3½ ways to lose customers in 2011

If you’re marketing a SaaS solution and have had enough with year-end wrap-ups, predictions for the new year, or sure-fire tips for success in 2011, here’s the antidote:

3 ½ ways to lose customers in 2011.

Ignore them

Once you’ve won a customer, consider your marketing job complete. Focus on the prospects, not the ones who are already sending in a check every month. Leave them out of the loop on product and service enhancements, and ignore their suggestions for improvements. Just remember to turn on the charm a few weeks before the end of the subscription.

A corollary to ignoring existing customers: oversell them

Pitch them on renewing and upgrading with every single interaction. That includes unresolved customer support issues. Nothing an exasperated customer wants to hear about more than a discount… if they renew their service for another 3 years.

Hide from them

If your service goes down, your communications to customers should go down as well. Keep them guessing about your system’s status, and let them rely on other uninformed customers for information. Shrug off their concerns and don’t even consider an apology.

Surprise them

Add new features and functions without warning. Better yet, remove certain features without warning. Make major changes to the user interface. These are especially effective for applications used only occasionally, such as annual performance review solutions.

OK, back to the traditional new years' self-improvement resolutions. Pardon the interruption.

Free is not a SaaS Marketing Strategy

I like free stuff as much as the next guy. Just check out my t-shirt collection - all free giveaways from technology companies. In fact, many of these t-shirts have outlived the product or company they're promoting. (Remember Lotus Improv or Prime Computer?)

I even use free software. I have free gmail and Twitter accounts, and nobody at Google sends me a bill for using the Blogger application that I'm using to write and host this blog post.

There are some good reasons that software companies use "free" as a marketing tactic. It can attract visibility and generate interest to fill the top of the sales funnel. It can help qualify leads into opportunities and covert opportunities into paying customers. Extending a subscription "free of charge," at least temporarily, can even be effective in retaining customers and reducing churn.

But beware: "Free" by itself, is not a marketing strategy.

Giving away your product, whether in the form of a "free trial," a "freemium," or plain old "free forever" can be an effective tactic, but it cannot be the sum total of the plan.

Among other things, a marketing strategy needs:

• a clearly-defined target market: people or organizations with a problem they want to solve
• a solution that meets the needs of that target market: a way to solve the problem
• a solution that's better, faster or cheaper than alternatives.

This value proposition is a required foundation of any marketing strategy. Without it, you may have an intriguing idea or a clever technology, but you don't have something on which to build a business.

In addition to the value proposition, the marketing plan needs to specify a way to acquire customers cost-effectively. You can't spend more on acquiring customers than the revenues those customers will generate over time.

Given the nature of the SaaS model, this is a particular challenge for SaaS companies. They are typically spending money up-front on sales and marketing, but earning it back over an extended period of time via subscription fees. The marketing plan will need to specify how to make that equation work.

Don't fall into the trap of thinking that "free" is the answer to all your marketing needs. An effective customer acquisition and retention plan means much more than giving away your solution through your website. "Free" doesn't relieve a company from thinking hard about its target market, value proposition, or delivery mechanisms.

What are you customers saying about you?

Have you purchased a new car lately? You can find out everything you need to know about any make or model without ever stepping foot on the lot. All data on features, colors, and accessories are available from the manufacturers' sites, and detailed pricing information is readily accessible from sites like Edmunds.com.

You can also find out about particular dealers. Better yet, that information comes from actual buyers. These folks will tell you about their entire experience buying and servicing their new cars. A simple Google search led me to these candid reviews of my local VW dealer on Yelp!

Some they should be proud of...

I went into the dealer with all these worries, and the sales guy, John, was quick to show me that there nothing to worry about there. No sales pressure whatsoever. No haggling, no tricks, and they were very nice and patient through the whole process. Brandon V.

Others not so much...

Super rip off and no customer care - this place charged me 2 hours of labor for a 0.5 hour job, and were unapologetic when I argued about it.... I talked to the service manager and he defended the 2 hours to bolt two pieces of metal to the frame. This place is worthless. I'd never go back. Ken H.

Ouch!

SaaS providers should let their customers talk to prospects, too

As you might expect, most of the customer opinions you'll find online relate to B-to-C businesses. But there's an opportunity for companies selling to enterprises to jump in here, too. In fact, for SaaS companies it might make a lot of sense.

For one, SaaS providers should be conscientiously attending to the needs of their existing customers as a on-going imperative. Renewing existing customers when their subscriptions expire is usually critical to the success of the business. If they're doing their job properly, SaaS providers should have a large pool of satisfied and well-informed customers willing to express positive opinions.

Relying on happy existing customers to help sell new customers should also help SaaS companies with another business requirement: cutting the cost of customer acquisition.

Let your prospects connect directly to existing customers. Don't ask your Sales folks to carry the entire burden of closing a prospect. SaaS providers should open their customer forums to anyone, and actively encourage their prospects to log in and ask questions. Besides the usual link to Sales - "Contact us for more information", why not add "Contact our customers for more information," and provide a direct link to the Customer Forum?

I know that can be a scary notion, and you shouldn't expect customers to shill for you. But they will tell a credible story. And if, on balance, they report that their vendor (that's you) has treated them fairly and delivered good value, you've got nothing to fear.

Proximity to market

I've heard of CEOs delivering pizzas and Jolt Cola to software developers. I know about companies that have sent flowers to developers' families, with apologies for keeping them away from home on nights and weekends. I've even seen a company treat the entire development team to a week-long Caribbean resort vacation, all-expenses-paid.

Why this largess? Believe me, it's a lot more than just an outpouring of TLC to the folks who design, write and test code.

No, it's all about time. Specifically, time-to-market. Companies see value in prodding, cajoling and rewarding development teams for shipping product and hitting a deadline. The thinking goes that faster-to-market equates to competitive advantage.

I'm not convinced that time-to-market, and specifically first-to-market, always conveys much advantage over the long term. There are plenty of examples where the second or third vendor into a market eventually walks off with the lion's share. Think Microsoft in desktop applications or Google in search.

Proximity-to-market more important that time-to-market

Time-to-market is probably even less important for software-as-a-service (SaaS) companies. What matters more for them is proximity-to-market.

"Proximity-to-market" refers to the ability of SaaS providers to stay close to customers so as to be in a position to accurately read and analyze customer needs and to respond quickly.

The SaaS model presents providers with at least two significant proximity-to-market advantages:

1. The ability to observe customer behavior closely

A hosted SaaS solution provides the vendor an opportunity to know precisely how the customer uses it. The provider can directly observe, for example which features are being used, which are neglected, and which cause customers to review the "support" FAQs? On-premise solution vendors can try to accumulate this same information by observing behavior or through customer surveys, but it's more difficult and less accurate.

2. The ability to respond quickly

SaaS providers that follow agile development methodologies typically have the ability to respond rapidly to signals from customers. They can develop new features or fix existing ones. Moreover, they have an effective mechanism to deliver these enhancements quickly and without significant disruptions. SaaS vendors typically don't face the long development cycles and upgrade issues that confront on-premise vendors.

