Social Media, Customer Acquisition Costs, & SaaS

Social media: it's not just for consumer marketing anymore.

At first, I too was skeptical that it could be used to sell business solutions to enterprises. As it turns out, though, lots of people who evaluate and purchase technology for large companies do, in fact, gather information via social media. A survey from Forrester Research claims, "77 percent of business technology decision-makers engage with social media on the job."

This is good news for SaaS marketers for two reasons: 1) When done well, social media efforts work, and 2) they can be relatively inexpensive and cost-effective.

Wikipedia defines "social media" as "relatively cheap tools that enable anyone (even private individuals) to publish or access information."

I wouldn't use the word "cheap", but in the software-as-a-service (SaaS) model, "cost-effective" is critical .

Because we're paid over the term of the subscription, it takes longer to recover up-front costs, such as the sales and marketing expenses related to customer acquisition. If we're spending $1 to acquire a customer that pays us $3 over the life of the subscription, it's not a problem. But if we're spending $5 to earn that $3 revenue stream, that is a problem. Trust me, you won't make it up in volume.

While large one-time, up-front license fees paid in the traditional on-premise model might disguise inefficient sales and marketing expenses, in the SaaS model they're much more difficult to hide. As I described in the "Wile E. Coyote" story, if you overspend on customer acquisition, those costs, like the desert floor in the RoadRunner cartoon, will jump up to meet you quickly and painfully.

That's why social media should appeal to SaaS solution marketers. Believe me, I'm not looking at social media and SaaS as the nexus of some grand paradigm shift in technology and commercial interaction. Theorists and futurists can have a field day there, I'm sure.

Me, I'm just thinking about the money. Specifically, how can companies selling SaaS solutions to enterprises use social media to acquire customers more cost-effectively? A few ideas:

• Participate in the conversation: That's my "speak plain English" way of saying "blog." People involved in the decision making process for your solution actually read these. You can publish your own blog, though you might be better off joining in the conversation by commenting on others' blogs. If they're good, they've already done the really hard work of attracting traffic, a.k.a. "readers."
  
• Find relevant and influential blogs: There are dozens of blogs covering virtually all the large SaaS solution markets: CRM, ERP, marketing automation, talent management, etc. Nearly all the leading analysts from the market research firms maintain a blog. You'll also likely find relevant discussion forums on LinkedIn. The best idea is to ask your prospects directly what blogs they follow.
• Provide real value: The biggest cost for participating in these conversations is the time required by the contributor. They should have something valuable to add to the conversation - a unique perspective or the benefit of experience. Avoid commercials. Paul Gillin and others have written entire books on how to use blogs and other social media effectively.
  
• Make it part of the PR program: Consider allocating some of the PR team's resources to monitoring the most influential blogs and even drafting contributions. They should look at this as part of their on-going media relations work. After all, it's getting difficult to see a difference between a blog post and an article published on-line by a traditional publication. (I'm not sure that's necessarily a good thing, but so be it.)
• Build a relationship. Selling an enterprise solution that's to be deployed broadly requires a high degree of comfort and trust, something you won't earn overnight with one or two posts, no matter how brilliant. But your participation in influential blogs, done well and consistently over time, can help you build visibility and credibility, which are critical to generating leads and cultivating prospects.
  
• Make yourself findable: Optimize your blog or your web site so it can be found by search engines. Engaging legitimate search engine optimization experts, people who know how to improve your rankings, is usually a good investment.
  

Social media should be a key part of your efforts to market a SaaS solution. It will help you reach an influential audience and it can be done cost-effectively. Do it not because it's cool, but because it works.

What's under the covers and does anyone really care?

There's been lots of news and commentary about Coghead over the last couple of days. Before selling their IP assets to SAP, the company sold a "next generation platform for building web applications." Though they were not necessarily as visible as salesforce.com, Intuit, Amazon or others offering "platforms" or "cloud services," their demise may still give pause to CIOs or IT executives evaluating SaaS solutions.

For enterprises using SaaS solutions, not only does the internal IT shop not own the application, but neither does the SaaS solution provider own the underlying technology. Sounds like that kids' game, "Button, button, who's got the button?"

Just what we marketers need - yet another reason for understandably cautious CIOs to be skeptical about SaaS solutions.

What this means, of course, is more work for marketing. We'll need to win the confidence and support of these CIOs before they'll give an OK to purchasing and deploying SaaS solutions in their organizations. Even those that are on-board with the potential to save money still need to be convinced that critical applications will be reliable, secure, configurable, and in some cases, integrate with existing applications..

Put yourself in the CIO's uncomfortable position. They have all the responsibilities, but very little control. Or to be more precise, they have very little control once the purchase decision is made.

Before the purchase decision, however, they can and should grill the SaaS vendor about performance, security, reliability, configurability, and integration. That includes close scrutiny of the underlying platform technologies supporting the application. They want to pore over the multi-layer technology architecture diagrams, understand what you're doing with SOA, AJAX, and SSL, and comb through a detailed security policies and practices document that goes "thunk" when it hits the desk.

