. We're here to help you get up to speed with a better way to build your emails.

Important note: Older browsers do not support some of the technologies used in the updated editor. For the best experience, if using IE or Firefox, please upgrade your browser to the latest version.

Sincerely,
The Constant Contact Team

SaaS let's you see where you're going

2010-09-13T10:26:00.000-04:00

The Commonwealth of Massachusetts recently passed legislation prohibiting texting while driving. I’m hoping they’ll soon outlaw texting while walking.

I just came back from a short, but harrowing drive that took me past our town’s high school, just after the end of the school day. The scene reminded me of old episodes of Mr. Magoo - kids fixated on the small screens of their mobile phones, thumbing away furiously on the mini-keypad, while wandering obliviously across heavily-trafficked intersections.

On behalf of all my fellow parents and drivers, I wanted to yell, “Look up! There’s a real world out here, and if you’re not careful, it can really hurt.”

NIHITO

The same advice applies to marketers. You need to look up from the screen and talk to customers and prospects to understand what’s really going on. It can be too easy to focus entirely on what's happening inside your company. I know; I've been there. But as one particularly useful marketing course I've taken explained, “NIHITO”: “Nothing interesting happens in the office.”

Software-as-a-service (SaaS) should make it easier for marketers to avoid this hazard and closely observe customers’ behavior. Because customers are using the application online, it’s possible for marketers and others to see exactly what they’re doing. Though you need to be careful about observing individual behavior, you can see, in aggregate, which features customers are using and which are they avoiding. You can see periods of peak demand, identify particular kinds of users, and see other useful patterns. Along with whatever other analytic tools you're using, this information on product usage can be extremely useful. Don’t ignore it.

Executives at companies that have made the transition from an on-premise application to a SaaS solution point out that one of the most valuable benefits they’ve gained is a better understanding of their customers’ behavior and needs. They have established a much closer, ongoing relationship and a built-in feedback loop. They can much more easily track what's working and what's not.

The result is better focused product development, more attentive customer service, and more effective marketing. For the business, it means greater efficiency, lower customer acquisition costs, and higher renewals.

It also means you’re less likely to make mistakes. Or if you do make a misstep, at least you’ll see where you’re headed before you stumble into real danger.

SaaS marketing lessons from the New York Yankees

2010-09-01T10:28:00.000-04:00

Connecticut has no major league baseball team of its own, so it splits its loyalties between the Boston Red Sox and the New York Yankees. The boundary between Red Sox Nation and the Yankee Universe meanders through the state in a fuzzy line that runs roughly northwest from Old Saybrook to Canaan. I grew up on the New York side of the boundary, and am still a devoted Yankees fan… though I’ve lived in Boston for more than 25 years.

This long-standing dedication explains my recent pilgrimage to Yankee Stadium. (That, and the fact that getting tickets to see the Yankees play the Red Sox in Fenway Park in Boston is about as easy as securing a seat on the space shuttle.) Joined by two Red Sox fans (my son wearing his Youkilis jersey!), an Oriole fan and a fellow Yankee fan, I drove to the Bronx to see the Yankees play the Detroit Tigers in a day game.

I came back with a sunburn on my nose, a renewed appreciation for the new Yankee Stadium and – surprise - a couple lessons that are useful for software-as-a-service (SaaS) marketers.

Market the entire experience

Not being particularly familiar with the Bronx, I was worried about parking on game day. Not to worry. Immediately upon buying my tickets online, I was directed to a site to make parking arrangements. It automatically recognized the date we’d be attending a game, presented a selection of parking lots adjacent to the stadium, and allowed me to reserve and pay for a guaranteed parking spot.

Along with the bar-coded reserved parking permit, came driving directions, relieving me of my second concern: how do I get there?

And I received a reminder about parking and directions in an email the day before the game.

Someone within the Yankee organization has actually thought through the entire fan experience. It’s much more than the game that goes on between the foul lines. It extends into the parking lots and up the Major Deegan Expressway.

SaaS marketers should think the same way. The user’s experience with their solution is much broader than the features and functions that they’ve built into the product. It extends to the way the solution is sold, deployed, accessed, configured, supported, upgraded, and renewed. SaaS providers should market all of those benefits - the entire customer experience - as part of their value proposition.

Establish an on-going relationship

The day after the game, I received a “Thank you and Game Recap” email from the Yankees. It included the box score, links to video highlights, and a schedule of upcoming games. They also asked for feedback on my experience.

Lesson two for SaaS marketers: Stay in touch with your customers. Loyal, connected customers will provide useful input on product enhancements, serve as more valuable references and advocates, and will be more likely to renew their subscriptions.

By the way, the Yankees beat the Tigers that day, 11-5.

VP of Trust and other new SaaS titles

2010-08-17T16:22:00.000-04:00

When I was an analyst with IDC, a very long time ago, I sat in on lots of vendor presentations on their products and strategy. Too many of them started off with a slide that identified precisely where the presenter and his group fit in the organization. It usually included a detailed topography, indicating the various direct and dotted-line reporting relationships within the department, within the division, within the group and eventually within the overall company. Managers reported to directors, reported to department vice-presidents, reported to division vice presidents, reported to group vice-presidents, ad infinitum.

The slide (actually an overhead foil) accompanying this discussion of "where we fit in the organization" usually depicted a complex "box and lines" organization chart. But for all its vastness and complexity, a 3-D model of the entire solar system situated within the Milky Way galaxy would have been more appropriate.

Having been exposed to this mind-numbing ritual so early in my career, you might understand why I'm afflicted with a bad case of MEGO ("my eyes glaze over") when it comes to corporate titles and organizational structure.

A Vice-President of Customer Experience

But my interest in corporate titles was piqued recently. Moderating a panel of cloud and software-as-a-service (SaaS) industry CEOs at the AlwaysOn Summit at Stanford, the moderator, Jeff Kaplan of THINKstrategies, asked the participants to discuss cultural and organizational issues particular to SaaS. Swayne Hill of Cloud9 Analytics talked about the need to build a culture and organization that delivers a positive customer experience every single day. In line with that goal, he explained that, even before he hired a VP of Sales or a VP of Marketing, he brought on a "vice president of Customer Experience."

Given that for most SaaS companies, customer satisfaction and retention is vital to success, putting an executive in charge of delivering a high quality customer experience makes perfect sense.

In fact, the SaaS business model may require re-working a few other titles:

The "Vice President of Customer Support" could be more aptly titled the "VP of Customer Retention." An important part of the job, after all, is about keeping customers satisfied so that they renew at the end of their subscription term. Most SaaS companies that can't renew a high percentage of their customers can't succeed.

The traditional "Vice President of Marketing" role might be better re-labeled as the "VP of Trust." In a SaaS company, the job of marketing is essentially to build visibility and credibility among prospective customers in order to attract their interest and win their trust.

The "Vice President of Product Development" role could be re-labeled as the "VP of User Experience." SaaS customers aren't buying just product features. They're signing up for the entire experience and they expect satisfaction throughout the entire life-cycle from purchase through deployment, configuration, use, and renewal.

The "Vice President for Legal Affairs" or "Chief Counsel" might be better called the "VP for Expeditious Purchase." A good part of their role when it comes to contracts is keeping the purchase process simple and consistent.

The "Vice President for Sales" is really more like the "VP of Care & Feeding." Because SaaS companies need to be especially frugal with their spending on customer acquisition, successful selling means carefully and cost-effectively cultivating and nurturing prospects through the sales pipeline. Maintaining an army of sales reps and sales support engineers is an expense that many SaaS companies cannot afford.

In the SaaS model, not only should certain titles change as job functions change, but some departments might best be merged into others or eliminated entirely. This whole issue of org charts is getting a whole lot more interesting.

Putting Marketing in "The Pit" is bad for SaaS

2010-08-09T08:23:00.000-04:00

I used to work in a place called "The Pit." I wasn't serving ribs and pulled pork at a barbecue joint that wandered north into New England. I was actually with one of the large mini-computer companies they used to populate the ring between Route 128 and Route 495 around Boston. The company put all of us marketing types into the far end of the building into a cube-filled area that was a 1/2 level below grade. I walked down 8 steps to get there, and the windows looked out directly into mulch and tulip stems.

Before it was occupied by the mini-computer maker, the building housed a brewery; I suspect "The Pit" was the loading dock.

Not only were we half-underground, but we were isolated from other departments. Sales was on a different floor. Customer support was in a different building. Product development was in a different town.

Isolating marketing from the rest of the organization surely didn't help the prospects for the mini-computer company. (They disappeared years ago, and the building is now occupied by a medical device manufacturer.) But that kind of organizational separation would be especially bad for a software-as-a-service (SaaS) company.

Marketing connected to Sales and to Product Development

The need for a close connection between marketing and sales is critical to cost-effective customer acquisition. This will likely be a SaaS company's largest single on-going expense and efficiently converting leads into opportunities into wins is essential to success. That requires close coordination between marketing and sales.

But there are other necessary connections beyond the obvious one between marketing and sales. SaaS companies typically enhance their solutions more frequently than on-premise solutions, so a closer relationship is needed between product development and marketing. Marketing needs to know what's coming through the pipeline. For one thing, that helps them handle the accelerated product introduction calendar. But it also lets marketing share the product roadmap as part of the effort to win the trust of prospective customers.

Product Development connected to Customer Support

And there are groups besides marketing that need to be tightly wound into this web. The SaaS model works better when the product development group is well-connected to the customer support group. They'll have a better understanding of customer needs and can respond more quickly and accurately with product enhancements. It's one of the key benefits for companies moving from on-premise to a SaaS subscription model.

Sales connected to Legal

The sales group would do well to be closely connected to the legal department. Under the SaaS subscription model, sales delayed through protracted contract negotiations amount to lost revenues. Sales executives should clearly understand the standard contract and know which items are negotiable and which aren't.

I could draw out other connections across different departments, but you get the point. Successful SaaS companies requires close coordination across the entire organization. Isolating groups from one another is a bad idea, especially if you shove one of them into "The Pit."

Too many choices aren't necessarily a good thing

2010-07-27T17:12:00.000-04:00

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.

Greta Garbo would be a poor SaaS marketer

2010-07-15T08:39:00.000-04:00

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.

Product naming gets even more complicated

2010-06-18T07:35:00.000-04:00

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.

