Diversity Analysis Subscription Billing paper

Ben Kepes and Krishnan Subramanian over at Diversity Analysis have published a new paper on the subscription billing space. In keeping with their "10 Questions.." theme (See 10 Questions You Should Ask You Cloud Vendor), the paper discusses 10 questions across both operational and revenue generating themes they suggest companies ask themselves prior to either selecting a vendor or rolling their own billing system in house.

All of these questions resonate with us as we hear them time and time again from current customers and from prospects evaluating Monexa Billing. We don't often see them all from any given customer or prospect so it's nice to see them consolidated.

Here are some of the points I found interesting:

"The subscription and billing system should never be an impediment to a new
product approach and if a prospective system of choice puts limits on the
ability to rapidly change direction, it should be avoided."

This is really the crux of the Monexa Billing value proposition: Flexibility and Agility. Yes, a billing system can increase efficiency and save you money but it is crucial today to be able to quickly adjust your marketing and selling approach. Quantifying this for some of our prospects can be very difficult though as they can be very focused on today's problem:

"Businesses often make the mistake of underestimating the ongoing
complexity of their charging strategy. They might start with a very simple
monthly billing package but given growth and changing promotional
strategies the business may wish to offer new packages and/or broaden their
customer base geographically."

Quite often we think of billing complexity along only one axis, the pricing plan. Is it a simple monthly subscription? does it have a usage component? Billing is more complex than this. A good rating engine needs to understand the pricing plan configuration but also things like pro-rating rules, contract terms such as up-front or periodic payments. How will you handle metered billing? Will you simply bill in arrears or take a draw down deposit. As a prospect, it's hard to know what questions to ask if you haven't seen hundreds of pricing and billing models before.

One of the most effective topics for describing on-going complexity is the tax issue:

"The need to be able to react to international
taxation rates and laws, international currency issues, diverse payment
methods and multiple languages are all factors that need to be taken
into account."

Our previous blog and resource center paper on the Taxation of online commerce was by far our most read topic. It is easy to grasp the scale of the taxation problem if as an online vendor you have to keep up with taxation changes in thousands of jurisdictions. You definitely want to leave that to your billing vendor.

Have a read of the entire paper, you can get it from our resource center.

The SaaS pricing debate revisited

Over the last year, the SaaS and PaaS players have all been working on finding pricing models that work for their clients and businesses. 

While nobody seems to have nailed it just yet, some recent decisions by some really large players in the enterprise software game have shone a spotlight on what doesn’t work.   

It may not be obvious at first blush, but most small and medium sized companies that use software to power their online businesses need the same software features that big companies do.  They just don’t need the same amount of them as big companies do.   

The trap that awaits software marketers that miss this point is that by narrowing the product functionality to hit an affordable price point they produce a product that nobody wants.   

Just think of what would happen if a leading car maker offered an “entry-level” vehicle based on their top-of-the-line chassis.  However, to offer an entry-level price, they leave out the window glass, the transmission and the passenger seats.  Even though it contains most of components that are in the higher priced “enterprise” version, this “entry-level” product is doomed.  Software works the same way.   

The lesson?  Product plans that eliminate software functionality to arrive at an entry-level price won’t deliver new customers.  

The RFP 2.0

Everyone knows the RFP is dead in the SaaS world right?

Our product is a relatively sophisticated on-demand billing system for companies that have non-trivial subscription billing needs. The thing about our business is that any SaaS or Cloud Service company, even the ones just getting started, know they will, in very short order, run into problems rolling out new plans, supporting payments for international customers, and simply handling the subscriber management as the business grows.

So, we deal with prospects and customers ranging from 3 guys in a garage so to speak (not intended to be derogatory, I've done the garage thing twice. It's fun, hard and very rewarding)  to large enterprises who don't want to spend 18 months and $10M ripping up their ERP or Telecom Billing solution to simply roll out a new subscription product.

For example, last month we answered 3 RFP's (aren't they dead?), had online leads from 10 pre-revenue companies and a whole bunch of prospects in between.

The point is, a lot of SaaS companies like us deal with the full spectrum of buying behavior so we are rarely surprised at the different ways people find and evaluate vendors.

Today we saw our first RFP 2.0. We've seen lots of folks using twitter and other social media tools to ask about various vendors and solutions but this approach took it further. @dacourt created a google spreadsheet with some high level subscription billing capability questions, shared with the public and distributed over twitter. A few vendors were initially filled in and over the course of a day or two other vendors added their product evaluations to the mix. Very cool use of today's social media and collaboration tools.

