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SaaS Pricing and Subscriptions
Do you price your SaaS system on the basis of (please pick your PRIMARY method):
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Concurrent seats (up to X number of subscribers can use the system at any one time)
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15%
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Named subscribers (only registered individuals can use the system)
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25%
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Per transaction or based on usage (for example, per insurance claim processed)
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29%
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Per business location (e.g. per branch office or restaurant)
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4%
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Enterprise or site subscription (flat fee for all subscribing)
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8%
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Feature or modules used (e.g. a-la-carte system of adding and removing features/modules that determines monthly pricing schedule)
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7%
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Project(s) (pay per use)
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3%
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Bandwidth used (e.g. Mbyte of upload/download traffic)
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1%
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Storage used (e.g. Mbyte of storage used)
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1%
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Other, please specify
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7%
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The results above continue a trend we noted last year, that the "per transaction" model, in which a SaaS provider aligns their method of charging around a customer's business processes is becoming an increasingly popular means of monetizing application usage.
It should be noted that not every attempt to do this will be successful. In industries where the named user or concurrent models are already in use, pushback against the transaction model will be strong. Also, many companies are suspicious of being "nickle and dimed" via a transaction model and regard the "all you can eat" elements of named/concurrent user favorably. Be prepared to make a strong business case for transaction pricing if you think it's most applicable to your market.
What is your most popular subscription length option?
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Not applicable; our subscriptions are based only on transactions/usage
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6%
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Monthly
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38%
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Quarterly
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1%
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Bi-yearly
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1%
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Yearly
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37%
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Multi-year
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16%
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Other
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1%
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Note that aggregated the yearly and multi-year account for 53% of all responses. The trend over the last four years of SaaS firms moving away from the monthly model continues, especially in larger and enterprise markets.
On a per annum basis, what is the revenue renewal rate of your SaaS customer base? As a simplified example, if you entered the year with 10 customers paying $1M, what were the revenues generated by those customers at year's end? If the revenue generated was $1.1M, that represents a 110% renewal rate or 10% gain. If the number is $900k, that represents a 90% renewal rate (or a 10% revenue loss/churn). Your answer to this question will help us understand how SaaS companies are managing the overall revenue value of their customer base.
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<70%
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5%
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<80%
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9%
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<90%
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16%
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100%
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9%
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100%+
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12%
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>110%
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8%
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>120%
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7%
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>130%
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1%
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>140%+
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4%
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We don't track this
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20%
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Other
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7%
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This is the first year we've asked this question; the purpose is to gain insight into how effectively SaaS firms are leveraging the value of their installed subscriber base. The numbers are not, in our opinion, very stirring and indicate SaaS companies have a lot to learn about cross and up selling. Particularly shocking are the 20% who are not measuring this key metric.
SaaS Development
Does your company implement "Agile" methodologies in its R&D?
Agile methodologies are sweeping through SaaS and we recommend that if you're taking a close look at incorporating them into your development processes, you start thinking about ASAP. But on caveat remains. Agile is not meaningful to product management and you should avoid wasting time and money on creating "Agile" product managers. Instead, focus on and spend your money on integrating requirements management, community, and analytics into your SaaS system and leverage these via a new system of SaaS community managers.
Please tell us the primary business advantage of using Agile methodologies in your development cycle.
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Faster development cycles
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62%
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Decreased design issues and product bugs
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24%
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Cheaper research and development (R&D) costs
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4%
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Better communications with internal sales, marketing, and PR groups
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2%
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Better communications with SaaS system subscribers
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8%
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Agile clearly meets the need of SaaS companies for development speed.
Have you developed a "smartphone" mobile application interface for your SaaS system?
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Yes
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27%
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No
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37%
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We are developing one
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32%
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Not applicable
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4%
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Other, please specify
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0%
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This is the first year we've asked this question and we expect the Yes responses to climb substantially. There is a strong overlap between the mobile and SaaS markets and Softletter will be digging into this area in greater depth and detail.
Is the primary development of your SaaS product done by an outsource (a third-party firm or firms hired for this specific task)?
Last year the Yes response was 17%; the outsource model appears to be gaining traction in SaaS.