Three deadly SaaS marketing mistakes

2010-06-03T15:07:00.000-04:00

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

CAC > CLV

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 Salesforce.com 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.

Agile marketing

2010-05-25T09:55:00.000-04:00

Who knew that software developers were such athletes? My code-writing friends are all talking about "scrums," "sprints" and "extreme programming."

Though I'm sure some of these folks are spending time in the gym, I've learned that these terms actually refer to the agile development methodologies many are using to build software-as-a-service (SaaS) solutions. Agile development is "intended to allow for rapid delivery of high-quality software, and a business approach that aligns development with customer needs and company goals."

Agile Marketing

We SaaS marketers should get on this fitness kick, too. We should follow our development colleagues with our own version of a lean & mean methodology. Call it "agile marketing."

Agile marketing refers to a process for building visibility, generating leads and supporting sales that's faster and more flexible than traditional marketing processes. It is intended to deliver more effective marketing, closely align with agile development processes, and better support a company's overall business model.

Faster

In the traditional on-premise world in which applications are developed via the "waterfall" method, new versions typically come to market every 18 - 24 months. The marketing team falls into this same rhythm, gearing up for a big launch every 18-24 months. After one of these grand launches - gala unveiling event, PR blitz, new collateral, multimedia ad campaign, etc. - the marketing folks recuperate for a couple of months... and then gear up for the next big launch.

This "marathon" pace doesn't suit most SaaS applications, and certainly not those built according to an agile development process. Instead of launching a massive new release every couple of years, marketing needs to gear up for launches every couple of months. These are more like a constant series of sprints than a marathon. It requires a faster, more agile process to keep up.

More flexible: Besides more speed, agile marketing requires more flexibility. SaaS marketers need to be eager to try new things, fearlessly measure results, be willing to pursue what works and abandon what doesn't. There's no room for dogma here.

Marketing folks ask me all the time, "What marketing programs work best?" My honest, though sometimes infuriating answer: "It depends."

What works for one company in one market with one particular solution might not work for another company in another market with a different solution. Be skeptical about "best practices."

Drew Houston of Dropbox and Adam Smith of Xobni have shared some of their experiences trying, failing, and trying something else, while building their businesses. (Presentations on their experiences are available on David Skok's For Entrepreneurs site.) Certain kinds of press outreach worked for them; others didn't. Adwords worked for one, but not the other. And certain social media campaigns were very effective, though more traditional email campaigns generated positive results as well. Their advice would make for a good tag-line for the Agile Marketing tee-shirt: "Learn early, learn often."

Also be aware that what works today may not work tomorrow. I remember marketers' fleeting love affair with "dimensional mailers." These promotions involved mailing (as in U.S. Postal mailing) odd-sized boxes to well-targeted executives. The goal was to "bust through the clutter" of over-stuffed mail boxes.

As ridiculous as cluttered U.S.P.S. mailboxes sounds today, the current infatuation with "social media marketing" may look pathetically quaint someday, too. The fact is, there's no marketing magic bullet; or if there is, it keeps changing.

SaaS solutions built with an agile development process require a faster, more flexible marketing process as well. It's time for marketers to get agile.

Pricing SaaS solutions: Beyond a "lease vs. buy" analysis

2010-05-12T09:08:00.000-04:00

From the "Ask the SaaS Marketing Guy" mailbag, here's a question on pricing from a software-as-a-service solution vendor:

"My prospective customer is asking about the "break-even"point at which their software-as-a-service subscription payments would equal their on-premise license cost. They're asking why they should select a SaaS subscription option if they plan to use the application over a long period."

If the SaaS application is truly identical to the on-premise application, the vendor or the customer can conduct a straight-forward "lease vs. buy" analysis, accounting for the time-value of money. That will allow them to identify the break-even point - measured in months or years - after which it makes more sense to buy the on-premise license vs. lease via SaaS subscription.

If the vendor or the customer do conduct this analysis, of course, they should factor in all of the costs associated with buying and running an on-premise solution. Those would include the annual maintenance fee as well as the hardware required to run the application on-premise and the people required to deploy and maintain it. In the SaaS model, those costs are borne by the SaaS solution vendor.

Beware of this potential flaw in the straight-forward "lease vs. buy" analysis. In many cases, the SaaS application is not truly identical to the on-premise application. Or the functionality of the SaaS application may diverge from the on-premise application over the life of the subscription. The two applications may have been identical at the start, but over the subscription term, the SaaS customer has gained the benefit of product enhancements that the on-premise customer has not enjoyed. In that case, the SaaS customer is getting increasingly more value from the application than the on-premise customer. The customer should expect to pay a premium for that extra value.

Further, the SaaS version may offer the customer additional benefits beyond the product features. For example, the customer may benefit from more rapid and less expensive deployment of the application, easier configuration, the ability to quickly scale up to handle peak demand, and the flexibility to stop paying for the solution if they no longer need it (according to the terms of the contract, of course). These are benefits beyond what they'd derive from an on-premise application and customers should expect to pay for them.

The point here is that the SaaS offering and the on-premise offering typically do not offer identical benefits to the customer, so that a straight-forward lease vs. buy analysis wouldn't be appropriate. SaaS marketers should clearly articulate those additional benefits when promoting their solution.

Are you sure you want to offer a SaaS solution?

2010-04-25T13:57:00.000-04:00

Often when I'm talking to vendors about transitioning from an on-premise model to software-as-a-service (SaaS) and there's an opportunity for Q&A, I get questions that go like this:

"How do I market a SaaS solution that doesn't lure away my on-premise customers?"

Or, "Can I structure the contract for my SaaS solution to guarantee the same large up-front license fee and on-going maintenance stream that I have with my on-premise offering?"

Or, "How do I stuff this SaaS genie back in the bottle?"

OK, I'm paraphrasing that last question, but that's really what some of these vendors are asking. They're happy with their current on-premise model, thank you very much, and they'll gladly migrate to SaaS...but only if it doesn't really change their business.

I understand their concerns. They've built successful businesses that generates cash and profits. The last thing they want to do is to kill the golden goose.

Here's what I tell those folks: If you really don't need to move to SaaS, don't.

Moving from on-premise to a SaaS model is difficult. You'll need to make radical changes that will be challenging to your entire organization. It will change the way you do development, finance, operations, support, sales and marketing.

Why you might need to move to SaaS

Given these challenges, what would impel a company to move to SaaS? I've seen a few compelling reasons:

- Competitive pressures require it: Your competitors offer a SaaS solution that has significant advantages over your on-premise product.

- Customers demand it: Your existing or prospective customers expect and demand the benefits that can only be delivered via a SaaS solution.

- Investors require it: Moving to a SaaS model is a requirement to secure funding to grow your business.

- Your current on-premise model isn't really as successful as you think a SaaS model could be: There are advantages that you can gain - faster time to market, lower costs, new opportunities, etc.- only by moving to SaaS.

Don't get me wrong. The SaaS model can deliver many valuable benefits and advantages. And fortunately for me, given my line of work, there are a lot of companies that need to move to SaaS for the reasons I've referred to.

But if your company doesn't want to, or to be more accurate, doesn't need to make the transition from on-premise to SaaS, don't. Because if you think you'll navigate that change without making tough decisions and profound adjustments throughout your entire organization, think again.

Understand what's connected to what

2010-04-15T09:55:00.000-04:00

We renovated our house a few years ago. The larger kitchen, new family room and the extra bathroom we love. The process of getting it built... not so much.

Though resurrecting "construction nightmare" stories might be entertaining for you and even therapeutic for me, I'm actually prohibited from revealing any details of the experience per order of a legally-binding agreement with the original contractor. Yup, that's how well it went.

Beyond the obvious "home renovation can be hazardous to your financial and mental health," I did learn an important lesson:

"Everything is connected to something else."

As in, "Sure we can extend the deck another two feet, but that's connected to the sub-floor over the new basement, so you're looking at <insert big dollar amount here> and another <insert big number of weeks here> tacked on to finish the project."

Or, "Of course, we can put in central air, but that system needs to be connected to an upgraded electrical system. Figure on < insert bigger dollar amount here> and another <insert even more weeks here> to do the work. And, by the way, we'll need to pull another permit."

When you're doing construction, if you don't understand the connections between different elements in the process, things can get very costly, very quickly.

The same applies to marketing SaaS solutions. In particular, you need to understand the connections within the "lead-opportunity-win" funnel. A couple of examples will illustrate the point.

"Sure you can quickly generate leads with a more aggressive pay-per-click campaign. But your system for generating leads needs to be connected to your system for nurturing leads, opening opportunities, and closing business. If you don't have the complete process in place, you're wasting your money on lead generation."

Or, "We'd be happy to add more inside sales people to convert opportunities into paying customers. But that process is connected to the proposal and contracting process. But if you already have a backlog of qualified prospects waiting for approved contracts, pushing more volume into that bottle necked connection won't yield more paying customers. The investment in new inside sales reps will be wasted."

I would suggest that much of the waste in marketing spending is due to folks not recognizing the connections between the individual elements in the marketing program. An email campaign, telephone qualification programs, or a webinar series may appear to be very effective by themselves. But unless they're measured in the context of the overall marketing program, they may not really be effective in achieving your strategic objectives. Things get clogged up as they move across the connections.

Given that marketing and sales expenses will likely comprise the largest on-going expense for SaaS companies, and a poorly devised and executed customer acquisition strategy is as likely to sink a SaaS firm as a poorly developed product, marketing people need to know how the entire program fits together. Understand what's connected to what.

A dancing lion and the value of departing from the script

2010-04-07T14:45:00.000-04:00

I was planning to write a blog post on how to capture the attention of prospective customers. The usual fare of practical marketing advice: How do you cut through the clutter to build visibility, establish credibility, and generate leads, etc?

But I'm not going to write about that.

Instead, I want to talk about a dancing lion. This particular lion is, or more likely was, a dancer in a Russian ballet troupe. In a complete departure from the choreographer's direction, not to mention the orthodoxy of classical Russian ballet, he pranced out from his supporting role and completely upstaged the prima ballerina and her danseur partner. And instead of quietly shuffling off-stage with the other stuffed animals, he made a glorious departure.

And the audience loved it!

Best of all, someone captured it on video and posted it on YouTube. It's been watched more than 227,000 times. I imagine the vain and disobedient lion was fired, but he sure did get attention.