Check out the subscription billing spreadsheet or just search twitter for "subscription billing" and you'll find it being discussed.

It would be great to hear some other stories like this...

Tax My SaaS

With the big news coming out of France that the government is considering implementing a tax on Google advertising the SAAS industry needs to take notice. France is not picking on Google, they are going to tax all online advertising, which according to many reports the annual revenue of Google's online advertising is over $2 billion. I am not going to comment on the tax, we will leave that debate to others. However, the ability for any level of government to implement a new tax with out much advanced notice should be a major wake up call for all SAAS providers. 

 

As a SAAS provider you need to make sure your billing system / provider can handle multiple levels of tax regimes, account for taxes collected and provide the appropriate reports?

 

Currently in the US, software is defined by State law and state sales tax. However, when an end user downloads the software, what tax jurisdiction has the right to tax, is it where the software is downloaded from or where the software is being downloaded to or both? Many States are attempting to figure out this dilema. According to a report from Grant Thornton, Taxing software as a service: What SaaS providers may not know about their tax liabilities, "Massachusetts and Texas have taken informal positions that SAAS is taxable." 

 

If we look to France we can learn and be prepared for the potential effects of a new tax. We must realize that the effects of new taxes could be complex and potentially add cost to the SaaS delivery model 

 

With an increasing debt load and 48 states and thousands of local governemts that have financial hardships, the possibility of a new tax being implemented at many levels is very real. 

 

As a SAAS provider you rely on your partners to be prepared. 

 

At Monexa we have been delivering billing solutions for over 10 years to hundreds of clients in every state and province in North America. Our billing software can accomidate multi-level taxation schemes. Further, we stay abreast of the tax news coming from all levels of government. 

 

Let the news out of France about the Google Tax be a wake up call for all SAAS providers.  

SaaS, cloud and subscription billing and the Olympics in 2010

2010 is looking pretty exciting for us. We had a great 2009 as our business in the SaaS and Cloud billing market really took off.

On top of that, the 2010 winter Olympics are about to kick off in our corporate hometown of Vancouver so the mood around the Monexa office is pretty good.

So, what's happening in 2010 for us? Gartner is fully on board with the SaaS and Cloud Computing market. In fact, they have named Cloud Computing as one of the top 10 strategies for 2010:

Cloud Computing. Cloud computing is a style of computing that characterizes a model in which providers deliver a variety of IT-enabled capabilities to consumers. Cloud-based services can be exploited in a variety of ways to develop an application or a solution. Using cloud resources does not eliminate the costs of IT solutions, but does re-arrange some and reduce others. In addition, consuming cloud services enterprises will increasingly act as cloud providers and deliver application, information or business process services to customers and business partners. Read the full gartner comment

Monexa is a SaaS Application itself and many of our customers are SaaS/Cloud companies. As you can imagine, we're deeply connected to the overall growth of the SaaS community and not just our subscription billing market. Past failure to predict the future has never gotten in the way of trying again. So, here's what we think 2010 will look like:

• Vendors, Vendors, Vendors
  •  Although the leading SaaS provider Salesforce has reached over $1 billion in revenue, Microsoft and Google are big players; 2010 will be marked as the year that new vendors and applications hit the mainstream. Microsoft will be pushing the Azure platform to their army of ISV's so we expect to see a ton of new cloud services out of that group.
    
• End User Uptake
  •  With more and more cool apps hitting the market, it will be the end user that decides the success of the market. As market players we need to work together to demonstrate reliability, convenience and value for the consumer dollar. Further, as we have seen with Google and Microsoft we need to provide better Service Level Agreements if we expect the enterprise to jump fully on-board.
    
• Customer Service
  • A key differentiation in the market will be good old fashion customer service. Just because you can create an application that can be used by anyone in the world does not give application providers a free ride on customer service. A vendor might be able to get away with little customer service or a help desk forum on their site when they offer the service for free but enterprise customers expect more.
• Taxation of online services 
  •  An unknown in the market is how the each state will tax cloud services. There are rumblings even now that new taxation rules will be introduced soon. This will have a big impact on not only our business but the entire cloud market.
    

Monexa will continue be a leader in the Cloud billing market and we look to 2010 as a great year for the market and our company.

As we move into 2010 - what are your predictions? Link us to your blog posts on the subject...