Marketing can work with Operations and Development, including the product architects, to put this material together and make it available to CIOs. For example, I've seen some SaaS providers that reveal their uptime stats right on their website. Others arm their sales execs with case studies on how their solution has been successfully integrated with other applications in the data center. I've even found marketing documents that refer to data centers protected by "24/7 armed security personnel."

Yes, CIOs really do care what's under the covers, and SaaS providers who need to win their confidence and support should be prepared to show them.

Can you offer both on-premise and a SaaS option?

I've been marketing technology products for a long time, and can understand the appeal of offering customers a choice: they can purchase the application through an on-premise license or if they prefer, through a software-as-a-service subscription. "Choice," "flexibility," "freedom": all very positive and potent selling points.

It makes good sense on the surface. The customer simply wants to solve a business problem - manage customer relationships, automate procurement, process expense reports, etc. Let them buy the solution in whatever way is most comfortable for them. Why impede their purchase by forcing them toward a single delivery mechanism?

Ah, there's the rub.

SaaS is more that a delivery mechanism

If it was only a matter of the "delivery mechanism," offering both options - on-premise or SaaS - would be much simpler. "Paper or plastic," either way the customer gets to use the application.

But SaaS is not simply a different delivery mechanism; it's a different business. The financial model is different, the development process is different, the operations and support processes are different, and sales & marketing are different. (I discuss these differences in "The Unique Challenges of Marketing and Selling SaaS Solutions.")

I've seen the lessons on the marketing differences first-hand. The company has a well-established on-premise solution and is adopting a software-as-a-service model.

Marketing's role? Add the advantages of SaaS to the list of product features, update the web site and the collateral, and we're done.

Wrong.

Marketing SaaS solutions is not the same as marketing on-premise solutions

The error began to dawn on me the first time (OK, maybe the third time) a sales rep asked for marketing material to help gain the support of the CIO. I thought we were avoiding the CIO with our SaaS offering!

And then Legal needed help to explain the subscription contract terms. And the folks in customer care wanted to keep existing customers informed of new product enhancements. And so on, until a light went on: Marketing a SaaS solution is more than a few tweaks to what we'd done to market the on-premise solution.

And I'm only talking about the changes in marketing. Play this out with Legal, Finance, Operations, Development, and Support. And then think about the challenges of supporting both a SaaS and an on-premise option.

To make this even more complicated, some vendors even offer customers the option of switching between the two models at their convenience.

Too many choices can be a bad thing

I give great credit to the vendors who go down this path, and can see the appeal to customers. But these vendors should understand that they're running two virtually separate businesses.

I'm reminded of an instance of choice gone too far, this from the much tastier world beyond technology. I brought a couple of friends from Spain to Lizzy's Ice Cream. They gaped at the 30' blackboard of options mounted behind the counter: Three columns of flavors, 18 different mix-in's, a dozen toppings, plus yogurt, sherbet, and tofutti.

At first, they were delighted. But after a moment, their delight morphed into confusion, then anxiety, and finally desperation. Too many choices.

I don't recall if they bought anything more exotic than a scoop of vanilla, but I do remember that they suffered an ice cream headache even before they ate the ice cream!

Blog Post Version 8.4.2 Build 4519.pac: Service Pack 14: Winter Edition

If I were labeling my blog posts like software versions, I might call this post Version 8.4.2 Build 4519.pac: Service Pack 14. Or not.

Among the other standards we've not yet settled on in the software-as-a-service (SaaS) market, we haven't adopted a standard version naming convention.

For the folks in operations and customer support, there's a good reason to be precise in labeling. They need to know exactly which version of the application the customer is running. It's why the Apple Care tech needs to know that I'm running "Mac OS X 10.5.6." That's a bit more awkward than the "Tiger" nickname, but not nearly as cumbersome as "Microsoft Windows Version 5.1 Build 2600.xsp_sp3_gdr.080814-1236; Service Pack 3" that's running on my PC.

But don't let the needs of operations and customer support bind the hands of marketing when it comes to naming versions. As much as I argue that we marketers need to keep a sharp pencil and wear a green eyeshade when it comes to managing customer acquisition costs, part of our job is to generate interest in the solution and project its appeal and value. By that measure, "version 8.4.2 Build 4519.pac..." isn't really very shiny.

Go ahead and put the precise release identification information in the technical documentation and make it accessible to the system administrator, but there's no need to use it as the marketing moniker as well.

There are a few naming options that SaaS vendors are using. Some stick with the "release x.x." convention, carrying it over from the traditional on-premise model. It does have the advantage of being familiar to IT buyers, but if you're trying to convey that your SaaS offering is new, different, and better, using the old naming convention could be working against you.

Others are relying on the seasons, labeling versions "Summer '08" and "Winter '09." It certainly sounds appealing, like Sam Adams "Summer Ale" or "Winter Lager." It also provides a handy way to signal that they've just shipped a bunch of shiny new stuff. I especially like that it gives development a big window to actually deliver the enhancements. If you tell customers that the new feature will be available in the "Spring "09" release, they should expect it sometime between March and June. (Don't even ask what the seasonal labels mean for customers in the southern hemisphere!)