SaaS providers should leverage these proximity-to-market advantages. Stay in touch with customers through moderated forums or social media networks, analyze customer support requests, track usage patterns, and use whatever other means you have to observe customer behavior and sentiment. Analyze and prioritize the information, and feed it to the development team. It goes well with pizza.

Customer Service: Timing is Everything

In an ideal world, you'd all be delivering software-as-a-service (SaaS) solutions so simple to learn and easy to use that customers would require no help. And you'd be so flawlessly reliable that users would never experience any service downtime or performance flaws.

The fact is, though, most of us live in the real world, not the ideal world. And in the real world, bad stuff sometimes happens: Customers get confused, a feature doesn't work, service goes down.

How you respond to these inevitable events matters especially in a SaaS business. Success depends on existing customers renewing their subscriptions. One quick way to lose existing customers is to deliver poor customer service.

When it comes to customer service, timing is everything, or at least it's really important. Two recent experiences will help illustrate my point.

Get out in front of the problem

I use an on-line service from Carbonite to back-up my files. The process happens automatically in the background, and unless I need help restoring data (not yet, fortunately), I have no reason to contact them for support.

Apparently, though, as the company upgraded its software, some customers did have reason to call, and they experienced delays in getting through to support people.

Carbonite's CEO, David Friend, addressed the issue publicly and proactively, sending this note to all customers.

Dear Peter,

In the past couple of weeks our response time to customer inquiries has been much too long. This is because a major upgrade to our software, which includes a wide array of improvements, generated much more demand than we anticipated. With that came a surge of questions that had to be fielded by our customer support team, which in turn lengthened our response times.

As the only online backup company that provides free chat, email and phone support, the quality of the support we provide is very important to us. So if you had to wait a long time for a response from us, we’re very sorry to have let you down. As of today customer support answer times have improved greatly and will soon be back to normal.

Thank you for your business, and again, we appreciate your patience and understanding.

David Friend, CEO
Carbonite, Inc.

P.S. If your Carbonite software hasn’t yet been upgraded to version 4.0, it will be upgraded automatically soon. If you have any questions or concerns, please contact us or simply reply to this email.

I'm putting lots of trust in this company to protect my vital data and to help me restore it if I have a problem. I pay them for peace of mind. This kind of note - candid, reassuring, and proactive - bolsters my confidence in them. When it's time to re-subscribe, I'll have no reason to look elsewhere.

It's not always the right time to sell something

My web site, SaaS Marketing Strategy Advisors, is hosted by Network Solutions. I selected their service because it provided a complete package, including domain names, a web site builder, web hosting, and email addresses, plus 24-hour, 800# customer support.

With my limited HTML expertise, I usually call the customer support line at least once every month for help. I'd grade the support "barely satisfactory." Their agent usually gets me through a partial solution... and then I figure out the rest through trial & error on my own.

Though I can live with the mediocre service, at least for now, what I have an especially hard time with is the pivot into "sell mode" at the end of every single customer support call. No matter whether my problem has been completed resolved, or I'm more confused and frustrated than when I started, the agent invariably pitches, "Renew your subscription now, and I can save you money."

A bit of advice: This is not always the best time to try to sell something. Confused and frustrated customers just want to fix their web site and get on to running their business. They aren't really in the mood to pull out their credit card to re-up for another year.

I know it's in the script folks, but can you please make room for some common sense?

SaaS market consolidation; Blame Wimpy

There’s been a lot of consolidation in the software-as-a-service (SaaS) market lately, and I think I know who’s to blame: Wimpy. You may remember that he’s the character in the Popeye cartoons famous for promising “I’ll gladly pay you on Tuesday for a hamburger today.” Stay with me and I’ll explain.

It’s easy for new SaaS firms to get rolling

The SaaS model makes it much easier and less expensive for companies to build new solutions. By leveraging resources available in the cloud and agile development techniques, it is usually takes much less money and less time to develop a new SaaS application than it took to build a traditional on-premise application.

Forget about spending several million dollars over two or three years. I've seen companies with a handful of clever developers bring highly-functional products to market in a few months.

It’s growing a customer base that’s difficult

But getting a functional product out the door is just the start. Once the solution is ready for market, there’s lots of difficult and expensive work still to be done - namely, acquiring and retaining customers.

Look at any of the well-established SaaS firms and you’ll see that customer acquisition expenses far exceed product development expenses. According to financial statements of nine large SaaS companies, sales and marketing expenses average 44% of annual subscription revenues. By contrast, product development expenses average only 12% of annual subscription revenues.


In customer acquisition, size matters

In the effort to acquire and retain customers, size matters. For SaaS companies, being bigger has several advantages:

1. Bigger usually means deeper pockets.

Here’s where the “Wimpy Effect” -“I will gladly pay you on Tuesday for a hamburger today” - applies.

To acquire customers, SaaS providers have relatively large expenses for sales and marketing people and programs, and most important, these expenses are incurred up-front. But the payback occurs over the life of the subscription.

Or as Wimpy might explain, "I'll gladly pay you over the next several years for lots of delicious sales and marketing today."

SaaS providers need to pay for sales and marketing now, while they’re waiting for revenue later. They need resources, notably cash, to bridge this gap.

Larger companies with greater resources can usually cover a larger gap. They can wait longer for revenue and cash flow than smaller companies.

2. There are economies of scale.

Even with effective inbound marketing and the availability of relatively low-cost vehicles like webinars, electronic newsletters, blogs and other social media outlets, marketing can be expensive. These new tools and techniques still require resources: people to set them up, develop content, assess impact, convert leads into qualified prospects into customers, etc.

But it’s usually more cost-effective for larger companies to use these tools and techniques than small companies. Why? Because the marginal cost of reaching additional prospects can be low or even zero.

The cost of preparing and sending an email newsletter to 10,000 people isn’t much higher than sending it to 100 people. Whether a business has thousands of “friends” or “followers” or only a dozen, the cost is virtually the same.

What this means is that larger providers can spread the sales and marketing costs over a large base. In effect, they have a lower average customer acquisition cost. Low average customer acquisition cost/customer lifetime value is a formula for SaaS success.

3. Credibility matters.

When customers purchase a SaaS solution, they’re not just buying a product; they’re buying a promise. They are entrusting the SaaS provider to deliver a reliable, high-value, frequently-enhanced solution over the life of the subscription.

And because buyers are committing to a long-term relationship, they are particularly scrupulous in assessing the reputation and credibility of the SaaS provider. In general, buyers are more comfortable acquiring solutions and entering relationships with larger, more established, better financed providers. It may not be fair, but that’s how it goes.

The SaaS business model favors consolidation

The economics of the SaaS business model and the advantages of size help explain the inclination toward consolidation in the SaaS market. We’ll continue to see plenty of small SaaS companies come to market, and some will get large enough, fast enough to go it alone.

But as they try to grow and finance the cost of acquiring customers, many of these companies will find that it makes more sense for them to be part of a larger company, and they’ll get bought.

