How Can a SaaS ISV Drive Down Marketing & Sales Costs?

Aug 30, 2007 by Sinclair Schuller

A little over a month ago, there was a good post over at UnreasonableMen.net (with a follow up over a SmoothSpan) which highlighted egregious sales & marketing costs incurred by SaaS companies. The concerning thing is that SaaS pundits and ISVs state that subscriptions are easier to sell than perpetual licenses, yet we see these massive expenses. The two posts stated (as did I in the comments) that part of the expense is that SaaS and its ISVs need to spend to get big fast and counter the relative immaturity of the model to spearhead market penetration. While this posit is still entirely valid, I’d also propose that many SaaS ISVs are not marketing and selling as well as they could. Moreover, many ISVs are not exploiting the SaaS delivery model but instead use it as a new way to deliver Regular Old Functionality (ROF).

Think of ROF as “I have software that solves business problem X and is sold on-premise. Now I want to solve problem X, but centralize it via SaaS and offer it cheaper to my customer.” ROF is X, and now X is delivered over the web. While that’s necessary and is a good start, plenty fun of stuff can be offered as a consequence of centralization. Furthermore, this ‘fun stuff’ can drive marketing and sales costs down significantly for an ISV. This is where we can take lessons from our Web 2.0, uber social media dork, flashy JavaScript brethren. Let’s look at my favorite example: del.icio.us

del.icio.us, on the surface, offers a whole bunch of ROF. It took the functionality of bookmarking and brought it online, abstracting it away from your browser and computer. In itself, this offers a good amount of value to you, a single user, and if you like it enough, you’d probably recommend it to your friends. As ROF, the only incentive you have to refer someone to del.icio.us is that you’re a nice gal/guy and you get pleasure from helping others out. Okay, that ‘incentive’ is bound to make any sort of word of mouth (i.e. cheap marketing) campaign a relative failure. But wait, is that the only incentive? Absolutely not! The folks at del.icio.us were smart enough to ask themselves “what if we can exploit the fact that we know what all people on our system like?” And like magic, they moved from ROF online to ROF + a whole lot of value (social bookmarking). They could now show bookmarks of like minded individuals via tags, trends and recent popularity growth, giving users an edge in their browsing and discovery experience. But the part that is relevant to this post is that they drastically increased referral incentive. You now have much reason to tell people about it: the more people using it, the higher the value to you. This provides a platform for a powerful word of mouth campaign and a massive reduction in marketing and sales expense. Basically, as the number of users in a system such as del.icio.us increases, the value moves from the ROF-delivered value to one that is a property of the number of users, increasing value for each individual as well as referral propensity (of course, there is a limit somewhere). The concept is summarized in the graph below.

And now you say “But Sinclair, its social media and given away for FREE. How does this have anything to do with my SaaS business where I CHARGE?” It has plenty to do with it. Small to medium business users talk to each other all the time. They recommend things to each other on a regular basis, whether it’s at a trade show or the local coffee shop. The ISV’s duty is to build referral incentive through non-ROF value that is based on centralization, exploiting the community. A trivial example is help desk and trouble ticket software for IT departments. While good ROF is powerful and valuable, imagine aggregating statistical data across customers trouble tickets to do things like provide ratings and stats for hardware (Dell Computer X experiences 7 issues per 90 days), giving your customers the ultimate buyers guide for the reliability conscious, or providing benchmarking so they can see how they compare to the industry/sector average. Community backed functionality such as this moves SaaS out of the ROF-space and gives customers A.) a reason to see SaaS as functionally better than on-premise and B.) incentive to recruit users thereby providing the ISV market reach that would be near impossible to buy.

It’s my opinion that we have a long way to go before we see SaaS marketing and sales costs go down, but that concepts such as referral incentive are key to making them drop drastically. Do you agree or disagree? Are there other strategies that might significantly help a SaaS ISV reduce marketing and sales costs?

 

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Smoke & Mirrors Alert: What is Salesforce Trying to Say?

May 21, 2007 by Sinclair Schuller

Although most people don’t realize it, plenty of advertising and announcement techniques use “sleight of hand” style approaches to exploit your first glance and focus your attention on the content of the ad and an intended message rather than seeing the truth. This technique is common among propagandists and corporations alike. Let’s look at some examples:

• Undoubtedly, you have seen the phrase “Made with All Natural Ingredients” on food packaging. Many consumers see that and think – Wow, it’s an all natural product! Well, no. The phrase is simply stating that at least one ingredient in the food product is natural – all the rest can be artificial, and the label would not be telling a lie. This statement creates a large gap between understanding and meaning, giving the advertiser plenty of “wiggle room.”
  
• “No soap cleans better” or “No detergent kills more bacteria than X” is another one of my favorites. To a casual reader, this is generally understood as a claim that a specific cleaning product is better than the rest – it defines a less than clause. The true meaning, however, allows for the case that all other detergents clean equally as well as the subject product, meaning that it in fact cleans no better. This creates a situation where “No detergent kills more bacteria than X” and “All detergents kill the same amount of bacteria”
  can in fact be synonymous.
  

Generally, using these tactics help out a ton when trying to position a product or service. So what does this have to do with Salesforce.com? Well, they’ve become quite keen on using this approach (aka smoke & mirrors). A couple of weeks ago, Phil Wainewright asked the question “How is AppExchange really doing?” where he highlights that they’ve played “fast-and-loose” (what a great phrase!) with their numbers in touting the “popularity” of Apex & the AppExchange. Salesforce.com has conveniently made sure that all of its CRM customers are considered Apex customers. According to this page, Apex as a platform is used by 32,300 customers. That makes it seem like the Apex platform has been privy to massive adoption. Just like all natural ingredients or killer soap, however, their assertions lack the necessary clarification. Salesforce.com, the CRM product, is counted in those figures. So as Mr. Wainewright asked, how well is AppExchange really doing? In October of last year, Josh Greenbaum called analyzing AppExchange a “guessing game” and I wrote an article on some of the applications found in the AppExchange.

Well, looks like Salesforce.com is at it again.

A press release issued today announced the AppExchange Venture Network and states that “More than $225 million has been invested in two dozen companies on the AppExchange.” At first glance, you think – Wow, venture money is really flowing to software companies building apps on the AppExchange. What did we learn about first glances? You guessed it – this has some artificial ingredients! The statement is intended to give off the message that money is pouring into the AppExchange. This is nothing but marketing at its best. $225 million most likely has been invested – but it went to building the companies and their primary SaaS offerings, and not their Salesforce.com integration do-hickeys. Salesforce.com is using the companies and their funding as a proxy marketing message, almost like mathematical syllogism: since A>B>C then A>C. Better yet, let’s look at the possible roots of the message: Since $225 million has been invested in two dozen companies, and those companies each built integrations between Salesforce.com and their application and published it on AppExchange, then “…$225 million has been invested in two dozen companies on the AppExchange.”! I can see how building these messages can be addicting! Now, spin that into the general purpose platform message of Apex, and you have a platform with hundreds of ‘applications’ – right.

What do you think? Do you see these marketing tactics used frequently? Have any good examples that you’d care to share?

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