Let me discretely slip in my main point here: Departing from the script can be effective.

It can grab people's attention and hold it. It can give them a "hook" to remember you with. It can cut through the clutter. Done well, that's usually good stuff for marketers.

You don't want to be inappropriate. But you don't always need to pound your prospects with a jack-hammer:

HERE'S MY MESSAGE!
HERE'S MY MESSAGE!
HERE'S MY MESSAGE!

Sometimes taking a detour from the expected and making a few taps to the funny bone works even better.

The impact of the cloud and PaaS on marketing

2010-03-26T15:33:00.000-04:00

When it was operating at full capacity, the Ford River Rouge complex in Dearborn, Michigan had more than 16 million square feet of factory floor space, operated its own docks, ran an internal railroad of more than 100 miles, maintained its own furnaces to make steel and glass, and generated its own electricity. From 1927 through the 1960's, the sprawling complex and the 100,000 people who worked in it operated as a complete, vertically-integrated manufacturing facility: raw materials floated in one end, and finished Model A's, Mercury's and T'birds rolled out the other.

Though "the Rouge" continued to operate as an assembly plant until 2004 when one last convertible Mustang GT rolled off the line in May of that year, Ford had decades earlier moved to a more decentralized manufacturing process. Body panels, drive-trains, dashboards, and all the other components arrived pre-assembled from specialized, often third-party, suppliers. While Ford continued to assemble the final automobile, and they were responsible for designing, marketing and selling it, the docks and furnaces at the River Rouge plant were sold off or shut down.

The evolution of application software development

Application software development is on a similar path. Though it lacked the docks, furnaces and railroad tracks of the River Rouge facility, the earlier generation of software applications were also build through a complete vertically-integrated process. The developer was responsible for the entire solution, from the user-interface down through the entire "stack" to the silicon.

Over time, software application developers gained access to compilers, programming languages, operating systems and other foundation elements, freeing them to concentrate on the application layer and "final assembly" of applications.

Cloud computing, and platform-as-a-service (PaaS) in particular, are further destinations on this same path. By providing a pre-built, stable foundation, PaaS solutions allow application developers to focus on the user-interface and other higher-order functions.

These changes in the development environment have profound implications for commercial independent software developers' (ISVs) marketing efforts.

More resources for customer acquisition

A key benefit of PaaS is that ISVs can acquire foundation technologies and hosting & service infrastructure less expensively. As a result, resources that otherwise would be directed to engineering, development and operations should be available for sales and marketing. Most SaaS ISVs already spend nearly 50% of their revenues on customer acquisition. That percentage will likely increase as they take advantage of PaaS offerings and further reduce engineering costs.

Greater flexibility and responsiveness

The availability of PaaS and the ability to concentrate on the user interface and functions that are closer to the customer should allow ISVs to be more responsive to their customers. Without the foundation baggage to lug around, they should have greater flexibility to meet the evolving needs of customers and to respond quickly to competitors.

Higher expectations for innovation

The flip side, of course, is that customers will expect that ISVs will respond more quickly. When they request a new feature or a fix from their SaaS provider, they won't tolerate an answer that explains "we're addressing that in the next release- due in 18 months." Innovation and time-to-market will accelerate and marketers must support a much more frequent release cycle.

More competition

In a market where ISVs can avail themselves of PaaS solutions to quickly establish a foundation for their application at relatively low cost, barriers to entry are lower. As a result, marketers should expect a more competitive market. Expect pressure on prices, revenues or margins. One effect will be further pressure to tightly manage customer acquisition costs.

Beyond that, enhanced competition will likely force marketers to decide whether to compete on price or to build other, more sustainable, competitive advantages. These may include establishing customer relationships built on trust, reliability, security or other qualities.

PaaS, infrastructure-as-a-service, and other elements of cloud computing can offer valuable benefits to software developers: lower development costs, greater innovation, and faster time to market. But ISVs should beware of, and prepare for the impact throughout the entire organization, including marketing.

Marketing collateral: How much and what kind

2010-03-18T08:13:00.000-04:00

I attended the IDC Directions 2010 conference a few weeks ago. I listen for two kinds of things at these conclaves: big, industry trends and small, but useful, practices.

On the "big trends," in a presentation entitled, " The Maturing Cloud: What It Will Take to Win," Frank Gens explained that the most significant growth opportunities in the IT market will be in cloud computing and software-as-a-service (SaaS) solutions. He contends that this mode of computing has nearly "crossed the chasm" from early adopters into mainstream adoption, and both users and vendors should now focus on how best to capitalize on these opportunities.

As for the "small, but useful practices," one of the marketing executives on a panel discussing where they're spending their marketing dollars remarked, "When it comes to collateral, there's no need for the Encyclopedia Brittanica." He maintained that in his organization much of the marketing material they've produced - white papers, data sheets, customer stories, etc. - isn't even used.

Too much marketing material... or the wrong kind?

I can't say I've really ever had that experience. I've seen marketing collateral that was inconsistent, inaccurate, or ineffective. But in most cases, the problem wasn't too much material.

A few years ago, I remember talking to a sales rep from a company that promoted white papers and customer case studies to qualified IT buyers. As these folks were reading about the latest developments in servers, storage, web conferencing, or whatever, they'd be presented with offers to access relevant material provided by various vendors.

I understood the idea, but explained to the rep that my problem was lack of content. When it came to providing marketing material, our small marketing department could not simply reach into a deep "bucket-o-content," or a stack of literature just waiting to be fed to their audience.

For most companies, the problem is not too much material, but it's the wrong material. For SaaS companies, I've seen this problem in at least two flavors:

The material doesn't reach all the decision makers.

Often the marketing material presents a compelling case for the particular departmental users (e.g. the sales team or the HR organization), but it ignores key decision-makers like the IT folks. It highlights certain of the solution's vital features, advantages and benefits, but little is available that addresses legitimate IT concerns about security, performance and integration.

Similarly, marketing material may not address the needs of the prospect's legal and procurement professionals. These people may not be familiar with SaaS or cloud computing and marketing can help educate them on the basics, as well as the specific implications for contract terms and conditions.

The material doesn't tell the whole story.

In some cases, the marketing material focuses exclusively on the product features and functions and omits the other elements of the value proposition. SaaS solutions deliver a complete user experience and success depends as much on rapid deployment, flexible configuration, ease-of-use, and other factors as it does on specific product functions.

The focus on product functionality also sometimes gets in the way of winning the prospect's trust. Remember, SaaS customers are buying into a long-term relationship and they want to see evidence - references, roadmap commitments, corporate history, management team bios, etc. - that the SaaS provider can be trusted.

In the relentless effort to grind down customer acquisition costs, SaaS providers should certainly scrutinize their marketing collateral budget. But for most companies, the effort won't be directed so much on cutting down on the volume of material. Instead, it should ensure that the available material reaches all the influencers involved in the decision-making process and that it presents the solution's entire value proposition.

Winning customer trust

2010-03-03T08:30:00.000-05:00

In subscribing to software-as-a-service (SaaS) solutions, customers aren't really buying a product; they're buying a promise. They are not purchasing a finite set of capabilities to be delivered once the contract is signed, as they would with an on-premise license. Instead, the customer is expecting the SaaS vendor to deliver a service over the life of the subscription.

This requires trust. The customer must trust the SaaS vendor. They must trust the vendor to deliver the service reliably, to protect the customer's data, and to provide support. They must trust the vendor to enhance the service regularly.

A Unique SaaS Marketing Challenge

Winning the customer's trust presents a unique SaaS marketing challenge. It means selling more than the feature set. Of course, the service must provide capabilities to solve the customer's problem, but that's just the starting point.

The SaaS solution must also demonstrate that it's easy-to-use, easy-to-deploy, easy-to-configure, and easy-to-renew. Along with the product capabilities, marketing should promote all these additional elements as part of the entire customer experience.

But to earn a prospective customer's trust requires even more than that. Customers need to have confidence that the SaaS provider will meet their needs over the entire life of the subscription. Customers are making a bet on the future.

How to Win Trust

How do SaaS marketers gain that confidence? How can they help the customer make that bet?

A few suggestions:

Show customers your future intentions. Reveal a roadmap of how you intend to enhance the service over time. (See "Advice on Exposing the Roadmap: Relax.")
Let customers see your track record of meeting past commitments. Show your record on service availability, feature enhancements, and data security.
Demonstrate a commitment to communicating with existing customers. Show how you are engaged with them as part of a vital community.
Help educate customers on SaaS. To many, it may be a new concept. Help them understand it.

I just read an excerpt on trust from Marc Benioff's book, "Behind the Cloud." He tells the story of how salesforce.com dealt with a series of serious service outages in 2005 that was eroding the confidence of customers and prospects. After swallowing hard, the executives decided to openly share the company's previously "internal-only" data on system status. They trusted that customers and prospects would use that information to make more informed decisions. They established a site - appropriately labeled "trust.salesforce.com" - that allows anyone at any time to see the status of all systems and the service performance history. Benioff describes it as "a bold move and a big leap of faith."

A good lesson for other SaaS providers here: show trust to earn trust.

Engineers are marketeers, too

2010-02-28T11:26:00.001-05:00

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.

Customer Support is actually Marketing

2010-02-16T16:50:00.000-05:00

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.

Secrecy is over-rated

2010-02-03T11:00:00.000-05:00

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.

Why are you paying for marketing?

2010-01-28T17:39:00.000-05:00

Most months I take only a cursory glance at each of my recurring bills: phone, internet, cable, electricity. If the charge looks to be about the same as I paid the previous month, I pay it.

But for the first bill of the year, I make it a practice to look more carefully. Under this annual scrutiny, I saw that my January land-line phone bill included a $6.99 charge for "inside wire maintenance." It's insurance that covers me should hungry squirrels nibble on the phone wires inside my walls. Yes, I know I'm paying $84 a year for something that's very unlikely, but that's not my point.

At the time we moved to this phone service provider about 15 years ago, I made a conscious choice to purchase "inside wire maintenance." And once per year when I scrutinize the bill, I ask myself again, "Why am I paying for this service ?," and I make a conscious choice to renew.

From time to time, you should ask yourself this same question about your marketing programs: "Why am I paying for this?"

Software-as-a-service (SaaS) providers are spending a lot on marketing. Why? What are they getting for their money? What should they expect?

