Almost five years ago, Bill Gates warned Microsoft about the significant challenge to the company and industry posed by the advent of SaaS. While the new business model has yet to fully reach the gains predicted for it back then, the momentum is building. An ever-accelerating number of traditional perpetual-license software companies are readying SaaS products or have already quietly released them. In the process, a lot has been learned about the magnitude of the change that is SaaS. As company after company has discovered, often painfully, SaaS is not a trivial undertaking. Designing and building a SaaS app is hard. Achieving and sustaining profitability as a SaaS company can be an even greater challenge. In 2010, The SaaS & Support Project will continue its research into these and related issues through a series of online surveys, in-depth onsite assessments, online forum conversations and direct interviews.
The SaaS & Support Project research into the common causes of lost customer relationships showed that the most commonly identified “departure driver” was Divorce. Either the management of the customer company had changed, resulting in the loss of the internal champion, or the relationship had become distant. One SaaS company CEO described this scenario as a loss of contact ‘at the top’ of the food chain, with upper management either leaving or forgetting why the system was implemented. Three significant questions come immediately to mind: 1) Why are SaaS vendors being taken by surprise? 2) What can be done to save the relationships? 3) How can CEOs stop setting their companies up for churn?
The SaaS & Support Project research uncovered a lot about the current state of SaaS vendor operating patterns. In my opinion, the most significant finding was the degree to which SaaS companies tend to ignore the ownership of and responsibility for their ongoing customer relationships in their organizational structures and process. While some companies say that they have designated an owner, there is rarely any connection between that role and the metrics applied to measure the performance of it. The result is often the creation of a dangerously widening gap into which potential profits and valuable customer relationships can fall unnoticed, and an unnecessary risk to the company’s chances for long-term viability and success. The path towards closing the gap starts with a strategic decision; a new group is needed, one chartered and equipped to carry the responsibility and accountability for maintaining the ongoing customer relationships on a profitable basis.
Thinking that the act of restoring lost functionality in exception situations is somehow of the same stature as the value-purpose for buying the product in the first place is unfortunately all too common, but it’s still flawed. No one buys a product in order to experience a breakage and then getting it fixed. Business products are purchased because they offer the potential for increased productivity and profitability to the purchaser. The real economic value exchange is: I give you an amount of money so that I can use the product to make much more money for myself. If Support is to become a true profession, it will be found in being perceived as a necessary component of that value expression. The new Mission Statement for Support needs to be: “We directly contribute to making more sustainable profitability faster/better for our company and yours – and we can prove it.”
“How many SaaS companies are there?” At the recent On Demand conference in San Jose, I asked several key members of the SaaS community this seemingly simple question. “Around 2,500,” one said. “Most of whom you’ve never heard of because they’re too small to attract much notice.” Other estimates I’ve heard in the past few weeks give the current number of SaaS players at 1,600 to 2,000. More companies are entering the SaaS ecosystem every day, as existing software manufacturers create on demand versions of their applications and new companies are formed. That’s the good news; the bad news is that there is going to be some significant shrinkage in the coming months. Those SaaS firms who have failed to get cash-flow positive will sooner or later hit their “fume dates” when they run out of operating capital. Asking the numbers question only opens the door. Now it’s time for those who want to succeed to deal with queries that should have been answered long ago, and to spark a strategic discussion of vital importance to all concerned.