Originally posted on VentureBeat: http://bitly.com/10fZIrz
By now, it is abundantly clear that the old world of enterprise software is changing materially. The problem is well known by all who have spent any time in corporate IT: enterprise software has become too complex to deploy and use.
As we move into delivering software-as-a-service, several fundamental assumptions made with enterprise software are no longer valid. An entirely new set of assumptions must be followed to achieve success. Below are three cardinal rules of SaaS. I like to call them the “ABC”s.
SaaS changes the business model for technology providers as the the customer gets to pay by the drip. If you don’t use services, don’t pay for them. If there isn’t adoption, the technology provider won’t make a profit. The sooner that IT departments and technology providers accept this reality about SaaS, the sooner the users start to benefit.
The first step of adoption is activating the user base and enabling them to use the service, which should be just as easy for enterprise software as it is with consumer services like Facebook.
The second step is engagement. It is in the vendor and the customer’s mutual interest to drive user-engagement to garner sustained value from the service purchased. Therefore, incentives must be in the DNA of the service to ensure they stay engaged.
Next comes penetration to a broad user base, where network effects are a critical contributor of success and more value or productivity is driven from the usage of the service, followed by sustained usage, which is how providers make money.
If and only if the first four occur will the vendor have earned the right to a reference, which creates more energy in the project, and a new wave of users who want to try it.
The second essential ingredient of a successful SaaS implementation is continuous monitoring and behavioral analysis on how the service gets used. SaaS behavioral usage instrumentation and analysis will be one of the most talked about Big Data applications in the next three to five years.
Enterprise software is ridden with complexity. Complexity deters adoption. And as we just discussed, lack of adoption is lack of success in SaaS for both the buyer and seller.
While this concept is intuitive, few software outfits have a way of knowing quantitatively whether the millions they spent on building features are actually getting utilized. When it comes to SaaS, success is predicated on the technology being consumable.
Return on investment for a feature is only meaningful when the feature is used, not when it is made available. This is why behavioral analysis of usage patterns is extremely important. De-featuring is as important an exercise as building features in the SaaS world. Simplicity must trump functionality.
The third and most important aspect of ensuring success in SaaS is that neither the technology provider nor IT win if the user doesn’t win.
In any successful SaaS company, one of the most important roles that should work directly for the CEO is the “Customer Success Officer”. Luckily, the SaaS business model is built in such a way that the technology provider only succeeds when the customer is satisfied. Start with small pilots, show user value, expand user base, and repeat. The customer succeeds when there is sustained user engagement.
Day one of a software sale in the SaaS world is no longer a profitable venture for the vendor. Rather, when customers get broad usage and continue to derive value by the use of the service, profitability kicks in for the technology provider.
Don’t doubt it, the world of software will be completely transformed with SaaS. To survive, remember these simple guidelines.