Let me suggest a few answers:

Marketing helps revenues. Effective marketing should have a positive impact on winning new business or keeping existing business. In fact, if marketing isn't driving revenue, either directly or indirectly, don't pay for it.
Marketing tells your story. Good marketing people can clearly explain what your company makes and why people should pay you for it. This story - your value proposition - is different from explaining how your product works.
Marketing helps you win positive recognition and generates trust. People buying SaaS solutions in particular need to trust you. With a SaaS solution, customers are not just buying a product; they're buying a promise, a promise that you'll deliver services over the life of the subscription.
Marketing accelerates the sales process. Effective sales enablement tools - a web site, presentations, collateral, on-line demos, case studies, etc. - move prospects toward a purchase. And they should do it more cost-effectively than, say, a direct sales force working without marketing support.

By the way, the voluptuous redhead pictured here is Calliope, the Greek muse of Epic Poetry, a darned good storyteller in her day. That was before they called them "marketers."

Ideas that work... and don't cost much

2010-01-13T13:49:00.000-05:00

A few months ago, when discussing which marketing activities work and which don't, I confessed "I do not know."

Let me clarify. Actually I do have a few ideas. I'm not sure if they'll work for every software-as-a-service (SaaS) company, but they're at least worth thinking about. Importantly, they're relatively inexpensive to try.

I was prompted to think about these low-cost ideas by a very thoughtful post from David Skok of Matrix Partners, entitled "Startup Killer: The Cost of Customer Acquisition." He points out that most young SaaS companies haven't given nearly enough thought to customer acquisition costs. With a wonderfully simple diagram, he illustrates what happens when those customer acquisition costs (CAC) are wildly out-of-line with the long-term value (LTV) derived from the customer.

Source: David Skok, "for Entrepeneurs" blog

I don't remember much about levers and fulcrums from my high school physics course, but even I can figure out that the Customer Acquisition Costs on the left need to come down. Here's where I'll offer a few ideas.

Use blogs, email newsletters and other online media to build visibility. If you offer valuable content (read "not overtly promotional"), prospects who are actively looking for solutions will find you. And many of these online media provide a low-cost delivery mechanism for your content. (I don't pay a dime to deliver this blog!) It takes time, but not much money.
Put all your material online. Print only in small batches and only when absolutely necessary. Save trees and save money.
Demo your product online. It will make it easy for prospects to see how it works and eliminate some of the need for expensive one-on-one demos. You can build these online demos yourself with tools like Camtasia or work with an outside firm for a more professional look.
Do local events. Sometimes in-person marketing events can be effective, especially to reach enterprises. It's also a welcome break from the 100% web world. But eschew the big, expensive shows and focus instead on local, targeted gatherings. CCNG, for example, hosts local events for contact center managers.
Support an online community of customers. Provide a place to share best practices, show tips & tricks, and build loyalty. You'll offload some of your support needs, develop a pool of enthusiastic references, and ease the renewal process.

You'll still need to spend time and money to develop compelling content. Clearly explaining "what your company makes and why people should pay you for it" is a necessary investment. But you can take advantage of inexpensive ways to deliver it.

Besides offering these low-cost tactics, I'll also take this opportunity to reiterate the key prerequisites for any marketing program:

Set appropriate goals. A sure way to waste money on customer acquisition is to generate more leads than you can handle.
Measure the cost-effectiveness of every individual program and make adjustments as needed.
Understand your pipeline. You need to know where deals are getting stuck, so you can make smart choices about where to apply resources.

So SaaS providers be warned: customer acquisition will be expensive. Even well-established vendors spend 30% or more of their annual subscription revenues on sales and marketing. The good news is that if you're careful, you can get a lot for your money.

Make it Easy to Deploy

2010-01-06T13:57:00.001-05:00

"Some Assembly Required." Three terrifying words for the "screwdriver-challenged." To those moms and dads who may have just lived through the experience, I'm sorry for reviving ugly memories.

What's scary about bikes, dollhouses and the Wii is scary for software-as-a-service (SaaS) solutions, too. The folks subscribing to SaaS solutions do so, in part, to avoid hassles. That includes not just hardware hassles and upgrade hassles, but implementation and deployment hassles, too.

SaaS providers should consider ways to minimize that implementation hassle for their customers. I recently talked to a company selling a SaaS solution to help non-profits manage fund-raising. They've put in place a standard implementation program that they offer along with their subscription. Under the program, a project manager walks the customer through a standard set-up process - migrating donor information, graphic design, automated email set-up, etc. - and holds their hands through the first few months of usage.

The company reports that these implementation services have been received well by customers and removed barriers to selling. It works especially well for organizations that don't have a dedicated resource to manage the system. That lack of a dedicated resource is likely the same reason these organizations were attracted to a SaaS solution in the first place.

This issue refers back to one of my "SaaS Marketing Essentials: Do's and Don'ts," namely "sell the entire service," not just the features, narrowly defined. Besides adding lots of functions, make the solution easy to buy, easy to deploy, and easy to renew. And tout those "easy's" as part of the total value proposition.

By the way, I have no idea what you should do with the handful of nuts, bolts, and washers leftover after assembling that bicycle, but I'd suggest your child wear a helmet and avoid steep hills.

Generating Leads and Cultivating Opportunities

2009-12-30T14:26:00.000-05:00

Now in late December, the field of my neighbor's farm is bare, except for a single row of hardy, but frozen-solid Brussels sprouts stems. In a few weeks, though, my neighbor and his crew will be working inside the greenhouse with a specially-devised planting machine. They pour a large burlap bag full of seeds into the hopper and the machine carefully inserts a single seed into an individual tray compartment. Each compartment is filled with a blend of rich soil, vermiculite and fertilizer, carefully prepared to nurture each seed into a healthy seedling.

In April and May, when I get around to preparing my amateur, backyard plot, I won't bother to scatter a packetful of seeds, most of which won't germinate. Instead, I'll pick up a couple of those trays, which by then will be full of healthy lettuce, tomato and pepper seedlings.

Besides giving me something to look forward to throughout the winter, there's an idea in here that can be helpful for marketers, in particular those marketing software-as-a-service (SaaS) solutions, for whom controlling the cost of customer acquisition is especially important:

Pay attention to cultivation.

It's not enough to gather a passel of leads, like 40-pound bags of seed. You need to carefully cultivate those leads and nourish them into qualified opportunities.

Here are a few ways in which these efforts often go wrong:

Marketers are measured on "leads," not "qualified opportunities." In other words, they're rewarded for the wrong goal. This often happens because marketing doesn't own the entire process; they generate the leads, but they hand them over to sales for qualification. For this arrangement to work properly, marketing and sales need to share responsibility. That can be difficult.
The cultivation process is starved. Money is spent on search engine optimization, pay-per-click, PR, advertising, etc., all in the interests of attracting a prospect's initial attention and gathering their name and contact information - in other words, generating a lead. (Per item 1, that's what marketing is often asked to do.) The follow-on process - cultivating that lead into a qualified opportunity -often isn't given enough resource or attention.
The cultivation process skips a critical step. Undifferentiated leads are often handed off to sales without adequate cultivation. This is an extremely expensive way to qualify leads, particularly when the solution is sold through a direct sales force. To manage customer acquisition costs, companies need to build in a more cost-effective qualification step into the process.
The cultivation process is too short. The leads aren't given enough time to germinate. I heard a story recently about a SaaS provider that extended their free trial period from 30 days to 60 days. The result was a substantial increase in the number of "tryers" converting to buyers. Apparently, the extra 30 days was enough time for the prospective customers to gain enough experience and confidence to actually subscribe. Reminds me of that Supremes' standard, "You Can't Hurry Love."

Happy new year to you all and here's hoping for an early spring. I know the tomato seedlings will be ready.

Contract terms & conditions and why they matter to marketers

2009-12-07T08:47:00.000-05:00

As a general rule, I try to steer clear of the corporate legal office. I usually have much more fun with the web designers, the PR folks, or even the sales reps than I do with the corporate counsel.

That said, there are a few legal issues - particularly related to contracts - where I recommend marketers should pay a visit to that office with the impressive diplomas on the wall and the library of tomes on "Contracts" and "Intellectual Property."

Warn them about square pegs and round holes. Explain that existing legal contracts, developed for on-premise applications, usually don't fit SaaS solutions.

Let me give an example: "Acceptance Testing." Contracts for on-premise applications often provide the customer an "acceptance period" during which they test the application to ensure that it works to their satisfaction. Until the customer is happy, they don't pay.

For a SaaS solution, however, this idea of "acceptance testing" usually doesn't apply. The vendor has developed a solution that works according to specifications defined by the vendor. The customer isn't buying the application; they're buying access to it. The vendor's obligation is to provide access to a service that functions according to the spec. That obligation being met, the vendor expects payment from the customer.

There is no "acceptance period" during which the customer tests the application. They cannot return the software if they're not satisfied. Because it's SaaS, no software has been delivered to the customer, so there's no software to be tested, accepted or returned.

If the service doesn't meet the specifications, or if the vendor fails to provide access to the service, the vendor is obligated to fix any problems in accordance with the service level agreement.

An unhappy customer can, of course, terminate the contract. (This heads us toward a discussion regarding length of contracts and cancellation terms, which I'll avoid for now.)

To use an analogy, I've contracted with the Boston Globe to deliver a newspaper covering local, national and international news to my house every morning. If the paper arrives at my front door everyday, I'm obligated to pay them.

I can't tell the Globe that my payment is contingent upon my reading the paper to see if it satisfies my own requirements. If I'm not happy, I can always cancel my subscription. But I need to pay for the papers that have already been delivered.

So, what does any of this have to do with SaaS marketing?

For one, allowing for an "acceptance period," or any other terms and conditions that delay payment, has significant cash flow implications. In the SaaS world, anything that slows down the revenue stream is a bad thing. It increases the cost of customer acquisition and delays the return on that investment. If marketing's goal is to build a "customer acquisition machine" that generates a lifetime revenue stream, "acceptance testing" means you get more like a trickle than a stream. (See, "Getting Deals Unstuck from Legal and Procurement.")

