Putting the service back into SaaS

Remember SaaS? Software as a Service. The idea that instead of buying software once, you pay a regular subscription and don’t have to worry about hosting, security and upgrades. You are effectively renting a software tool to get your job done ranging from £10 a month per user for the Microsoft Office suite to multiple millions per year for large Enterprise workflow applications.

Over the last few years, firms have pushed as many products as possible to the recurring subscription model. In the consumer market, physical media such as Vinyl, CDs, DVDs and Blu-ray have been replaced by streaming services such as Spotify and Netflix. In the business market, it is far easier to buy regular subscriptions to Microsoft Office than it is to purchase the software outright — in fact it might not still even be possible to make a one-off purchase of Word.

Software vendors like recurring subscription models because they provide predictable revenue that can support future investment and support rapid growth and value generation. The case has also been made that SaaS suits customers as well. Firms can avoid huge up-front costs, pay for only what they use, receive regular upgrades and enhancements and don’t carry the risk or cost of a large hosting infrastructure (and supporting team).

Another popular SaaS sales argument is that the total cost of developing, launching and maintaining a product is shared across all of the product’s customers. As a result, individual customers receive a product that they could not possibly have developed themselves and has been produced with the input of tens, hundreds or even thousands of users.

But in the same way, some consumers are returning to physical media and starting to buy records, CD, cassettes and DVDs again, there is a business movement where some firms are purchasing software packages and components on a perpetual basis again. There are a number of drivers for this trend:

Commoditisation of cloud infrastructure

Firms have crystallised their cloud strategies, have the internal expertise to procure and run their cloud footprints and have mastered the complex pricing structures. A few years ago, vendors who were able to take away the headache of moving applications to the cloud as part of a wider SaaS offering were favoured. That benefit is now reduced because it is easier for firms to expand their existing cloud agreements to provide storage, connectivity, database and application services to support perpetually licensed software.

They are still paying recurring subscription fees for the cloud infrastructure in most cases but buying the application software outright.

Total cost of ownership

Large enterprise applications are difficult to implement taking months if not years to roll-out. Not to mention the buying, procurement and third party due-diligence cycles that can add another six months plus. Therefore, some solution choices stay in pace for at least five years, in some cases ten or even twenty years. The annual recurring licence vs perpetual license comparison plays out well over a three year timeframe, but if the TCO is calculated over ten, fifteen or twenty years the annual recurring license model can appear expensive.

Usually there are generous inflationary increases built into multi-year contracts and so the annual license for year ten can be significantly more than year one. Does the firm really get this greater value from the software in year ten? If the firm had invested in building a solution, when would they start to see the return on investment?

Competitive advantage

Software applications are embedded into every aspect of running a business today from recruitment to fulfilment. Companies who buy a SaaS product have to concede that there is a chance their closest competitors will buy the same or a similar product. Their competitors will instantly get access to the same features, the same benefits and in many cases the same best practices.

In contrast, firms who purchase a perpetual license tend to heavily customize it for their own unique requirements. They may even go further and build something entirely from scratch. These firms are not encumbered with the fear of breaking something following a SaaS upgrade or falling foul of the small print in a service level agreement. Innovative firms can build competitive advantage into a seemingly niche area of their businesses. For example, a software firm that can identify, attract, recruit, generate contracts and send out offer letters to tech rock stars better than their competition may win in the market over the long term.

Nickel-and-diming

As software vendors grow, the pressure to keep growing at the same or advanced rate also increases. There are two ways for vendors to grow; attract new customers or get existing customers to pay more. Some customers may feel too locked into a vendor to leave, making them vulnerable to price increases or being asked to pay more for additional modules or services that they think should already be included in the original subscription. Over time, this can be become wearisome and push the customer to consider perpetual or internal build options.

Despite all of the above, if you are a product manager for a SaaS product there is a solution and the clue is in the description — Service! SaaS product managers must deliver on the original promise — hire my product to get your job done. And the product needs to do that job for the customer in year 1 and to continue to do the job well in year 20 to justify the steadily increasing recurring fees.

As product managers search for ways to grow their product by developing new capabilities or by identifying new brand new products, it can be easy to neglect service-related issues. There is a lot of content describing product-led growth or sales-led growth, but I advocate a service-led approach. Certainly consider what features your product needs to perform the job it is hired to do. But, also consider the associated services that are required too. How do you describe each service? How will it be performed? Who will do it? How do you know if it is being delivered effectively?

When a customer hires your product to complete a job and pays a recurring fee to your company, then every part of the journey becomes your responsibility. The customer is having trouble loading initial data. Your problem. The customer’s users don’t know how to use the product. Your problem. Your advocate has left the company and there is no-one who has taken their place. Your problem. The customer has not been invoiced correctly or doesn’t understand their invoice. Your problem.

If all you did was to address service issues and deliver solutions and improvements to them — your product will grow. Not only that, the origin of many issues will overlap into adjacent areas and so in understanding service issues, you will uncover multiple other product opportunities.

The following tactics can be used to move towards a service-led approach.

Routinely analyse service requests

Allocate time each month to review and analyse service requests. Develop a simple taxonomy that your service team can use to categorize issues as they are reported. Discuss with the team how to identify the true root cause and what additional information and context should be captured. Underline the importance of capturing details on how the issue was eventually resolved. Pick a handful of resolved service requests and follow up personally with the user who reported it and have a short 1:1 conversation.

Add service related questions to your discovery calls

Complement product and feature related questions with specific questions related to service in your discovery calls

• How would you describe our overall service?
• What services could we improve?
• Are there any additional services that would make the product easier to use?
• What part of using our product do you find most difficult? Why? How could we help?

Identify areas for self-service

There are many tasks that users would prefer to be self-sufficient rather than having to wait for a service team member to be available to respond. Requesting an historical invoice, adding additional users, lodging an enhancement suggestion are all simple transactional operations that can be easily embedded into your product.

Identify areas for enhanced “white glove” service

Equally, there are other high-value critical tasks that users would be willing to pay a premium for to get highly responsive, expert, quality assistance. Perhaps the customer is under regulatory pressure, has lost a key customer or is pitching to win an important new client. If your product contributes to any of those scenarios, the customer may appreciate additional support to ensure the best outcome. By providing these service, you are not only satisfying that customer, but you will likely uncover ideas for a range of premium high-value features and services that could be productized.

Irrespective of background, technical knowledge or level of seniority — everyone appreciates good service. They remember it. They recount examples to their colleagues and professional networks. Good service builds loyalty. When planning your roadmap and product strategy, ask yourself which items will directly contribute towards providing a better service for your customers. What will make keep them satisfied and willing to pay in Year 1, Year 5, Year 10 and Year 20 of using your products.