Blame it on Wimpy.

Bad SaaS nearly killed my fantasy football league

My fantasy football league has survived an NFL strike, pre-Internet scorekeeping, and 30 years of trash talk. But we were nearly sacked this season by lousy software.

A few years ago our league moved away from manually tabulating results. We got tired of checking the newspaper on Monday, Tuesday and sometimes Friday mornings, calculating scores with a calculator, updating the standings, adding the league Commissioner's colorful commentary, and mailing it out via U.S. Postal Service. (I did mention this league has been around for 30 years, right?)

We moved into the modern world with a software-as-a-service (SaaS) application that automatically keeps track of rosters, scoring and standings. We chose this particular web-based fantasy football league management application mostly for its simplicity. It had enough functionality for our purposes and, more important, it was easy to use. It was perfect for guys like me that spend less then 3 minutes per week on it, and only for 16 weeks per year. We've even been willing to pay an annual fee for the application to avoid the advertising clutter that comes with the “free” services.

Don't forget who you're selling to and why they buy from you

Apparently, our SaaS provider forgot about who they were selling to and why we were buying. Sometime in between last season and this one, they larded up their application with non-essential functions and a cluttered user interface. Lots of radio buttons and drop-down menus, a smattering of drag-and-drop, and an array of timers and alarms that didn't seem connected to any particular action.

Which brings me to our league's near-death experience. All these changes made it extremely difficult for us to conduct our player draft for the season. Only through extraordinary patience, an exhaustive search of the site’s FAQs, and lots of trial & error, did we finally complete the process... just moments before the start of the season.

Keep it simple and avoid surprises

Listen up, SaaS providers!

1. Don't load your application with lots of bloat-ware that most people don't use. One of the reasons people buy SaaS applications is because they're easy to learn and easy to use.

2. Keep user interfaces simple and easy to navigate. Avoid needless clutter. This is especially true for applications that are used only occasionally.

3. Avoid wholesale changes to the user interface. Make changes gradually. The SaaS delivery model makes smaller, more frequent releases practical.

4. If you are going to make major changes, provide your customers ample notice beforehand. Customers don't always like surprises.

5. Think about offering guidance to your customers on how to navigate the new interface or use the new features. Provide a short instructional video, for example.

6. Stay in touch with your customers. Listen to what they want and pay attention to what they do. The ability to monitor user behavior is one of the great advantages of SaaS.

A bad user interface is bad for business. If you make your product hard to use, you should expect lower revenues, a longer sales cycle, higher support costs, and lower retention.

An accessible user interface doesn't mean limited functionality

I'm not saying that you should omit necessary functionality. But if you think high functionality requires a complicated user interface, think again. At a Mass Innovation event earlier this month, I saw a sophisticated screen-sharing application, JoinMe, with a control panel that looks like something from an old cassette recorder. They called it “ridiculously simple,” and it was.

I’m happy to report that we did navigate our way through the SaaS provider's poor user interface and our Creep Football League lives on for another season. It’s too early to tell how my team, the Out-of-Staters, will fare, but we’re already looking at new SaaS solutions to manage the league.

==================================================================

A post-script to this story. A few days after I published this post, Constant Contact, a SaaS provider I work with to publish a monthly newsletter, provided an excellent example of how to notify customers in advance of changes to the user interface.

Dear Peter,

As we told you recently, we've improved the editing tool that lets you create and format your email newsletters. You should see it in your account in the next few days.

Here are some things you should know beforehand:

Check out the tutorial and FAQ about the improvements so you can get a jump on using them. Important! Be sure to read our recommendation about copying some of your campaigns in the blue box to the right.

It looks a lot like the previous editor, so it should feel familiar to you. It's now just easier to use.

Just in case, we've set up a special dedicated support line for you to call if you have questions about copying your campaigns or using the editor. That number is 800-275-3019.

Again, you will have the new editor in your account very soon. Thank you for your patience as we bring this new improvement to you, and thank you for being our customer. We're here to help you get up to speed with a better way to build your emails.

Important note: Older browsers do not support some of the technologies used in the updated editor. For the best experience, if using IE or Firefox, please upgrade your browser to the latest version.

Sincerely,
The Constant Contact Team

SaaS let's you see where you're going

The Commonwealth of Massachusetts recently passed legislation prohibiting texting while driving. I’m hoping they’ll soon outlaw texting while walking.

I just came back from a short, but harrowing drive that took me past our town’s high school, just after the end of the school day. The scene reminded me of old episodes of Mr. Magoo - kids fixated on the small screens of their mobile phones, thumbing away furiously on the mini-keypad, while wandering obliviously across heavily-trafficked intersections.

On behalf of all my fellow parents and drivers, I wanted to yell, “Look up! There’s a real world out here, and if you’re not careful, it can really hurt.”

NIHITO

The same advice applies to marketers. You need to look up from the screen and talk to customers and prospects to understand what’s really going on. It can be too easy to focus entirely on what's happening inside your company. I know; I've been there. But as one particularly useful marketing course I've taken explained, “NIHITO”: “Nothing interesting happens in the office.”

Software-as-a-service (SaaS) should make it easier for marketers to avoid this hazard and closely observe customers’ behavior. Because customers are using the application online, it’s possible for marketers and others to see exactly what they’re doing. Though you need to be careful about observing individual behavior, you can see, in aggregate, which features customers are using and which are they avoiding. You can see periods of peak demand, identify particular kinds of users, and see other useful patterns. Along with whatever other analytic tools you're using, this information on product usage can be extremely useful. Don’t ignore it.

Executives at companies that have made the transition from an on-premise application to a SaaS solution point out that one of the most valuable benefits they’ve gained is a better understanding of their customers’ behavior and needs. They have established a much closer, ongoing relationship and a built-in feedback loop. They can much more easily track what's working and what's not.

The result is better focused product development, more attentive customer service, and more effective marketing. For the business, it means greater efficiency, lower customer acquisition costs, and higher renewals.

It also means you’re less likely to make mistakes. Or if you do make a misstep, at least you’ll see where you’re headed before you stumble into real danger.

SaaS marketing lessons from the New York Yankees

Connecticut has no major league baseball team of its own, so it splits its loyalties between the Boston Red Sox and the New York Yankees. The boundary between Red Sox Nation and the Yankee Universe meanders through the state in a fuzzy line that runs roughly northwest from Old Saybrook to Canaan. I grew up on the New York side of the boundary, and am still a devoted Yankees fan… though I’ve lived in Boston for more than 25 years.

This long-standing dedication explains my recent pilgrimage to Yankee Stadium. (That, and the fact that getting tickets to see the Yankees play the Red Sox in Fenway Park in Boston is about as easy as securing a seat on the space shuttle.) Joined by two Red Sox fans (my son wearing his Youkilis jersey!), an Oriole fan and a fellow Yankee fan, I drove to the Bronx to see the Yankees play the Detroit Tigers in a day game.