Second, marketing can play a constructive role in communicating contract terms and conditions to prospective customers. The customer's legal counsel may also be in the habit of reading and red-lining contracts for on-premise applications, and they may not be familiar with SaaS solutions. Marketing can help educate them to the fact that concepts like "acceptance testing" don't apply. A published FAQ, for example, can help to explain the terms & conditions to prospective customers early on in the sales process. A handbook for the sales reps that explains the contract, the rationale behind the terms and conditions, and what items are negotiable and which are not, can also be helpful. It might keep reps from making commitments that you don't want to make, and avoid round after round of contract haggling.

If it's hard to use, it's hard to sell

2009-11-19T13:38:00.000-05:00

Last week, I listened to a panel of IT professionals share their experience with software-as-a-service (SaaS) and cloud solutions. In part, they confirmed what I've heard from other IT executives: "We expect performance, we expect security, we expect fail-over." (See Rule 4 in the "Ten Essentials of SaaS Solution Marketing.")

I was surprised, though, to hear from these IT professionals about another concern: usability. After all, these folks have somehow managed to endure frighteningly off-putting user interfaces for quite awhile. SAP ERP screens are not for the faint of heart.

The IT folk's attention to usability is driven not so much from a new-found sensitivity to graphics and color. Instead, it derives from a greater appreciation for the needs of their users. They don't want to deploy applications that confuse, frustrate, and torture users.

Why IT now cares about usability

The IT professionals on the panel have found that the SaaS solutions they've acquired tend to be more widely deployed within their organizations. They're not confined to highly-trained, dedicated users with a high threshold for pain. Instead these solutions for expense reporting, recruiting, asset tracking, or sales compensation management, for example, are used broadly, not by experts and not on a daily basis.

What that means is that applications with inscrutable interfaces that frustrate non-experts cause problems for IT professionals. And even though the application wasn't built by the in-house IT group, it doesn't run in their data center, and they didn't have anything to do with the interface design, IT always gets the blame. It goes with the territory. As a CIO colleague explained to me once,"People never call me to say 'Thanks, Jamie, the email is running flawlessly today.' I only hear from them when something's broken. This is the worst job in the company."

Not only do the IT folks get an ear-load of grief from users who complain that "IT is deliberately wasting our time with this awful system," but they also bear the burden of supporting these end-users. Through a help desk or training, they spend money on to help users navigate through the application.

Lessons for SaaS providers

There are a few lessons in here for SaaS providers:

A poorly designed user experience will make it more difficult for you to market and sell your solution. Propping it up with specialized training for dedicated users isn't a workable solution for the broadly-deployed applications. The IT professionals won't let you get away with it.

A poor user interface will make it harder to renew customers. Even if you succeeded in getting an initial deployment into the organization, it will be difficult to retain those frustrated users, never mind adding new ones, if the product is painful to use.

A badly designed application is expensive to support. If it's the internal IT professionals who take on the support role, they'll be unhappy. You're costing them money and grief. If it's you, the vendor, who provides the support, it will cost you money... though the internal IT people will still get the grief.

Marketing professionals, fixated as we are on messages, lead generation and sales enablement tools, sometimes pay less attention to product features and functions than we ought to. Our success with SaaS solutions, however, will increasingly depend on an easy-to-navigate and delightful-to-work-with user experience. If IT professionals are paying attention to what a product looks like, marketing should too.

Make Renewals Easy

2009-11-09T09:56:00.000-05:00

True story. Nearly every three weeks since the day I first signed up for a software-as-a-service (SaaS) solution for web hosting, email, and domain registration services, I've been receiving renewal notifications. I think the first notice indicated "345 days remaining on your subscription."

Last week, I saw that the subscription term was down to 34 days remaining, so I clicked on the button labeled "Renew."

In the interests of accuracy, the button should have been labeled "Remember, Re-evaluate, Resist, & then maybe Renew... But Not Without First Costing the Provider Money." Good luck to the graphic designer working on that button.

Step one of the renewal process went smoothly. Each of the domains I had originally registered was listed alongside check boxes to indicate if I wanted to renew them. So far, so good.

Steps two through eight, though, got more complicated. In the "remember stage," I was presented with a list of services, some of which I knew I had, some of which I knew I didn't have, and some of which I didn't remember anything about at all.

"Private or public registration?"
"Unix or Windows hosting server?"
"Paper or plastic?"

Once I went through the memory test, it was onto the "re-evaluate and resist" phase.

"Are you sure you don't want more storage space?"
"Don't you want to add new domain names?"
"You really should evaluate the advantages of private registration."

Here's the deal. I renew my service annually and, believe it or not, over the intervening 52 weeks, I do other things. Folks at the SaaS solution provider may be eating and breathing the nuances of their service, but unless something has gone wrong, I really don't think about it. In fact, that's one of the reasons I buy this functionality as a service. I don't want to think about it. When I log in and it works, I'm a happy guy. Period, full stop.

The same sentiment applies when it comes to renewal time. The service is doing everything I want it to do. Just keeping doing it. Here's my money. Thank you very much. See you in another 12 months.

There are lessons here for other SaaS providers:

Make renewals easy. Remember that the primary objective of the "renewal process" is to renew. Anything that impedes renewal - too many choices and too much information - is counter-productive.

Provide a "Keep Everything the Same" option. Show subscribers what they already have. You already know that information because it's a SaaS solution. If they're happy, make it easy to let them stick with what they have. Resist the urge to up-sell at every opportunity.

Don't nag. Reminders that a service is expiring is an excellent idea. And if you're selling into a corporate environment, allow extra time. Someone may need to audit the existing users or process payment through the corporate procurement process, so the process could drag on. But be careful not to send reminders too early or too frequently. That's nagging and annoying.

Educate on new features as they become available. As you enhance the product, notify the customer. Show them the value of the new feature and how it might help them. But don't conflate this education process with the renewal process. Don't wait until the final hour to remind customers of all the improvements you've made to the service over the last year... but neglected to tell them about until now. Continue to market to existing customers throughout the life of the subscription.

What does a poor renewal process cost?

In the worst case, a poor renewal process so alienates the customer that they let their subscription lapse. As I've discussed in earlier notes, and the chart illustrates, renewals are vital to SaaS success. Very few companies earn back their customer acquisition costs with only one year of subscription revenues.

More commonly, the customer will delay renewal. And in the SaaS business model, where so much depends on velocity, delayed renewal is foregone cash flow.

A poor renewal process can also cost the provider money. To get back to my story, somewhere in the midst of the "re-evaluate and resist phase," I ran short of time and patience and dropped out of the online renewal process altogether.

Instead, I picked up the telephone support line, where a very pleasant agent talked me off the ceiling, and set me up with another year of service. While the renewal over the web would have cost the SaaS provider a few cents, handling my transaction over the phone with a live agent I'm sure cost them considerably more.

If you're losing too many customers during the renewal process and need help streamlining it, these lessons may help. But if you'd prefer to stick with the more complicated "Remember, Re-evaluate, Resist, & then maybe Renew" process, I might be able to recommend a very good graphic designer.

How Much Capital is Required for SaaS Marketing?

2009-11-02T10:11:00.000-05:00

A marketing professional asked me recently how much capital is required to successfully market a software-as-a-service (SaaS) solution.

What first popped into my head was the beautiful Irving Berlin standard, "How deep is the ocean? How high is the sky?"

Access to capital to fund customer acquisition is undoubtedly one of the more significant challenges for SaaS companies. The root of the problem is timing. You need to spend money on sales and marketing now, but the payoff is stretched over the lifetime of the customer's subscription. You need to fund that gap between current expenses and future revenues.

So how big is the gap?

I looked at the experience of two well-established publicly-held SaaS providers for insight. Salesforce.com provides on-demand CRM and is a high-profile SaaS pioneer. Concur delivers an on-demand expense management solution and made the transition from a traditional on-premise license model to a SaaS model in the late 1990's.

I focused, in particular, on the companies' annual spending on sales & marketing relative to their annual subscription revenue. It's not a comprehensive assessment of capital requirements and it does not account for their requirements to fund development, operations, or other functions. That said, however, when sales & marketing expenses exceed subscription revenues, capital from some outside source is needed.

1. Required ingredients: an effective customer acquisition model, capital and courage

In the case of both salesforce.com and Concur, their sales & marketing expenses exceeded subscription revenues during their early years, sometimes by as much as 500%.

Both companies persisted however to spend aggressively, confident that they had a well-functioning customer acquisition model in place. That is, they believed that feeding one dollar into the sales & marketing machine would generate more than one dollar in revenue over the lifetime of the customer.

In addition to an efficient sales & marketing machine, both companies had substantial backing from outside investors to fund the initial spending on customer acquisition. Concur also had resources from its existing on-premise license business.

Access to capital to fund customer acquisition, in fact, represents one of the most challenging barriers to success for any vendor in the SaaS market. They should expect that sales & marketing expenses will exceed development, operations, or any other corporate expense.

In the case of salesforce.com and Concur, the access to deep pockets of capital was matched by a deep well of confidence. Company management and patient investors had the confidence and courage to fund early losses, and resisted the urge to "lift off the accelerator."

2. The crossover point is typically in year three

For both salesforce.com and Concur, annual subscription revenues first exceeded annual customer acquisition expenses during the companies' third year as a SaaS provider. At this crossover point, one dollar spent on customer acquisition yielded one dollar in subscription revenue. The companies needed adequate capital resources to fund more than two years' of feeding their sales & marketing machine before realizing a positive return.

3. Spending reaches a plateau

Once they reached the crossover point, both salesforce.com and Concur have continued to spend substantially on customer acquisition. Saleforce.com's sales & marketing expense has remained consistently above 50% of subscription revenues, and Concur consistently spends nearly 30% of revenues on customer acquisition. In other words, while development and operations costs have declined proportionately as they're spread out over a larger customer base, spending on sales & marketing remains consistently high.

There are certainly some economies of scale for sales & marketing spending: a webinar for 1000 people doesn't cost much more than a webinar for 100 people, for example. But SaaS companies should expect to continue to aggressively fund their customer acquisition efforts. Like sharks, even well-established firms need to keep moving forward or die.

SaaS Marketing Essentials on a Single Page

2009-10-27T14:30:00.001-04:00

Click on the table for a large image.

You can also download a .pdf version from the SaaS Marketing Strategy Advisors website.