Are you developing a SaaS product on top of a "full SaaS stack" third-party platform (PaaS) such as Force (Salesforce.com), Servoy, NetSuite's SuiteFlex or similar system? (Softletter defines a "full stack" SaaS product as one in which the vendor supplies most, if not all, of the underlying infrastructure and middleware required to run a SaaS application. For example, a full stack SaaS development platform typically supplies the underlying hardware, database, and middleware an application needs to run in an online environment, in addition to the programming language/tools required to build a user interface and business logic.)
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Yes
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17%
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No
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80%
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No, but we are evaluating this option
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3%
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A great deal of attention has been paid to PaaS platforms recently, but over the last three years the above numbers have not shifted much. SaaS providers remain largely unimpressed by many PaaS platforms.
Do you maintain your own hardware/software infrastructure (personnel, servers, storage, security, software, etc) for your SaaS system in-house? Or do you outsource your infrastructure operations? For the purposes of this survey, colocation, where you own servers stored at an offsite location, is regarded as an in-house infrastructure model
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In-House
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44%
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Outsource
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56%
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Over the last three years the trend has been for larger numbers of startups and younger firms to outsource their infrastructure. As companies grow, this trend completely reverses and larger firms bring their infrastructure in house.
Does your company provide a complete fallover ("failover") guarantee in the event your company goes out of business? (A fallover guarantee means a third party will take over operations, maintenance and provisioning of your system for X period of time until you can migrate your data and business processes out of the current SaaS application or until another entity can be found to maintain operation of the system)
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Yes
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22%
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No
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51%
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No, but we are implementing a fallover program within 12 months
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8%
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No, but we are considering it
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18%
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Other, please specify
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2%
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SaaS Channels
Do you have a recommender (agent) program for your SaaS product? (A recommender program pays an individual or company of record who recommends, but does not resell, your product).
Do you resell your SaaS product on an OEM basis? (In an OEM sale, your product is directly incorporated into another application. Your product's core functionality can be altered to meet the OEM purchaser's requirements and your corporate and brand identity, with the exception of licensing information, set aside in favor of those of the OEM customer's product and services).
Are you reselling your SaaS product via VARs (value added resellers)?
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Yes
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23%
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No
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65%
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No, but we are planning to build a VAR channel
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12%
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The number of companies indicating they are planning to start building a VAR channel dropped from our last year's numbers; this is accounted for by the larger number of new companies participating in the survey. Startups do not normally focus on channel building until they've established success in their core business.
SaaS Sales and Marketing
What is your primary means of selling your SaaS product?
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A direct sales force (defined as personnel who are authorized and regularly meet face to face with key decision makers during the sales cycle)
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51%
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A telesales group (defined as a group that normally does not meet with or visit a client's location but instead begins and finishes the sales cycle remotely)
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15%
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Indirect marketing (E-mail, direct mail, webinars, PPC, SEO, advertising, etc.)
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25%
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Reseller/channel programs (includes consultancies, business agents, etc.)
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6%
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Other, please specify
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In 2010, 60% of our survey respondents reported that a direct sales force was their primary means of selling their SaaS system, with 9% reporting telesales, 18% indirect marketing, and 10% channels as their primary sales vehicle. This information correlates with what we're learning from our many conversations with SaaS firms, that increasing numbers of them are relying to telesales and indirect marketing to drive their sales as the remote demoing and trial access capabilities inherent in SaaS make this tenable. For the largest sales however, a personal touch is still often required.
What do you believe is the primary reason your customers choose to subscribe to a SaaS system?
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SaaS applications are counted as an operating expense, not as a capital investment
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22%
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Customers can quickly gain access to new capabilities and functions that they cannot obtain by purchasing existing software products and services
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48%
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Customers wish to replace existing licensed and/or client/server applications with SaaS applications to reduce the overall cost of software at their company or business unit
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6%
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Customers wish to replace existing licensed and/or client/server applications with SaaS applications to reduce overall IT operations and complexity at their company or business unit
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15%
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Other, please specify
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9%
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As in previous years, Customers can quickly gain access... remains the single biggest driver of SaaS purchases as reported by SaaS firm. Of note is the rise in SaaS companies reporting that SaaS applications are counted as an operating expense...is the primary driver of sales from last year's 16%, an indicator that as SaaS companies penetrate larger markets the concerns of CFOs become more important during the sales cycle.
Please tell us the primary concern about subscribing to your SaaS system raised during the sales cycle by potential subscribers.
