A Pain in the SaaS: MassTLC 2010 unConference (Part 2)

By Joe Baz

Software as a Service (SaaS)Last Thursday, I shared my take on the “best of the best” of the 42 Ways to Generate Buzz session at the MassTLC 2010 unConference. As promised, I now want to explore some of the topics discussed at another session I attended: SaaS Challenges and Monetization.

The session was facilitated by Curt Raffi, Marketing Director at Metanga, who did a spectacular job moderating the discussion, including getting all the participants involved. This session was my favorite because a) the challenges were truly challenging, and b) the quality of contributions was high.

As in my last post, I want to share my favorite 2 of the 9 challenges and offer additional thoughts on each of them:

1. Pricing Models

Like betting in a poker game, figuring out what to charge and what people are willing to pay is very difficult. It’s not a simple process with an easy solution. Determining the right price requires constant evaluation of your top line, bottom line and an awareness of your customers’ sensitivity to price.SaaS companies have several options for pricing models.

Many SaaS companies hedge their bets on the Freemium model – offering a product for free with an upgrade path – but that does not work most of the time. As noted in Ruben Gamez’s article, even large companies such as Pandora and 37Signals have drastically reduced or even removed their free plans in favor of improving their margins.

Others do what Bill Warner would advocate: “find someone else to pay”. Basically, you allow your customers get the service for free, while businesses pay. Though the most obvious example of this is advertising, I am actually referring to models like these:

  • eBay –It’s free to use the site to find goods. It costs money to auction your goods.
    1. Insertion Fee/per item
    2. Fees for additional listing options/item
    3. Final Value Fee/item –1.25 and 5% (as of 2001)
  • OpenTable– It’s free to book a reservation at a restaurant. It costs money to get your restaurant in the system.
    1. $1-per-seat fees/reservation

The worst (and sadly, most generic) business model a SaaS can follow is to combine these two methods. Create a product, offer it for free and sticks ads on the site and you get Business Death 101; unless you’ve got a hot invention that is truly groundbreaking, the likelihood of failure is high.

Conversely, one of the most convenient and effective business models is one that asks users to pay. It’s a simple concept. Though the details of a pay-per-use, a pay-per-user, or just a flat fee model are dependent on your product, the subscription model is key. Instead of giving users a free product and hoping for an upgrade, asking them to pay up-front can actually increase your revenue.

2. Onboarding

Customer “Onboarding” is a process that aims to convert a new customer into a loyal customer (aka get them “on-board” with the product). For some industries, such as the financial industry (PDF), onboarding can be a difficult and expensive process of integration. Fortunately for SaaS companies, you don’t need an expensive CRM and an integrated touchpoint strategy to succeed with onboarding. Why not? Because SaaS is all about automating tasks online, i.e. self-provisioning. This automation should be every SaaS’s first priority.

A good SaaS onboarding recipe should have three important ingredients:

  1. User Experience
  2. Monitoring/Measuring
  3. Communications

a. User Experience (UX)

A great UX is necessary to keep your customers engaged. If your web application fails to meet the customer’s expectations, causes anxiety due to errors or performance issues, or becomes burdensome to use, then your customer may decide that your web application is not worth the time spent. The loss of this mindshare can be difficult to recoup.

Mok Oh socializes his SaaS idea with Curt Raffi & Joe Baz. Photo Credit: Dan Bricklin

While many studies have shown the impact of UX on business, such as the UX Fund, there is a much more obvious example: iPhone! While Apple’s ability to build up hype and sell their products is great, the sustainability of the hype would not have lasted this long if the UX of the iPhone was poor.

Creating a great user experience is not something that can be accomplished by a basic web designer or web marketer, and definitely not by a web developer. It requires a UX designer – a designer who understands the intricacy of user interfaces, the patterns in user behavior, and the trends in the UX space.

b. Monitoring/Measuring

As the saying goes: “You cannot manage what you cannot measure.” This is completely applicable to monitoring activity in the self-provisioning process. By monitoring site activity, you can find trends in usage and learn what works – and what doesn’t.

To start, ask questions such as: How are my customers using my web application, and why do in that way? How many customers are actively using my web application, and why do they use it? How many customers are happy with my web application, and why are they happy? You might have noticed a trend: How (monitoring with quantitative tools) and Why (measuring with qualitative tools).

For measuring “How”, you may need to ask your developer to build custom reports. For testing other aspects of the web application, such as tracking visits, navigation and referral source information, you can use third-party reporting tools such as Google Analytics. This data tells you about your customers’ usage patterns: what pages they stay on, and how often they come back, for example. You learn more about how your users use your site.

For measuring “Why”, you can conduct a usability test to pinpoint trouble areas of your web application. For those with new web applications not yet built, a low-cost method of collecting data is to conduct a paper prototype test. You can also answer the question by having a community-driven support site, such as Get Satisfaction who allow you to build your own customer community. Another great option is KISS Insights, which can give you both the monitoring and measuring capabilities. This will allow you to poll your customers in real-time as they encounter problems in the usability of the web application.

c. Communications

Last, but not least, for successful onboarding, is communicating with your customers regularly. Following up with your customers on a regular basis gives them an understanding that your business cares about them. The follow up can be by email, phone, chat or even mail; however, given that one of the main points of SaaS is to be able to provide the service in a scalable fashion, you will want to look for ways to automate and personalize the communications. For some SaaS companies, human contact is essential and the business model supports it. For others, a personalized email or other electronic communication, such as social networking, will go a long way.

What do we mean by regularly? Well, that’s a bit harder to say. Unfortunately, there is no silver bullet to email frequency. This really ties back to monitoring and measuring. By using your data, you can see how many of your customers are churning as a result of an email. If you don’t have access to that data, use another method of asking how and why to discover what draws your clients in again.

For the full meeting notes of the session, see SaaS Challenges and Monetization (PDF), which was put together by Curt Raffi.

Did you attend this session at the unconference? Share your thoughts in the comments section.

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