SaaS Gone Wrong: Telltale Signs

2009-10-12T14:58:00.000-04:00

It's been my experience that I learn more from failure than success. And there are some who would quip that I've certainly had ample opportunities to learn.

To gain from the experience of failure, though, requires that you recognize it when you see it.

To help software-as-a-service (SaaS) solution providers recognize their failures, I'll point out a few telltale signs that will let them know that something's gone wrong.

Customer acquisition costs are too high

When your customer acquisition costs can't be covered by the projected lifetime subscription revenues derived from customers, you have a problem. A faulty sales and marketing machine gobbles up one dollar in expenses and pays out less than one dollar in revenues. To borrow from another business axiom, if a dollar in yields less than a dollar out, you won't make it up in volume.

There could be several solutions to the problem: establishing a more efficient sales and marketing process, securing more renewals, raising the subscription fee, or articulating a more compelling value proposition, among others. But if you find that you are spending more than you're earning, first acknowledge that you have a problem.

Note that the calculation for customer acquisition costs measures annual sales and marketing expenses relative to subscription revenues earned over the lifetime of customer. SaaS companies should, in fact, expect to pay a high percentage of annual revenues on sales and marketing - often in excess of 40%. But the goal is to earn that back, and more, over the entire length of the customer's subscription. A high-functioning customer acquisition machine can gobble up one dollar of expense to win a customer, but should pay out three, four, five dollars or more over time.

Implementation costs are too high

If the cost to implement your solution is chewing up a large chunk of the subscription revenue, you may have product problem. High implementation costs and long deployment times are often a symptom of a SaaS solution that requires extensive customization.

Not only is customization an immediate problem, but it usually grows worse over time. Every upgrade to the solution may require additional implementation expenses. Even if the customer has paid for the initial implementation work separately, the vendor incurs new expenses with every new product release. There's a cost to violating the SaaS multi-tenant model.

The solution is configuration instead of customization. Better yet, configuration managed by the customer. Allow them to tailor the solution to suit their particular needs, but without altering the core of the solution.

The sales cycle is too long

If you find that sales cycles are extending too long, there's a problem. The SaaS model usually functions best at faster speed. You spend money now to make money later. Anything that delays the "make money later" part of the equation is a bad thing.

The sales cycle might be stalled by IT professionals with legitimate questions about security, performance and integration. Or perhaps, legal and procurement professionals are struggling to understand the unique SaaS terms and conditions. Multiple drafts of red-lined contract drafts pinging between vendor and customer are a sure sign that something's gone wrong.

IT, procurement and others involved in the purchase decision should be educated and won over, and earlier in the process is better than later.

The marketing and sales support material is out-of-date

If your marketing group is struggling to keep marketing and sales support material up to speed, you may have a broken product introduction process. You'll know it, for example, if your web site and product literature are out-of-date, or press announcements lag product enhancements by weeks or months.

The cause may be a product introduction process that's built for on-premise applications and 18-month enhancement cycles. It's out of sync with a SaaS development schedule that rolls out enhancements every quarter. Your marketing team is caught on the "wheel of death" and can't run fast enough.

This isn't a comprehensive list, but you should be on the lookout for each of them. They're all symptoms of your SaaS model gone wrong.

SaaS and the Value of Simplicity

2009-10-05T13:30:00.000-04:00

"Simplify, simplify" -- Henry David Thoreau

In case you thought Walden Pond, the inspiration for Thoreau's reflections on the virtues of simplicity, was in a remote spot far from civilization, you should know that it's about 4 miles off of Route 128, "America's Technology Highway," in Concord Massachusetts. On most weekends, it's busy with picnickers, hikers and, in the summer, swimmers.

Those with an historical and literary interest can visit a replica of Thoreau's cabin. Though its location isn't precisely on the site of the original, I'm told that the structure itself is accurate, a tidy one-room building, devoid of anything but what a simple existence would require in the mid-1800s. No ostentatious entrance, no Palladium window, no three carriage garage.

Though I have no reason to think that Thoreau knew anything about software-as-a-service (SaaS), internet protocol, or SAS 70 Type II audits, as prescient an observer as he was, he does offer useful lessons for SaaS providers.

The SaaS business model craves simplicity and penalizes complexity. In general, more complexity means more time and more money. For a SaaS provider, this is true not just for the marketing function, but for development, legal, support, and operations.

Simple to Understand the Value

SaaS vendors should make it easy for the prospective customer to recognize the value of the solution. Focus on benefits and advantages: what problem does this solution solve and why does it do it better than alternatives? (See "Developing an Effective SaaS Value Proposition.") Resist the urge to show off your technical prowess with lots of technical jargon. There's surely a place for documentation on technical issues of concern to IT professionals at some stage in the sales process, but it's not your lead message.

Simple to Deploy

SaaS vendors should make the solution as simple to deploy as possible. In particular, avoid customization. For the customer, this reduces the risk of an extended and expensive process. For the vendor, it cuts the expense of implementation engineering and minimizes the delays in recognizing subscription revenue.

Simple to Purchase

SaaS vendors should make it easy for customers to purchase their solution. Simplify and standardize contracts to the extent possible and educate the customers' procurement professionals on your standard terms and conditions early in the sales process. I've used the iTunes example previously to illustrate this point. As attractive as the 99 cent price per song is to me, I wouldn't be buying many if it required 20 minutes to purchase.

A simple to purchase process should apply to renewals as well as to new customers.

Simple to Use

Minimize the complexity of using the solution. It makes it easier and less risky for the customer to deploy the solutions and less expensive for the SaaS vendor to support it.

For SaaS providers, simple is practical and profitable. I think Thoreau would have liked that.

SaaS Requires Standardization

2009-09-21T08:33:00.000-04:00

Does anyone else remember something that resembled a programmable typewriter?

I was volunteering at a legal aid office during the summer of 1971, and one day they rolled in a workstation outfitted with an electric typewriter, an automatic paper feeder, and a box attached to the typewriter where the typist/operator plugged in different cartridges. As I recall, each cartridge would cause the typewriter to automatically type out a standard legal document, pausing at certain points to allow the typist/operator to manually key in names, addresses and other particulars.

This precursor to the Wang word processor and MultiMate on a PC was a wonderful time-saver and served the needs of the law office as they cranked out the standard "writs of this" and "appeals of that," each legal document identical, save for the names and addresses of the parties involved.

Companies selling software-as-a-service (SaaS) solutions should strive for this kind of standardization. They should aim to prepare identical legal agreements with standard terms and conditions for all customers.

Standard = Faster

For one thing, a standard agreement accelerates the sales process. Too many of us have seen opportunities proceed smoothly through most of the sales cycle, securing approvals all along the way, until they run smack dab into the folks in procurement and legal. A quick and easy sale becomes a protracted and difficult sale. One red-lined contract draft after another gets passed back and forth between the vendor and the customer, haggling over payment terms, service level agreements, activation clauses, ad nauseam. And in the SaaS model, delaying the flow of subscription revenue by weeks or months is painful. (See "Getting Deals Unstuck from Legal and Procurement.")

Changes now can cost you later

Adhering to standard contract terms also discourages customizing the application or operations for individual customers. You can build and maintain a single application that's hosted, delivered and supported via a single, standardized set of procedures. "One-offs," whereby one customer is handled differently than others, can increase costs for development, testing, deployment, support, upgrades and operations. What may look like a small change to the contract can be costly over the entire life of the customer.

Obviously, some SaaS companies need to be more flexible than others, and a single set of terms and conditions may not be practical. Large enterprises, for example, may require particular provisions to suit their specific needs for broadly deployed, critical applications.

That said, however, SaaS companies should still aim for standardization, and they should make it clear which items are negotiable and which are not.

Anything that stops the typewriter keys from clicking automatically at 150 words per minute and forces the operator to manually type in something unique can be extremely costly.

How to Cut Customer Acquisition Costs

2009-09-09T09:54:00.000-04:00

How much should we spend on tradeshows?
Should we spend more on search engine optimization, or pay-per-click?
Are webinars worth the cost?

As a marketing adviser, I suppose I should charge a hefty fee to address these inquiries. But I'll share the answers with you right here, right now, for absolutely nothing:

I do not know.

That may not be something you often hear from an expert, but it's the best short answer I can honestly offer.

Here's a longer answer:

I don't know which specific programs will be cost-effective for your business and which ones you should eliminate, but I do know how to figure out the answer.

Articulate the goals for your particular organization

Know what you need to achieve with your sales & marketing efforts and be specific. How many deals do you need to win to hit your revenue targets? Work backwards from that number to calculate the number of opportunities you need, and then work further upstream to calculate the number of interested prospects required. (More on understanding this funnel later.)

I've actually managed marketing for a company that sold to a handful of large mobile phone makers: we didn't need to generate leads at all. Lead generation programs would have been a waste of money, so we focused exclusively on building market awareness and sales support tools.

Measure the value of each program

Track the number of leads, qualified opportunities and wins generated by each program. Then use the overall cost of the program to calculate the cost per each lead, cost per opportunity and cost per win. There are certainly flaws in this method - notably in designating a single program as the appropriate source for a particular prospect - but it's better than guessing.

A prerequisite for measurement is an agreement between sales and marketing on the precise definition of a "lead," a "qualified opportunity," and a "win." Further, they should agree on a process for moving prospects from marketing over to sales. Marketing's dumping unqualified leads onto sales is a sure way to waste money, besides creating ill will all around.

Understand the funnel

Know how many leads are required to generate one qualified opportunity, and know how many qualified opportunities are required to generate one win. Once you know these "conversion ratios," you can figure out precisely what's needed to make each stage of the sale process productive. You won't pay for leads you don't need, or sales people you can't feed.

Understanding the funnel can also help you identify where prospects are getting stuck. A low yield of leads-to-opportunities requires a different fix than a low yield of opportunities-to-wins.

It's not only about lead generation

Remember that in addition to generating leads, the marketing task typically includes two other important tasks: building visibility in the market and providing sales tools. Establishing thought leadership and winning the trust of prospects is especially important in marketing and selling SaaS solutions. (See "Lead Generation... ad nauseam.")

Cost-effective marketing is especially important for SaaS

Most SaaS companies will find that their customer acquisition costs (sales & marketing) will account for the single largest portion of their expenses. And under the SaaS business, sales and marketing expenses can often exceed one-third of subscription revenues. There is no margin for wasteful spending. (See "Hyper-Spending on Customer Acquisition: The Wile E. Coyote Effect."