I've also seen variants of this seasonal naming scheme. There's "salesforce crm 9," for example. In fact, salesforce.com also labels new releases by season.

At the extreme end of the spectrum, some SaaS vendors have opted to forego version labeling entirely. They announce new enhancements, but don't use a "born on date" label at all. The customer's solution is being updated regularly. They always have the latest, the greatest, the freshest, the newest. That's what SaaS is all about, right?

Whichever naming convention you choose, I'd recommend you follow 3 rules:

1. Free the marketing label from the operations and customer service nomenclature. They serve different purposes.
2. Fit the naming scheme to the rest of your marketing and business strategy. If you're consciously breaking new ground and explicitly selling against the established on-premise vendors, why not go with an altogether non-traditional naming convention?
3. Keep it simple. (That advice goes on most of my lists.)

As for me and the labeling of my blog posts, I think I'll stick with a headline and the date for now.

Hyper-spending on Customer Acquisition: The Wile E. Coyote Effect

For software-as-a-service providers, hyper-spending on customer acquisition is a race against time. Your goal is to build a large enough customer base and revenue stream to cover your costs, and to get there before you run out of money.

In my SaaS Marketing Strategy Maturity Assessment (tm) model, I put a label on companies that spend most or all of their annual revenues on sales and marketing expenses: “Wile E. Coyotes.” Remember he’s the too-clever predator who persistently, but futilely, pursues the Roadrunner around the desert. Consumed by his zealous quest, he’s usually tricked into racing past the Roadrunner and right out over the cliff. The fun part is that as long as he keeps moving his feet and doesn’t look down, he can stay airborne… at least for awhile.

Can this work with SaaS companies? Can they keep moving their feet fast enough and not look down long enough to stay airborne? It depends mostly on deep pockets and spending wisely.

The deep pockets bit has to do with the capital structure of the balance sheet. I’ll let the VCs and CFOs deal with those issues.

The spending part, though, must be a top concern for marketers. As much you might prefer to be immersed in web site animation, tag lines, booth layouts, and the creative process, a big part of your job is to manage the costs of customer acquisition. Sorry.

Yes, I know that all companies, SaaS vendors or otherwise, need to pay attention to the return on their sales and marketing investment. (A Google search on “marketing ROI” returns 5.8 million results.) But it’s especially important with companies working in the SaaS model. For most enterprise solutions (CRM, ERP, talent management, etc.) offered as a service, the formula runs like this: spend the money up-front on customer acquisition and earn it back over the next few years over the life of the subscription. Invest now; payback later.

This is much different from most on-premise models in which the large up-front customer acquisition costs are covered by even larger up-front license fees. That gives the marketing folks more latitude. Not to claim they can be careless, but their less productive investments are more easily covered.

Marketers in SaaS providers don’t have that kind of cover. What that means is we need to think that much harder about the yield on investments. What’s the payback on the webinar series, the conference sponsorship, the pay-per-click campaign? If we’re spending $1 to acquire a customer, and generating $3 in revenue over the term of their subscription, that may be a prudent investment. But if we’re spending $3 or $4 or $5 to acquire a $3 revenue stream - well it may be that the canyon floor could be heading up at us very, very quickly.

Getting Deals Unstuck from Legal & Procurement

Maybe you used to work toward quarterly deadlines. But if you're a software-as-a-service provider, now you're on daily deadlines. In the SaaS model, when customers start to pay on the day they subscribe, the sooner you close a deal, the better. With on-premise licenses, the timing didn't matter much as long as the deal closed before quarter-end. But for SaaS vendors, a deal is worth more - 90 days of revenue more - on January 1 than on March 31.

So it matters urgently when deals are stuck with legal and procurement departments. Unfortunately, because the customers' lawyers and purchasing agents may not be familiar with SaaS solutions and standard contract terms and conditions are still emerging, this happens often. Everything in the sales process is moving along smoothly. The functional buyer is convinced of the value of the solution, the CIO is OK with security and performance, and the CFO sees the investment value.

But then you enter the long, dark tunnel of legal approval. I've seen deals suddenly snagged over payment terms, credit policies, service level agreements, activation dates, length of term, termination clauses, renewal practices, data ownership, and more.

Done well, marketing can steer deals more smoothly through this approval process. The key is to educate the buyer. (Folks from the New York-area may recall Sy Syms, "An educated consumer is our best customer." I never bought a suit from Syms, but his advise makes sense.)

• Develop a straightforward standard contract. Shorter is better. The longer and more flexible the contract, the more you'll prolong the process. Remember: delays cost money.
• Explain the essential contract terms to your sales people. Let them know what items are non-negotiable and what areas provide some flexibility.
  
• Prepare material - white paper, FAQs, etc. - to educate customers about your terms and conditions. Describe the key contract terms and explain the rationale behind them. If you require a one-year minimum term, tell them why.
• Ensure that there's a discussion of contract terms early in the sales process. If you follow a standard "sequence of events," put "contract policies" early in the sequence.
  

If you find that you've spent eight weeks pushing forward on a deal only to get intractably snagged by legal and procurement for another 12 weeks, then something's gone horribly - and expensively - wrong.