I came back with a sunburn on my nose, a renewed appreciation for the new Yankee Stadium and – surprise - a couple lessons that are useful for software-as-a-service (SaaS) marketers.

Market the entire experience

Not being particularly familiar with the Bronx, I was worried about parking on game day. Not to worry. Immediately upon buying my tickets online, I was directed to a site to make parking arrangements. It automatically recognized the date we’d be attending a game, presented a selection of parking lots adjacent to the stadium, and allowed me to reserve and pay for a guaranteed parking spot.

Along with the bar-coded reserved parking permit, came driving directions, relieving me of my second concern: how do I get there?

And I received a reminder about parking and directions in an email the day before the game.

Someone within the Yankee organization has actually thought through the entire fan experience. It’s much more than the game that goes on between the foul lines. It extends into the parking lots and up the Major Deegan Expressway.

SaaS marketers should think the same way. The user’s experience with their solution is much broader than the features and functions that they’ve built into the product. It extends to the way the solution is sold, deployed, accessed, configured, supported, upgraded, and renewed. SaaS providers should market all of those benefits - the entire customer experience - as part of their value proposition.

Establish an on-going relationship

The day after the game, I received a “Thank you and Game Recap” email from the Yankees. It included the box score, links to video highlights, and a schedule of upcoming games. They also asked for feedback on my experience.

Lesson two for SaaS marketers: Stay in touch with your customers. Loyal, connected customers will provide useful input on product enhancements, serve as more valuable references and advocates, and will be more likely to renew their subscriptions.

By the way, the Yankees beat the Tigers that day, 11-5.

VP of Trust and other new SaaS titles

When I was an analyst with IDC, a very long time ago, I sat in on lots of vendor presentations on their products and strategy. Too many of them started off with a slide that identified precisely where the presenter and his group fit in the organization. It usually included a detailed topography, indicating the various direct and dotted-line reporting relationships within the department, within the division, within the group and eventually within the overall company. Managers reported to directors, reported to department vice-presidents, reported to division vice presidents, reported to group vice-presidents, ad infinitum.



The slide (actually an overhead foil) accompanying this discussion of "where we fit in the organization" usually depicted a complex "box and lines" organization chart. But for all its vastness and complexity, a 3-D model of the entire solar system situated within the Milky Way galaxy would have been more appropriate.

Having been exposed to this mind-numbing ritual so early in my career, you might understand why I'm afflicted with a bad case of MEGO ("my eyes glaze over") when it comes to corporate titles and organizational structure.

A Vice-President of Customer Experience

But my interest in corporate titles was piqued recently. Moderating a panel of cloud and software-as-a-service (SaaS) industry CEOs at the AlwaysOn Summit at Stanford, the moderator, Jeff Kaplan of THINKstrategies, asked the participants to discuss cultural and organizational issues particular to SaaS. Swayne Hill of Cloud9 Analytics talked about the need to build a culture and organization that delivers a positive customer experience every single day. In line with that goal, he explained that, even before he hired a VP of Sales or a VP of Marketing, he brought on a "vice president of Customer Experience."

Given that for most SaaS companies, customer satisfaction and retention is vital to success, putting an executive in charge of delivering a high quality customer experience makes perfect sense.


In fact, the SaaS business model may require re-working a few other titles:

• The "Vice President of Customer Support" could be more aptly titled the "VP of Customer Retention." An important part of the job, after all, is about keeping customers satisfied so that they renew at the end of their subscription term. Most SaaS companies that can't renew a high percentage of their customers can't succeed.
  

• The traditional "Vice President of Marketing" role might be better re-labeled as the "VP of Trust." In a SaaS company, the job of marketing is essentially to build visibility and credibility among prospective customers in order to attract their interest and win their trust.

• The "Vice President of Product Development" role could be re-labeled as the "VP of User Experience." SaaS customers aren't buying just product features. They're signing up for the entire experience and they expect satisfaction throughout the entire life-cycle from purchase through deployment, configuration, use, and renewal.

• The "Vice President for Legal Affairs" or "Chief Counsel" might be better called the "VP for Expeditious Purchase." A good part of their role when it comes to contracts is keeping the purchase process simple and consistent.

• The "Vice President for Sales" is really more like the "VP of Care & Feeding." Because SaaS companies need to be especially frugal with their spending on customer acquisition, successful selling means carefully and cost-effectively cultivating and nurturing prospects through the sales pipeline. Maintaining an army of sales reps and sales support engineers is an expense that many SaaS companies cannot afford.

In the SaaS model, not only should certain titles change as job functions change, but some departments might best be merged into others or eliminated entirely. This whole issue of org charts is getting a whole lot more interesting.

Putting Marketing in "The Pit" is bad for SaaS

I used to work in a place called "The Pit." I wasn't serving ribs and pulled pork at a barbecue joint that wandered north into New England. I was actually with one of the large mini-computer companies they used to populate the ring between Route 128 and Route 495 around Boston. The company put all of us marketing types into the far end of the building into a cube-filled area that was a 1/2 level below grade. I walked down 8 steps to get there, and the windows looked out directly into mulch and tulip stems.

Before it was occupied by the mini-computer maker, the building housed a brewery; I suspect "The Pit" was the loading dock.

Not only were we half-underground, but we were isolated from other departments. Sales was on a different floor. Customer support was in a different building. Product development was in a different town.

Isolating marketing from the rest of the organization surely didn't help the prospects for the mini-computer company. (They disappeared years ago, and the building is now occupied by a medical device manufacturer.) But that kind of organizational separation would be especially bad for a software-as-a-service (SaaS) company.

Marketing connected to Sales and to Product Development

The need for a close connection between marketing and sales is critical to cost-effective customer acquisition. This will likely be a SaaS company's largest single on-going expense and efficiently converting leads into opportunities into wins is essential to success. That requires close coordination between marketing and sales.

But there are other necessary connections beyond the obvious one between marketing and sales. SaaS companies typically enhance their solutions more frequently than on-premise solutions, so a closer relationship is needed between product development and marketing. Marketing needs to know what's coming through the pipeline. For one thing, that helps them handle the accelerated product introduction calendar. But it also lets marketing share the product roadmap as part of the effort to win the trust of prospective customers.

Product Development connected to Customer Support

And there are groups besides marketing that need to be tightly wound into this web. The SaaS model works better when the product development group is well-connected to the customer support group. They'll have a better understanding of customer needs and can respond more quickly and accurately with product enhancements. It's one of the key benefits for companies moving from on-premise to a SaaS subscription model.

Sales connected to Legal

The sales group would do well to be closely connected to the legal department. Under the SaaS subscription model, sales delayed through protracted contract negotiations amount to lost revenues. Sales executives should clearly understand the standard contract and know which items are negotiable and which aren't.

I could draw out other connections across different departments, but you get the point. Successful SaaS companies requires close coordination across the entire organization. Isolating groups from one another is a bad idea, especially if you shove one of them into "The Pit."