Though I wish it might be otherwise, I don't believe there is an easy answer on how to cut your customer acquisition costs. Or least not an easy answer that's accurate. As H.L. Mencken put it, "There is always an easy solution to every human problem - neat, plausible and wrong."

Developing an Effective SaaS Value Proposition

2009-09-03T11:11:00.000-04:00

Though I've spent more than 25 years in marketing, truth be told, I still don't understand what people really mean when they talk about "go-to-market strategy." I'm not quite certain what a "marketecture" is, and almost any marketing term that starts with "integrated" is likely to confuse me as well.

I confess that I fall into the same trap, using this marketing jargon when I'm not careful. However I do try to use plain English so that I know that folks know precisely what I'm talking about. Sometimes I run a draft by my dad, an architect, just to be sure.

So let me take a run at one of those marketing terms here: "value proposition." Simply put, it explains who would pay money for a product or service and why.

Which gets me to the issue of the value proposition and SaaS.

In developing an effective value proposition for their SaaS solution, marketers need to address issues that are unique to SaaS.

For marketers to explain to prospective buyers what they're buying, what problems it may solve for them, why they should spend money or time on it, and why it's better than alternatives, they will nearly always need to talk about these specific features of their offering:

Predictability

While on-premise application vendors can focus on features already included in the product, SaaS solution vendors must focus on the future as well. They need to win the trust of prospective customers and convince them that the solution will be enhanced regularly over the course of the subscription. Provide a roadmap of planned enhancements and show a consistent record of meeting past commitments.

The concept of marketing the promise, not just the product is discussed more fully in "Ten Essentials of Software-as-a-Service Solution Marketing."

Reliability

SaaS vendors should show evidence of their solution's high uptime and provide service level agreements to back-up their promises. They should establish procedures to notify customers when service will be down for scheduled maintenance and to communicate with them in the event of unplanned outages. Hint: Posting a service outage notice via the application, which the client is unable to access, isn't an option.

Security

Prospective customers will have legitimate concerns about the security of their data in the SaaS environment. SaaS marketers should address data location, segregation, encryption, access control and other concerns in order to gain the confidence of the IT professionals. And they're wise to engage with IT early in the sales cycle.

Affordability

SaaS marketers need to show the cost advantages of SaaS over on-premise applications. Their calculation should include all IT-related expenses for on-premise deployment and maintenance as well as the potential financial advantages of an operating expense vs. a capital expense.

A caution here: While the cost advantages of SaaS over on-premise might be substantial, don't build your value proposition entirely on this single element. (See "It's Not All About the Price.")

Simplicity

SaaS marketers should promote the simplicity of their solution, if it applies. For users, it's easy to use and easy to learn. For IT, it's easy to deploy, easy to configure, and easy to upgrade. (More about this at "Market the Entire Customer Experience."

Flexibility

SaaS solutions typically have the advantage of flexibility vs. on-premise applications. Tout their ability to quickly scale to meet heavy demand, without the need to carry excess capacity during periods of low usage. There's value in managing unpredictability.

Accessibility

Marketers should promote the accessibility of SaaS solutions for remote workers in dispersed locations. There's no need to install and maintain an application on each client, all users are working on the same version of the application, and all data is in sync.

There may be more elements to add to this list, but if you start here you'll be heading in the right direction. In fact, you may have developed a "high-value element" of your "integrated go-to-market strategy"... whatever that means.

SaaS: It's Not for Everyone

2009-08-21T16:44:00.001-04:00

My family doesn't go out for pizza anymore. We bought two pizza stones and a wooden pallet, and for the last couple of years we've made it at home. Why?

Anchovies.

(Cue up the theme music from "True Confessions" here.) I like anchovies on my pizza.

Because not many others share this preference for small, salty fish on their pizza, it's very hard for me to find someone to split it with. In fact, lots of people won't even let me put anchovies just on my half, claiming that they'll somehow leach into their non-anchovy half.

Hence the "make it at home" solution. Each of us makes a personalized pizza and puts on it whatever we please. My son's in the mainstream: tomato sauce and cheese. My wife prefers the more exotic: fig spread, goat cheese, and prosciutto. For me: anchovies

I know you're looking for practical advice on SaaS marketing, so stay with me here:

Anchovy pizza would make for a very poor SaaS solution.

That is, if your application has a limited market, requires customization, and can't co-exist with other applications, SaaS might not be an appropriate model.

SaaS applications fare better in larger markets where most buyers are satisfied with the same features. You don't want to build a solution that depends on satisfying the requirements of a small, quirky market.

In fact, if you've built a solution that suits a large, mainstream market, you should consciously avoid the niche markets. Resist the temptation to customize your application to suit their needs.

It's much easier to succeed with the SaaS model if your solution is available in only a limited number of options. Configuration is OK, especially if the user can do the configuring themselves. But customizing will make you miserable and cost you lots of money - higher costs for development, testing, support, administration, sales and marketing.

Applications and data that customers don't want to share are also poor candidates for SaaS. IT people harbor legitimate concerns about SaaS in general, and you'll need to satisfy their concerns about security and integration (See "What's Under the Covers"). For certain applications, however, you'll find yourself trying to jump over impossibly high hurdles. You'll go through all kinds of contortions with your application, your network, your hosting environment, ad infinitum, and in the end you still won't get the deal.

Bottom line:

If you're building a SaaS solution, target it to the mainstream buyers - the traditional, tomato sauce and cheese pizza eaters.
Don't customize your solution in an effort to satisfy the unusual requirements of a niche market, like us anchovy pizzas eaters.

Don't worry: We'll just make ours at home.
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Comments are always welcome. And if you'd like to confess your own particular preferences for pizza, don't be shy.

SaaS and Indy Car Driving: Don't Lift the Accelerator

2009-08-11T10:00:00.000-04:00

A race car driver who had just qualified for the first time for the Indianapolis 500 explained to me the most difficult part of navigating the 2.5 mile circuit: keeping the accelerator pushed to the floor. He said it's easy to do while driving down the straightaway; the tough part is when you're heading into the 90-degree turn at the end. If you lift the pedal, the car won't turn left in front of the concrete wall at turn one.

A quick lesson on race car aerodynamics. Indy Cars are designed like aircraft wings, only upside-down. In a plane, the faster it goes, the more lift is generated to carry it up into the air.

Indy Cars, by contrast, need to stay on the ground, not fly into the air. They are designed so that the faster the car goes, the more downforce is generated to hold it onto the track. Not enough speed means not enough downforce, means the car leaves the track surface, means the driver can't steer, means... you get the idea.

Marketing software-as-a-service (SaaS) solutions is a lot like driving an Indy Car.

The goal with SaaS marketing is to build a machine that generates lifetime customer revenue that exceeds customer acquisition costs. You want a process in place whereby every $1 of sales and marketing expense yields more than $1 in revenues over the life of a customer's subscription. (I discuss this in more detail at "Marketing Spend: How Much is Enough?")

Of course, those subscription revenues are recognized over the entire lifetime of the customer, often over several years. However, the sales and marketing costs are recognized immediately. You spend now to earn later. According to this formula, the faster you spend, the more short-term losses you generate.

As you're racing down this straightaway, running up big deficits, one instinct is to lift off the accelerator. Radically cut spending on sales and marketing. After all, these are probably the largest single expense items on your income statement. (I've shown how much publicly-held SaaS companies are spending at "The Risk of Spending Too Little on SaaS Marketing.") It's an instinct perhaps learned from experience with the business model for on-premise applications.

Resist the instinct to cut spending on customer acquisition

But if you've built an efficient sales and marketing machine, lifting the accelerator is exactly the wrong thing to do. If your finely-tuned customer acquisition machine is yielding $3, $4, $8 for every $1 in sales and marketing spend, keep the pedal to the floor.

If you cut back on spending, you lose visibility in the market, you can't generate prospects, and you can't support your sales efforts. The result: you can't acquire customers, and you'll fall further behind competitors until you're no longer a viable choice.

You'll lose revenue in the short term, and you'll lose revenue over the long term. Then you're unable to fund product development, customer support, and operations, so you lose your existing customers.

You may save cash by cutting expenses, but at the same time you've lost market traction. Like an under-steering Indy car heading toward turn one, the business slides into a drift, and at least figuratively, hits the wall.

Of course, keeping your foot on the sales and marketing accelerator requires enough fuel, in the form of capital, to stay in the race until the lifetime customer revenues come in over time. And it requires a well-tuned, efficient customer acquisition machine.

But it also requires courage. No doubt, the notion of accumulating big short-term losses is downright scary. Maybe not quite as scary as heading toward a reinforced concrete barrier at 220 miles-per-hour, but scary nonetheless.

It's Not All About the Price

2009-08-03T08:52:00.000-04:00

As a graduate student in foreign affairs in the late 1970's, I took a required course on "The Balance of Strategic Forces." It was all about the strength of the nuclear arsenal of the United States relative to that of the Soviet Union.

My favorite part of the course was when officers from each of the branches of the military lectured us on the virtues of their particular contribution to mutually assured destruction. The Navy explained that they protected us on the seven-eighth's of the world's surface covered by water. The Army, with responsibility for land forces, reminded us that all of the earth's human population lived on land. And the Air Force's claim rested on the fact that 100% of the earth is surrounded by air.

Besides acquiring a passel of nifty acronyms - MiRVs, MaRVs, SLCMs, etc. - I came away with a good understanding the "nuclear triad," the combination of long-range bombers, land-based missiles, and submarines that comprised the U.S. strategic defense arsenal. Despite its terrifying capabilities, it was colloquially referred to as the "three-legged stool."

I haven't had much occasion to use the nuclear armament knowledge in my marketing career, and much of it is now out-of-date, fortunately. But at least one lesson about the strategic triad applies to marketing as much as it does to nuclear defense:

Three legs are better than one.

That is, you're better off building a value proposition that's supported by multiple legs, and there's danger in relying on a single strategic advantage over competitors.

There's a temptation to build the case for SaaS solutions that rests largely on their cost advantages over on-premise applications. Unfortunately, this one-legged case makes for a wobbly value proposition.

