SaaS: The Last New Customer

London, UK.  One of the most visible and fundamental changes that Software As A Service is bringing will be a necessary redefinition of the role of customers and a concomitant rethinking of the corporation. The end of the traditional “new” customers, with their exciting infusion of bulk profits, is hard for those trained in the old paradigm to contemplate. Addictions are unhealthy, and withdrawal pains for those who have allowed themselves to become dependent are severe. When customers are replaced by subscribers, what will happen to companies whose global strategies, organizational structures and how they perceive themselves are profoundly out of alignment with the change?

The Meaning of the Hunt

The long term effects of the over-reliance on the “hits” of the bulk profit infusions inherent to the old model have not been good for either software companies or their customers. It has bred generations of highly competitive software Sales professionals who only know how to hunt, and who disdain the “farmers” as lesser class players. Development teams have focused on the race to add more and more new features to feed the demands of Marketing for product differentiation, largely at the expense of product quality. Service and Support, begrudged as a necessary evil to compensate for the resulting failures, were relegated to the sidelines. Under the old model, it even made sense; for after making their initial up-front contribution, the customers were no longer of any strategic or core value in the eyes of Senior Management. The hunt for ever more new customers and the adrenalin/profit rush was everything.

The advent of SaaS has unfortunately not yet meant the end of the fixation on finding new customers. The Hunt still dominates corporate thinking; the Customer Retention Rate seems of little to no importance. There is virtually no one in any of the SaaS vendors yet whose principal job performance metric is the CRR; and while attention is beginning to be paid to the cost of acquiring customers, the awareness of the meaning and implications of that data for the future is limited. But the pace of change is growing, and the inevitable increase in competition will force a necessary redesign of the corporation for those who want to be profitable over the long term.

The Rise of the Farmer

Some of those that have been following the development of the SaaS model have noted that it is very difficult for a traditional model software company to make the transition to SaaS. There has not been a lot of discussion, however, as to the real reason for the difficulty. The DNA, both of the individuals and of the organization as a whole, of the perpetual-license / on-premised vendors is all about seeking to build from the up-front profits realization strategy. Whether seeking low-hanging or high food, the hunter-gatherer community mentality is focused on the short term gain. Historically, societies built on this model have been nomadic, ever moving in search of new hunting grounds as the old ones become depleted. Theirs was a cyclical pattern of feast and growth, famine and die-back. When the food supply becomes less, those that cannot adapt must move or die. It was no accident that hunter-gatherer cultures lost out to the far more stable agrarian model with its multiple and sustainable streams of food/income.

The rise in importance of the farming role does not mean that there is no place for hunters, quite the contrary is true. Subscribers still have to be found and brought into the fold. What has to change is that companies can no longer assume that there is no strategic value to be gained after the initial agreement is executed. The Hunters must be carefully focused on the proper targets, ones that can successfully be domesticated, made a part of the ongoing family. The glories of the chase have to be muted; the primacy of transactional and product-centric thinking must give way to to the customer centric values of relationship and sustainable profitability. Both Hunters and Farmers are vitally necessary, the successful Senior Management team must learn how to coordinate and lead these very different orientations into a harmonious whole.

And What Comes After

SaaS is a redefinition of the technology industry, a new thing. New thinking is required in order to adapt, and courage to live into the struggle in the face of the natural human resistance to fundamental change. The key element will be leadership: the combination of vision and the ability to empower the group towards the realization of the rewards. Are you ready and willing to assume that role? If so, I’d like to talk to you.