Too many choices aren't necessarily a good thing

Because of the unusually warm weather here in the Northeast, my neighbor's farm has already started harvesting corn this summer. They plant different varieties throughout the season, carefully timing each planting to ensure that one or another variety is available from mid-summer into October. Earlier this month, they were harvesting a butter & sugar variety called "Temptation." This week, they started bringing in "Montauk." I don't know what's they'll bring in after that.

Whatever they're picking at the time, I buy it.

Not so with the lettuce, though. All the varieties seem to come in at the same time. Standing in front of open crates of green leaf, red leaf, oak leaf, romaine, buttercrunch, bibb, Boston, black-seeded Simpson - never mind the escarole, dandelions and other roughage - I'm stumped.

Too many choices. It's not always a good thing for farm stands... or for software-as-a-service (SaaS) providers.

Too many choices makes it more difficult to buy

SaaS is confusing enough as it is. In case you doubt this, peak into the over-heated debates about the precise definition of SaaS that erupt every few weeks on discussion boards. Adding to that confusion with lots of options doesn't help.

When prospects are confused, they usually don't buy. Or at least they don't buy until they are educated and not confused.

Collateral that explains the basics of SaaS to uninitiated procurement professionals can be very helpful. (See "Getting deals unstuck from legal and procurement.")

Better yet, keep it simple. Avoid the temptation to create a multi-page menu enumerating every possible permutation of feature, delivery mode, support option, installation method, ad nauseam.

Revenue now beats revenue later

Delayed purchases aren't good for any vendor, but they're especially harmful for SaaS providers. Under the SaaS business model, the costs of acquiring a customer are paid up-front, while the revenue comes in over the life of the subscription. The wider that gap between up-front payments and stretched-out revenues, the greater the strain on cash flow and the need for deep pockets.

Besides delaying purchases, too many options can also make it more difficult to support a SaaS application. If each customer has a unique configuration, it's more difficult and costly to maintain each customer. Upgrades, conducted one at a time, are a nightmare. The potential advantage of maintaining a standard deliverable, deployed to all customers, is squandered.

With too many options, something is likely to fall through the cracks for some number of customers. The result: customer dissatisfaction and lower renewals. Most SaaS providers can't survive low renewals. (See "SaaS Renewals and the Multiplier Effect.")

Believe me, as a marketer, I understand the appeal of "choice." Thirteen varieties of freshly-picked lettuce, displayed side-by-side, are beautiful. But I usually end up just buying the corn.

Greta Garbo would be a poor SaaS marketer

I read an article this morning about Greta Garbo, the famously taciturn actress from the 1920s and 30s. Her closely guarded privacy is so different from most of today's actors, musicians, athletes and celebrity chefs, who use Facebook and Twitter to skillfully cultivate a broad audience of "friends" and "followers," by letting the world in on their every thought.

Personally, I'm more comfortable with the Greta Garbo approach. On personal matters, I try to be careful about sharing "too much information."

This reticence doesn't really work for businesses, though, and it's especially inappropriate for most software-as-a-service (SaaS) businesses.

Quite to the contrary, SaaS providers can often benefit from more sharing. Social media can be used very effectively to communicate with customers, prospects, analysts, and even employees about the company's plans. These companies should be actively using LinkedIn discussion groups, blogs, and other communication vehicles.

These newer forms of communication are particularly useful because they allow a conversation between the company and the customer. Unlike more traditional press announcements or web site postings, which are one-way proclamations, blogs and discussion groups allow comments and interactions. The audience can talk back.

I also like the more personal nature of these conversations. The participants sound like real people, not disembodied corporate entities. They have personalities.

If you listen, you can learn something

Participating in these on-going conversations can help SaaS companies in a few ways.

For one, they can help a company establish trust with its audience. As I've written about before, in subscribing to SaaS solutions, customers aren't really buying a product; they're buying a promise. This requires that the customer trust the SaaS vendor to deliver the service reliably, protect the customer's data, provide support, and enhance the service regularly. (See "Winning customer trust.") When done openly and honestly, talking and sharing usually helps a vendor build that trust.

An open conversation can also help a SaaS company to build better products. The feedback gained from customers and prospects can be used to enhance existing services or develop new ones. Think of the conversation as a kind of electronic suggestion box. Remember, of course, that someone should actually read and respond to the suggestions.

I've heard executives who have moved their companies from a traditional on-premise model to SaaS explain that one of the most valuable and unexpected benefits has been their ability to better understand what users want and to respond more quickly and accurately.

An open and on-going conversation between the SaaS provider and its customers can also boost the likelihood of renewals. The business model for most SaaS companies depends on high renewals to recover the initial customer acquisition costs. (See "SaaS renewals and the multiplier effect.") Conversations provide a mechanism to discuss forthcoming enhancements, service changes, or other plans under consideration. It shows customers a roadmap so they can make their own plans. It can give the SaaS provider a heads-up if there's likely to be push-back on proposed changes. And by the way, don't be at all surprised to hear candid negative feedback, along with the plaudits.

I've worked with a number of SaaS companies to take advantage of these new mechanisms to open and maintain a conversation with their customers, prospects and others. They do it not because it's cool and makes them feel like celebrities. They do it because it has a measurable positive impact on their business.

Greta Garbo was a wonderful actress, but probably would have been a lousy SaaS marketer.

Product naming gets even more complicated

I used to say that the only thing more painful than product naming is root canal. But a few months ago I actually had a root canal, and with the anesthesia and painkillers, it wasn't so bad. Product naming is now back on top of my "most painful" list.

And the pain only gets worse when you're marketing both a software-as-a-service (SaaS) solution and an on-premise application.

Let's consider just one very basic question:

Should you use the same name for both the SaaS and on-premise products?

Using the same name for both does have the advantage of putting all your brand visibility efforts behind a single label. It's difficult enough to get prospective customers to remember your product name; it's even tougher to get them to remember two names.

A single product name for both the SaaS and on-premise products also works well when you're trying to be "product agnostic." That is, you market the same set of features and benefits for both solutions and let customers choose which model they prefer.

"They're the same, only different."

But here's the downside. Even though both solutions go by the same name, they don't deliver the same features, benefits and advantages.

For one, enhancements are delivered differently. The SaaS customers typically get new features more frequently and automatically. So though the SaaS and on-premise solutions may have started out the same, they grow apart over the life of the SaaS subscription.

The SaaS solution also differs from on-premise in the way it's deployed, supported, upgraded, and paid for. You might call both by the same name, but they're fundamentally different. By trying to market them as nearly identical, there's a good chance that you'll understate key benefits of your SaaS solution.

The naming strategy should fit your business strategy

I've seen companies try a few different ways to navigate through this naming challenge. Some keep the SaaS and on-premise products separate, and they use two different names. This works, for example, when the company is targeting completely different markets with the two solutions, and they don't want any confusion about who should buy what.

Other companies use a common overall product name, but they add on labels that distinguish the SaaS version from the on-premise version. For example, the SaaS solution is called "Acme Express," or "Acme Small Business Edition," while the on-premise one is called "Acme Enterprise." This scheme does have the advantage of building visibility for a single name, but it may limit the market opportunity for the SaaS product.