For several years now, analysts and vendors have been pulling at the threads of a discussion on the cost of software-as-a-service (SaaS) solutions vs. on-premise applications. Forrester Research published a report on the topic two years ago as SaaS was just gaining traction in selected markets. More recently, a Gartner analysis noted that while SaaS may offer a cost advantage over the first two years, the total cost of ownership (TCO) advantage may dissipate over five years.

In a previous post, I talked about my suspicions about TCO, and ROI calculators in particular. Their apparent precision can be used to obscure fundamental flaws in the logic. If you're encountering objections from prospective customers about TCO or ROI, and claims that your SaaS solution is actually more costly than an on-premise application, I'd suggest you carefully examine their calculator. You may well find implicit assumptions, intentional or otherwise, that will skew the results.

Besides these cautions about TCO and ROI calculators, this is a good time to remind marketing folks to be careful when presenting the value of your SaaS solution not to rely too heavily on the cost advantages. These could be elusive. As you will have learned in Marketing 101 (4 P's, etc.), price is often the easiest element for competitors to match, at least in the short run.

Don't build a one-legged stool

SaaS vendors may be able to build a more sustainable case over on-premise solutions by touting other advantages:

Greater flexibility to meet fluctuating demand, particularly for applications that have high peaks in usage followed by relative quiet
Better access to the application for remote workers
Lower risk of a failed or delayed deployment
Instant access to the latest product enhancements and assurance that all users are on the same version.

Dan Druker of Intacct has offered a more comprehensive checklist of SaaS advantages.

When building the value proposition for your SaaS solution, use these other advantages if they apply. Don't rely exclusively on cost advantage.

It's hard to sit on a one-legged stool.

"Message cops" are essential to SaaS success

2009-07-14T10:48:00.000-04:00

Marketing people usually pay a lot of attention to consistency. They want to convey the same message, the same value proposition, across all marketing media: the web site, literature, presentations, press releases, etc. And now there are even more places to police: blogs, twitter, Facebook and LinkedIn.

When I've been in that role, I called myself the "message cop."

Marketing people typically focus only on consistency across marketing material. But at a recent panel on software-as-a-service (SaaS) renewals, Jim Driscoll, the CFO at Kadient, remarked that consistency needs to extend beyond marketing. SaaS companies need to be consistent through all of their interactions with customers. They need to convey the same message from the initial customer presentations, to contracts and financial terms, and through to delivery of the service and support.

He explained that when the promises, obligations, commitments, and delivery are in sync, renewals are much easier to secure.

And if there's inconsistency, it's easy to detect. Customers are dissatisfied, renewals fall, customer acquisition costs rise, and the entire SaaS business model comes under stress.

When these problems surface, some companies respond with a corporate version of the children's game "button, button, who's got the button." The problem, like the button, keeps getting passed from one group to another.

Sales executives are promising 99.9 % uptime, but operations can only deliver 98%.

The marketing material implies that SaaS customers have the flexibility leave at anytime, but the contract specifies a 3-year obligation.

Sales is asking marketing for success stories, but customer support can't find any happy customers.

Finance requires payment when the contract is signed, but operations can't deploy the service for 90 days.

Customer training has been scaled back, but the product is still too complicated for the user to learn on their own.

In the SaaS world, each department's activities are intimately connected to the others. If marketing, development, legal, finance, sales, support, and operations are in sync, the company can benefit from a virtuous cycle. If not, it fails in a death spiral.

When it comes to building a successful SaaS business, there is no their problem; there's really only our problem. You can't pass the button; everybody's a "message cop."

The Recipe for a SaaS Marketing Mix

2009-07-08T16:18:00.000-04:00

During the summer, I spend most Saturday morning's tending to my yard and garden, though my tomatoes are struggling with all this rain we've had here in New England. But in the winter, I sometimes watch the succession of cooking shows that run all day on public television.

I prefer the ones in which the host chef measures ingredients in "handfuls of this" and "dashes of that." They pay most attention to the ingredients, and give only a rough approximation of proportions.

The more precise chefs I don't enjoy nearly as much, especially those that bake. Baking is a more exact science - chemistry actually - and it requires precise measurements. Most recipes for cakes are not very forgiving... something I learned from a tragic experience with a marble cake.

My approach to the marketing mix for software-as-a-service (SaaS) companies follows this same predilection. I tend to focus first on ensuring that companies are using the right ingredients in approximately the right proportions, before they get fixated on the precise measures.

Before a marketing executive at a SaaS company delves into exactly how much to spend on the assortment of tactical marketing programs - webinars, collateral, search engine optimization, etc. - it's usually best to ensure that they first have the basic ingredients on hand.

My Recipe for Effectively Marketing SaaS Solutions to Enterprises

Ingredients:

Several generous handfuls of activity targeting existing customers. Customer retention is essential to your business.

An ample dose of messages and materials addressing the concerns of IT professionals. You'll need to satisfy their appetite for information about security, reliability, performance and integration.

A hefty dollop of brand awareness activity to go along with your lead generation efforts. With SaaS, customers are buying into your promise, not just your product. You need to win their trust.

A thick slice of product roadmap, NDA's removed. Before a customer goes along for a ride, they usually need to know where you're going to take them.

A few shakes of education for procurement professionals. They may not be familiar with the terms and conditions of SaaS contracts, so you'll need to provide an explanation.

In preparing the concoction, be prepared to work quickly. The SaaS model usually involves frequent product enhancements, so marketing folks need to update programs and material quickly. Items left out too long will go bad.

And of course, the marketing mix needs to be kept within a budget that fits the SaaS business model. Customer acquisition costs can't exceed lifetime customer revenues.

So before you start measuring and calculating down to the final dollar, make sure you've got the right ingredients in the kitchen.

Bon appetit!

What Do You Mean by "Hybrid?"

2009-06-29T10:17:00.000-04:00

Folks talking about software-as-a-service (SaaS) and cloud computing often use the label "hybrid." I understand that "hybrid" refers to something that's part "this" and part "that."

I'm just not always sure what "this" and "that" are.

Sometimes "hybrid" refers to a solution that runs partly in the cloud and partly on-premise. An email system, for example, might handle some functions on a remote server accessed via the web, but other functions might be managed on the user's desktop. Anti-virus applications often work this way as well.

Other times, "hybrid" refers to a solution that is hosted and managed by the provider, but can be extensively customized by the user. This is in contrast to the more pure, multi-tenant SaaS model in which solutions can be configured, but not customized.

In a third option, "hybrid" is used to refer to a solution that can run either on a "public cloud" or on a company's internal "private cloud," or dispersed across the two.

And in yet another variation, vendors who offer their customers a choice of SaaS, on-premise, or hosted options are described as following a "hybrid" business model.

I won't get into the wisdom of any of these options right here, except to note that each of them comes with its own set of challenges. (Elsewhere, I have addressed whether companies can offer both on-premise and SaaS options.) And as Joel York astutely points out, vendors should make a conscious and deliberate choice among these options, rather than wandering carelessly into the middle of the road.

"This is this."

My point here for marketers is this: Be careful with words.

This emerging market is already confusing enough, with terms like "SaaS,""platform-as-a-service (PaaS)," "cloud," etc. (See "War of the Words.) That confusion will delay the sales cycle or even cost you business.

Marketers should educate CEOs, CIOs, procurement professionals, end users and anyone else in the evaluation process on what these terms mean. Just because you've immersed yourself in the nuanced vocabulary of this market (and read blogs like this one), doesn't mean your buyers have done the same.

If I'm sometimes confused what people mean when they talk about "hybrid" solutions, assume that your prospective customers could be confused as well.

By the way, this dialogue from "The Deer Hunter" offers some useful insight on the need for clarity:

Michael, played by Robert DeNiro, explains, "This is this. It ain't something else. This is this."

And his hunting companion Stanley, played by John Cazale, responds," 'This is this.' What the hell is that supposed to mean? 'This is this.'"

SaaS Renewals and the Multiplier Effect

2009-06-23T13:09:00.000-04:00

In case you've forgotten the concept of the multiplier effect from Economics 101, it's commonly used to project the impact of a change in government spending or money supply on the growth of GDP.

If, for example, we know that the government spending multiplier is 5, and the government increases spending by $10 billion, we'd project that GDP would grow by $50 billion.

In a similar fashion, renewals have a multiplier impact on SaaS companies' revenues.

The higher the renewal multiplier - that is the more times a company can renew a customer and extend its revenue-generating life - the greater the revenue accruing to the company.

Lifetime Customer Revenue

To be more precise, what we're actually referring to here is "lifetime customer revenue."

Lifetime customer revenue = recurring revenue per period * term of customer lifetime

As an example, I'll calculate the average lifetime customer revenue for salesforce.com, estimating a 3-year customer life multiplier:

$985 million in FY 2009 annual subscription revenue/55,400 customers = $17,780 average annual revenue per customer

$17,780 average annual revenue per customer * 3 year customer lifetime = $53,340 lifetime customer revenue.

Changing the renewal multiplier to a 5-year customer life, yields a more favorable result:

$17,780 average annual revenue per customer * 5 year customer lifetime = $88,900 lifetime customer revenue.

To illustrate the dramatic impact of longer customer life on lifetime revenue, I've calculated the lifetime customer revenue at several publicly-held SaaS companies, using 5-year, 3-year and 1-year renewal multipliers. As expected, a higher renewal multiplier yields substantially higher revenue.

The relationship between the renewal multiplier, lifetime customer revenue and customer acquisition cost

This calculation becomes truly useful when comparing the lifetime customer revenue to the cost of acquiring a customer, i.e. sales & marketing expenses.

Average lifetime customer revenue/average customer acquisition cost

This formula reveals how much lifetime customer revenue is generated by $1 in customer acquisition costs. (I discussed this concept at greater length in the May 2009 newsletter and in an earlier post entitled "Marketing Spend: How Much is Enough?")

According to this illustration, when salesforce.com can extend the average customer lifetime to 5 years, the company generates $2.40 in lifetime customer revenue for every $1 spent on customer acquisition. At a 3-year lifetime, $1.44 of lifetime revenue is generated. And at a 1-year customer lifetime, only 48 cents of revenue is generated for every $1 spent on sales & marketing.

Don't lose customers you've already paid for

As you can surmise, spending more than $1 to acquire a customer that yields less than $1 in lifetime revenue is not a sustainable business model.

Extending the life of the customer's subscription is critical to success. It's bad business to lose customers you've already paid for.