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Concerns about the safety and security of data maintained and stored in your SaaS system
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43%
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Concerns about the pricing of your SaaS system when compared against on premise, server-based and/or desktop competitors
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22%
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Concerns that the system is not capable of matching the power and capabilities of on premise, server-based and/or desktop competitors
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11%
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Concerns about maintaining operations in the event your company is purchased, merged, or ceases operations
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3%
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Resistance from IT to the introduction of SaaS systems into the corporate computing environment
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12%
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Concerns about meeting governmental security and privacy mandates
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3%
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Other, please specify
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6%
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It's no surprise that security issues remain the biggest issue facing SaaS providers during the sales cycle; it's interesting that IT objections remain a significant issue to 12% of respondents. SaaS companies should also be prepared to deal with pricing issues in a significant number of cases.
When describing your system to your customers, which acronym/phrase predominates in your marketing collateral and during discussions with potential subscribers?
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Cloud applications
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14%
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SaaS (Software as a Service)
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58%
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Cloud apps
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0%
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Online or hosted application
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14%
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Cloud computing
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6%
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ASP (application service provider)
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0%
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Cloud service
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3%
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Other, please specify
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5%
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We asked this question because ever since the introduction of the "Cloud" buzzword into the computing lexicon, a great deal of confusion has descended over the market. We'll let the results to the question speak for themselves.
SaaS and Professional Services
Do you have a professional services group?
Over the past five years the number of SaaS companies answering Yes to this question has risen steadily; last year, the % of respondents answering in the affirmative was 58%; the follow up question shows, however, that the % of revenue derived from sales of professionals services differs sharply from the on premise model.
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1% to 5%
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10%
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6% to 15%
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35%
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16% to 30%
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25%
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31% to 40%
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2%
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41% to 50%
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10%
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51% to 70%
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5%
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71% to 90%
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2%
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91% to 100%
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2%
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100%+
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2%
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125%+
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2%
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150%+
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2%
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As the numbers show, the big money often associated with professional services sales in on premise software are largely absent in SaaS. Customers expect SaaS products to simple to implement and begin using; expensive professional services fees strike a very discordant note and resistance to paying professional services fees become steadily stronger as the ratio of subscription revenue to professional services revenue approaches 100% (there are outliers, of course). SaaS companies in markets where providing advanced services such as data integration and extensive configuration need to plan for the reality revealed by the survey.
SaaS and Community/Product Management
Does your company employ product managers?
Does your company employ community managers? (In a SaaS company, community managers are responsible for creating and managing a SaaS community of customers and potential customers. Tasks associated with this responsibility can include transmitting customer requests for new capabilities to development, providing detailed reports on customer satisfaction with the company's products and services to management, creating promotions and cross- and up-sells to the customer base, and leveraging the customer community to lower support costs).
Does your product incorporate a "new features or capabilities" requirements request mechanism by customers directly within the SaaS application environment?
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Yes
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34%
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No
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47%
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We are planning to add this capability
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19%
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Does your product system incorporate a customer community management system directly within the SaaS application environment? (By "within" we mean the customer can access the community from within the SaaS system via either direct access to an integrated community module or a direct link to a third party module).
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Yes
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20%
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No
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64%
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We are planning to add this capability
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16%
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Does your product incorporate a customer usage tracking analytic system directly within the SaaS application environment?
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Yes
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48%
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No
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39%
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We are planning to add this capability
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12%
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Readers of Softletter know that we've been advocating since 2009 that SaaS firms integrate requirements management, community, and highly granular analytics into their systems. As these numbers show, many SaaS companies are well along the way to doing just this. Is your company one of them? If not, you're a laggard and will soon be at a strong competitive disadvantage when facing firms that are leveraging comprehensive analytics of application usage and learning from direct feedback from customer communities. Also, as our numbers also show, the concept of community management is coming to SaaS and over the next several years we expect traditional product management to fade away in SaaS. Note the surprisingly high number of SaaS companies reporting they don't have product managers.
One of the reasons for this is that SaaS companies quickly find out that traditional PM skills such as MRD/PRD production, tick list herding, acting as a customer surrogate, etc, etc are obsolete or change radically in SaaS companies. As we have stated before, if you're a startup, spending precious funds on traditional product management training courses is a waste of funds. Focus instead on integrating analytics, community requirements management into your SaaS products and learn how to leverage them. Case studies and examples of this approach in action will be highlighted at Softletter's SaaS University Conference in Austin, TX, February 28/29, March 1.
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