Yet a third version is to use identical names. This might work if you're trying to emphasize "customer choice," though you do run the risk of confusing the customer as I noted earlier. "Same name, different solution" might also be appropriate if your strategy is to migrate on-premise customers over to SaaS. That's a heavy lift, but keeping the same name may make it a little lighter.

The takeaway here is that a product name isn't something you tack on at the end of the process. It's an integral part of your overall strategy. Different naming strategies fit with different marketing and business strategies. Choose wisely.

And might I suggest you have painkillers handy.

Three deadly SaaS marketing mistakes

I'm sure there are hundreds of ways to sink a software-as-a-service (SaaS) company with poor marketing, but I want to focus on three that can be particularly effective... and not in a good way.

1. Spending money to lose money

In this money-losing scenario, the SaaS company spends more on acquiring a customer than they can earn back in revenues from that customer.

Drew Houston of Dropbox shared an example of this deadly hazard, detailing his company's experience with an Adwords campaign. Despite the common wisdom that Adwords and search engine marketing yield surefire success, careful analysis found that the campaign cost on average between $233 and $388 to attract a customer. The product sold for $99.

His succinct analysis: "Fail."

For the mathematically-inclined, the problem can be expressed as

CAC > CLV

in which CAC is customer acquisition cost (i.e. sales & marketing costs) and CLV is customer lifetime value.

Either side of the equation could be at fault. I've seen (and even participated in) some high-priced customer acquisition campaigns: clever but expensive direct mail programs, luxurious events, and expensive give-aways.

On the CLV side, a low subscription price, poor renewals, or an inability to convert free trial users into paying customers might be to blame.

In either case, the outcome is the same: You're spending $1 to earn less than $1. As the expression goes, "you won't make it up in volume."

2. Racing against the clock

This is a variation of mistake #1, and equally deadly. A company's CAC exceeds annual revenues, which means it's burning cash in the short term. But they're betting they can reduce CAC, steeply ramp up revenues, and stop burning cash... before it all runs out.

I've seen this strategy work, as in the case of SuccessFactors, where the company's CAC exceeded revenues for a period of time. CAC/annual revenue reached 112% at one point, but over time has come down to a more sustainable 53%. They out-grew the cash burn.

This strategy requires deep pockets, patient (read "fearless") investors, and lots of attention. When CAC consistently exceeds annual revenues, companies introduce more risk into their business plan. They need to rapidly accelerate revenues, and gradually taper down sales and marketing expenses, while constantly monitoring their cash. They're racing against the clock.

3. Bailing with a teacup

While mistakes #1 and #2 involve over-spending on customer acquisition, "bailing with a teacup" involves under-spending. In this scenario for failure, companies set out a huge task for sales and marketing, but then short-change them of the resources they need to do the job. Spending too little can sink a company as easily as spending too much.

Much is expected of sales and marketing: build positive visibility, generate and cultivate leads, close business, retain and re-sign customers. There's heavy lifting to be done here, and it requires adequate funding. Though there's good reason to be cautious about spending, trying to do everything on the cheap may come up short. Figure out what really works, and commit to paying for it.

SaaS companies will typically spend much more on sales and marketing as a percentage of revenues than their licensed software brethren. Concur, for example, spends 31% of its annual subscription revenues on sales and marketing, and Salesforce.com spends 54%. For nearly all companies, customer acquisition costs will be the single largest expense on the income statement.

Companies should be prepared to make the required investment to fund marketing and sales appropriately. If they don't have the resources they need, or they're unwilling to make the commitment, it may not be worth spending anything at all. Bailing with a teacup won't keep the ship afloat.

When I talk to companies about SaaS marketing, I often use the "navigation" metaphor. (By the way, that explains the "compass" logo on my website.) I explain how to recognize dangers and discuss strategies to steer around hazards. The three I talked about here - "Spending money to lose money," "Raising against the clock," and "Bailing with a teacup" - are among the most treacherous. This SaaS marketing stuff is not for the faint of heart. Be careful out there.

Agile marketing

Who knew that software developers were such athletes? My code-writing friends are all talking about "scrums," "sprints" and "extreme programming."

Though I'm sure some of these folks are spending time in the gym, I've learned that these terms actually refer to the agile development methodologies many are using to build software-as-a-service (SaaS) solutions. Agile development is "intended to allow for rapid delivery of high-quality software, and a business approach that aligns development with customer needs and company goals."

Agile Marketing

We SaaS marketers should get on this fitness kick, too. We should follow our development colleagues with our own version of a lean & mean methodology. Call it "agile marketing."

Agile marketing refers to a process for building visibility, generating leads and supporting sales that's faster and more flexible than traditional marketing processes. It is intended to deliver more effective marketing, closely align with agile development processes, and better support a company's overall business model.

Faster

In the traditional on-premise world in which applications are developed via the "waterfall" method, new versions typically come to market every 18 - 24 months. The marketing team falls into this same rhythm, gearing up for a big launch every 18-24 months. After one of these grand launches - gala unveiling event, PR blitz, new collateral, multimedia ad campaign, etc. - the marketing folks recuperate for a couple of months... and then gear up for the next big launch.

This "marathon" pace doesn't suit most SaaS applications, and certainly not those built according to an agile development process. Instead of launching a massive new release every couple of years, marketing needs to gear up for launches every couple of months. These are more like a constant series of sprints than a marathon. It requires a faster, more agile process to keep up.

More flexible: Besides more speed, agile marketing requires more flexibility. SaaS marketers need to be eager to try new things, fearlessly measure results, be willing to pursue what works and abandon what doesn't. There's no room for dogma here.

Marketing folks ask me all the time, "What marketing programs work best?" My honest, though sometimes infuriating answer: "It depends."

What works for one company in one market with one particular solution might not work for another company in another market with a different solution. Be skeptical about "best practices."

Drew Houston of Dropbox and Adam Smith of Xobni have shared some of their experiences trying, failing, and trying something else, while building their businesses. (Presentations on their experiences are available on David Skok's For Entrepreneurs site.) Certain kinds of press outreach worked for them; others didn't. Adwords worked for one, but not the other. And certain social media campaigns were very effective, though more traditional email campaigns generated positive results as well. Their advice would make for a good tag-line for the Agile Marketing tee-shirt: "Learn early, learn often."

Also be aware that what works today may not work tomorrow. I remember marketers' fleeting love affair with "dimensional mailers." These promotions involved mailing (as in U.S. Postal mailing) odd-sized boxes to well-targeted executives. The goal was to "bust through the clutter" of over-stuffed mail boxes.

As ridiculous as cluttered U.S.P.S. mailboxes sounds today, the current infatuation with "social media marketing" may look pathetically quaint someday, too. The fact is, there's no marketing magic bullet; or if there is, it keeps changing.

SaaS solutions built with an agile development process require a faster, more flexible marketing process as well. It's time for marketers to get agile.

Pricing SaaS solutions: Beyond a "lease vs. buy" analysis

From the "Ask the SaaS Marketing Guy" mailbag, here's a question on pricing from a software-as-a-service solution vendor:

"My prospective customer is asking about the "break-even"point at which their software-as-a-service subscription payments would equal their on-premise license cost. They're asking why they should select a SaaS subscription option if they plan to use the application over a long period."

If the SaaS application is truly identical to the on-premise application, the vendor or the customer can conduct a straight-forward "lease vs. buy" analysis, accounting for the time-value of money. That will allow them to identify the break-even point - measured in months or years - after which it makes more sense to buy the on-premise license vs. lease via SaaS subscription.

If the vendor or the customer do conduct this analysis, of course, they should factor in all of the costs associated with buying and running an on-premise solution. Those would include the annual maintenance fee as well as the hardware required to run the application on-premise and the people required to deploy and maintain it. In the SaaS model, those costs are borne by the SaaS solution vendor.

Beware of this potential flaw in the straight-forward "lease vs. buy" analysis. In many cases, the SaaS application is not truly identical to the on-premise application. Or the functionality of the SaaS application may diverge from the on-premise application over the life of the subscription. The two applications may have been identical at the start, but over the subscription term, the SaaS customer has gained the benefit of product enhancements that the on-premise customer has not enjoyed. In that case, the SaaS customer is getting increasingly more value from the application than the on-premise customer. The customer should expect to pay a premium for that extra value.

Further, the SaaS version may offer the customer additional benefits beyond the product features. For example, the customer may benefit from more rapid and less expensive deployment of the application, easier configuration, the ability to quickly scale up to handle peak demand, and the flexibility to stop paying for the solution if they no longer need it (according to the terms of the contract, of course). These are benefits beyond what they'd derive from an on-premise application and customers should expect to pay for them.

The point here is that the SaaS offering and the on-premise offering typically do not offer identical benefits to the customer, so that a straight-forward lease vs. buy analysis wouldn't be appropriate. SaaS marketers should clearly articulate those additional benefits when promoting their solution.

Are you sure you want to offer a SaaS solution?

Often when I'm talking to vendors about transitioning from an on-premise model to software-as-a-service (SaaS) and there's an opportunity for Q&A, I get questions that go like this:

"How do I market a SaaS solution that doesn't lure away my on-premise customers?"

Or, "Can I structure the contract for my SaaS solution to guarantee the same large up-front license fee and on-going maintenance stream that I have with my on-premise offering?"

Or, "How do I stuff this SaaS genie back in the bottle?"

OK, I'm paraphrasing that last question, but that's really what some of these vendors are asking. They're happy with their current on-premise model, thank you very much, and they'll gladly migrate to SaaS...but only if it doesn't really change their business.

I understand their concerns. They've built successful businesses that generates cash and profits. The last thing they want to do is to kill the golden goose.

Here's what I tell those folks: If you really don't need to move to SaaS, don't.

Moving from on-premise to a SaaS model is difficult. You'll need to make radical changes that will be challenging to your entire organization. It will change the way you do development, finance, operations, support, sales and marketing.

Why you might need to move to SaaS

Given these challenges, what would impel a company to move to SaaS? I've seen a few compelling reasons:

- Competitive pressures require it: Your competitors offer a SaaS solution that has significant advantages over your on-premise product.

- Customers demand it: Your existing or prospective customers expect and demand the benefits that can only be delivered via a SaaS solution.

- Investors require it: Moving to a SaaS model is a requirement to secure funding to grow your business.

- Your current on-premise model isn't really as successful as you think a SaaS model could be: There are advantages that you can gain - faster time to market, lower costs, new opportunities, etc.- only by moving to SaaS.

Don't get me wrong. The SaaS model can deliver many valuable benefits and advantages. And fortunately for me, given my line of work, there are a lot of companies that need to move to SaaS for the reasons I've referred to.

But if your company doesn't want to, or to be more accurate, doesn't need to make the transition from on-premise to SaaS, don't. Because if you think you'll navigate that change without making tough decisions and profound adjustments throughout your entire organization, think again.

Understand what's connected to what

We renovated our house a few years ago. The larger kitchen, new family room and the extra bathroom we love. The process of getting it built... not so much.

Though resurrecting "construction nightmare" stories might be entertaining for you and even therapeutic for me, I'm actually prohibited from revealing any details of the experience per order of a legally-binding agreement with the original contractor. Yup, that's how well it went.

Beyond the obvious "home renovation can be hazardous to your financial and mental health," I did learn an important lesson:

"Everything is connected to something else."

As in, "Sure we can extend the deck another two feet, but that's connected to the sub-floor over the new basement, so you're looking at <insert big dollar amount here> and another <insert big number of weeks here> tacked on to finish the project."

Or, "Of course, we can put in central air, but that system needs to be connected to an upgraded electrical system. Figure on < insert bigger dollar amount here> and another <insert even more weeks here> to do the work. And, by the way, we'll need to pull another permit."

When you're doing construction, if you don't understand the connections between different elements in the process, things can get very costly, very quickly.

The same applies to marketing SaaS solutions. In particular, you need to understand the connections within the "lead-opportunity-win" funnel. A couple of examples will illustrate the point.

"Sure you can quickly generate leads with a more aggressive pay-per-click campaign. But your system for generating leads needs to be connected to your system for nurturing leads, opening opportunities, and closing business. If you don't have the complete process in place, you're wasting your money on lead generation."

Or, "We'd be happy to add more inside sales people to convert opportunities into paying customers. But that process is connected to the proposal and contracting process. But if you already have a backlog of qualified prospects waiting for approved contracts, pushing more volume into that bottle necked connection won't yield more paying customers. The investment in new inside sales reps will be wasted."

I would suggest that much of the waste in marketing spending is due to folks not recognizing the connections between the individual elements in the marketing program. An email campaign, telephone qualification programs, or a webinar series may appear to be very effective by themselves. But unless they're measured in the context of the overall marketing program, they may not really be effective in achieving your strategic objectives. Things get clogged up as they move across the connections.

Given that marketing and sales expenses will likely comprise the largest on-going expense for SaaS companies, and a poorly devised and executed customer acquisition strategy is as likely to sink a SaaS firm as a poorly developed product, marketing people need to know how the entire program fits together. Understand what's connected to what.

A dancing lion and the value of departing from the script

I was planning to write a blog post on how to capture the attention of prospective customers. The usual fare of practical marketing advice: How do you cut through the clutter to build visibility, establish credibility, and generate leads, etc?

But I'm not going to write about that.

Instead, I want to talk about a dancing lion. This particular lion is, or more likely was, a dancer in a Russian ballet troupe. In a complete departure from the choreographer's direction, not to mention the orthodoxy of classical Russian ballet, he pranced out from his supporting role and completely upstaged the prima ballerina and her danseur partner. And instead of quietly shuffling off-stage with the other stuffed animals, he made a glorious departure.

And the audience loved it!

Best of all, someone captured it on video and posted it on YouTube. It's been watched more than 227,000 times. I imagine the vain and disobedient lion was fired, but he sure did get attention.

Let me discretely slip in my main point here: Departing from the script can be effective.

It can grab people's attention and hold it. It can give them a "hook" to remember you with. It can cut through the clutter. Done well, that's usually good stuff for marketers.

You don't want to be inappropriate. But you don't always need to pound your prospects with a jack-hammer:

HERE'S MY MESSAGE!
HERE'S MY MESSAGE!
HERE'S MY MESSAGE!

Sometimes taking a detour from the expected and making a few taps to the funny bone works even better.

The impact of the cloud and PaaS on marketing

When it was operating at full capacity, the Ford River Rouge complex in Dearborn, Michigan had more than 16 million square feet of factory floor space, operated its own docks, ran an internal railroad of more than 100 miles, maintained its own furnaces to make steel and glass, and generated its own electricity. From 1927 through the 1960's, the sprawling complex and the 100,000 people who worked in it operated as a complete, vertically-integrated manufacturing facility: raw materials floated in one end, and finished Model A's, Mercury's and T'birds rolled out the other.

Though "the Rouge" continued to operate as an assembly plant until 2004 when one last convertible Mustang GT rolled off the line in May of that year, Ford had decades earlier moved to a more decentralized manufacturing process. Body panels, drive-trains, dashboards, and all the other components arrived pre-assembled from specialized, often third-party, suppliers. While Ford continued to assemble the final automobile, and they were responsible for designing, marketing and selling it, the docks and furnaces at the River Rouge plant were sold off or shut down.

The evolution of application software development

Application software development is on a similar path. Though it lacked the docks, furnaces and railroad tracks of the River Rouge facility, the earlier generation of software applications were also build through a complete vertically-integrated process. The developer was responsible for the entire solution, from the user-interface down through the entire "stack" to the silicon.

Over time, software application developers gained access to compilers, programming languages, operating systems and other foundation elements, freeing them to concentrate on the application layer and "final assembly" of applications.

Cloud computing, and platform-as-a-service (PaaS) in particular, are further destinations on this same path. By providing a pre-built, stable foundation, PaaS solutions allow application developers to focus on the user-interface and other higher-order functions.

These changes in the development environment have profound implications for commercial independent software developers' (ISVs) marketing efforts.

More resources for customer acquisition

A key benefit of PaaS is that ISVs can acquire foundation technologies and hosting & service infrastructure less expensively. As a result, resources that otherwise would be directed to engineering, development and operations should be available for sales and marketing. Most SaaS ISVs already spend nearly 50% of their revenues on customer acquisition. That percentage will likely increase as they take advantage of PaaS offerings and further reduce engineering costs.

Greater flexibility and responsiveness

The availability of PaaS and the ability to concentrate on the user interface and functions that are closer to the customer should allow ISVs to be more responsive to their customers. Without the foundation baggage to lug around, they should have greater flexibility to meet the evolving needs of customers and to respond quickly to competitors.

Higher expectations for innovation

The flip side, of course, is that customers will expect that ISVs will respond more quickly. When they request a new feature or a fix from their SaaS provider, they won't tolerate an answer that explains "we're addressing that in the next release- due in 18 months." Innovation and time-to-market will accelerate and marketers must support a much more frequent release cycle.

More competition

In a market where ISVs can avail themselves of PaaS solutions to quickly establish a foundation for their application at relatively low cost, barriers to entry are lower. As a result, marketers should expect a more competitive market. Expect pressure on prices, revenues or margins. One effect will be further pressure to tightly manage customer acquisition costs.

Beyond that, enhanced competition will likely force marketers to decide whether to compete on price or to build other, more sustainable, competitive advantages. These may include establishing customer relationships built on trust, reliability, security or other qualities.

PaaS, infrastructure-as-a-service, and other elements of cloud computing can offer valuable benefits to software developers: lower development costs, greater innovation, and faster time to market. But ISVs should beware of, and prepare for the impact throughout the entire organization, including marketing.

Marketing collateral: How much and what kind

I attended the IDC Directions 2010 conference a few weeks ago. I listen for two kinds of things at these conclaves: big, industry trends and small, but useful, practices.

On the "big trends," in a presentation entitled, " The Maturing Cloud: What It Will Take to Win," Frank Gens explained that the most significant growth opportunities in the IT market will be in cloud computing and software-as-a-service (SaaS) solutions. He contends that this mode of computing has nearly "crossed the chasm" from early adopters into mainstream adoption, and both users and vendors should now focus on how best to capitalize on these opportunities.

As for the "small, but useful practices," one of the marketing executives on a panel discussing where they're spending their marketing dollars remarked, "When it comes to collateral, there's no need for the Encyclopedia Brittanica." He maintained that in his organization much of the marketing material they've produced - white papers, data sheets, customer stories, etc. - isn't even used.

Too much marketing material... or the wrong kind?

I can't say I've really ever had that experience. I've seen marketing collateral that was inconsistent, inaccurate, or ineffective. But in most cases, the problem wasn't too much material.

A few years ago, I remember talking to a sales rep from a company that promoted white papers and customer case studies to qualified IT buyers. As these folks were reading about the latest developments in servers, storage, web conferencing, or whatever, they'd be presented with offers to access relevant material provided by various vendors.

I understood the idea, but explained to the rep that my problem was lack of content. When it came to providing marketing material, our small marketing department could not simply reach into a deep "bucket-o-content," or a stack of literature just waiting to be fed to their audience.

For most companies, the problem is not too much material, but it's the wrong material. For SaaS companies, I've seen this problem in at least two flavors:

The material doesn't reach all the decision makers.

Often the marketing material presents a compelling case for the particular departmental users (e.g. the sales team or the HR organization), but it ignores key decision-makers like the IT folks. It highlights certain of the solution's vital features, advantages and benefits, but little is available that addresses legitimate IT concerns about security, performance and integration.

Similarly, marketing material may not address the needs of the prospect's legal and procurement professionals. These people may not be familiar with SaaS or cloud computing and marketing can help educate them on the basics, as well as the specific implications for contract terms and conditions.

The material doesn't tell the whole story.

In some cases, the marketing material focuses exclusively on the product features and functions and omits the other elements of the value proposition. SaaS solutions deliver a complete user experience and success depends as much on rapid deployment, flexible configuration, ease-of-use, and other factors as it does on specific product functions.

The focus on product functionality also sometimes gets in the way of winning the prospect's trust. Remember, SaaS customers are buying into a long-term relationship and they want to see evidence - references, roadmap commitments, corporate history, management team bios, etc. - that the SaaS provider can be trusted.

In the relentless effort to grind down customer acquisition costs, SaaS providers should certainly scrutinize their marketing collateral budget. But for most companies, the effort won't be directed so much on cutting down on the volume of material. Instead, it should ensure that the available material reaches all the influencers involved in the decision-making process and that it presents the solution's entire value proposition.