SaaS, Cloud and subscription billing - looking back at 2009

It is hard to believe it is 2010, for those of us that have been at the SaaS game since the early days it's been a decade already. Where did it go?

Last year turned out to be a turning point for the SaaS market.  The economic crisis provided yet another reason to move away from on-premise software and toward online services. The scale of some of our leading SaaS services such as Salesforce.com and Google Apps means outages are immediately reported and mainstream news. 2009 will always be remember for the financial collapse of the economy and the election of Barack Obama. However, in our market, 2009 will be known as the year SaaS became a mainstream delivery model. Yes, we still have many hurdles to overcome but as a legitimate software delivery model, SaaS and Cloud Computing have arrived.

Closer to home, 2009 was the year the cloud billing or subscription billing market was defined. We've been at the subscription billing game for over 10 years as a SaaS player. In 2008 we had a trickle of more mature SaaS companies with billing problems find us based on the marketing of our Telecom and ISP billing solutions. In 2009, a flood of SaaS companies from start-ups to highly success players came to us as the vendor community adopted subscription billing as it's defacto market segment.

Saugatuck, the premier SaaS analyst company, even did a complete study on the cloud billing space. It was nice to come out on top.

Here's hoping 2010 continues the momentum. It looks good so far.

Does Your Billing System Help or Hinder Sales?

A few weeks back I was chatting with a marketing executive from a multi-billion-dollar software company that operates around the world.  They’re very successful; let’s just leave it at that.   

When I asked him about his SaaS products and the company’s billing strategy, he seemed a bit surprised that there was even a question.  His response boiled down to “our CFO says we only accept customers that can pay for the full year up front”.  When pressed, he admitted that his company had declined customers that wanted a different payment arrangement.  At his company “billing” is a financial issue.  His competitors might see it as part of their go-to-market strategy but this guy’s CFO respectfully disagrees.   

In a competitive world, turning business down because your rigid accounting or ERP system won’t support a customer-friendly contract billing cycle is bad business.  It puts entire market segments out of reach and creates opportunities for competitors.  Imagine a cell phone company announcing that it would only accept customers that paid a full year up front because they didn’t have an automated billing system.   

It’s a back-office strategy that reduces workload two ways:  less work per customer combined with the added “bonus” of fewer customers.  It reminds me of the parable of the horse-drawn carriage driver who reduced his costs by feeding his horse a little less every day.  The strategy was successful, although just as he was getting to the point when he could feed it nothing at all, the horse died, with dire consequences for his business. 

Worthwhile customers come in many flavors.  Some customers need price certainty.  Others want to pay as they go.  If you have the flexibility in your back office to sell the same product to both, you have the opportunity to grow faster and make more money than your competitors.  Traditional accounting and ERP products weren’t built to support subscription billing.  Just ask your CFO. 

 

Monexa subscription billing launches

It's been a very busy month for our team. We had a number of exciting clients go live and with all our spare time, decided we would re-brand the IP Applications subscription billing service.

The branding exercise was an incredible amount of work considering we decided to launch it at the SIIA OnDemand show in San Jose this week. Having said that, these exercises are always a great way to bring the team together.

We learned a lot about how our customers see our company and our billing product. We got to work with some really creative people. The team at WoW did our branding work and on top of having some really great creative people, made us think hard about exactly what type of impression we want our brand to make.

We'll be writing a series of posts on our experience but we wanted to get a quick post out there to see what people think of the brand. We've worked hard to create a brand that invokes a reaction so we'd like to hear yours. Our twitter feed is also a great place to follow the conversation.

More to come this week...

Billing, it's all about the invoice

Let’s face it, you’re in business to make money.  Invoicing is how you monetize your product or service.  Think of it as the headwaters of your company’s river of cash.  The easier you make it for your customers to pay your bill, the faster you get paid. 

Collecting payment is easy when it’s one subscriber and one invoice per subscription.  That’s the business-to-consumer (B2C) model and it’s pretty well defined and people know what they’re getting.  As a vendor, your billing problem is simple. 

Life gets vastly more interesting and challenging when you start sending invoices to companies.  That’s the business-to-business model, or “B2B”.  Unlike a consumer, the B2B customer’s left hand (think “Accounts Payable Department”) usually doesn’t know what the right hands (the users of your product) are doing.  They rely on systems rather than memory, and your invoice has to work within their system, or payments will be delayed or stopped completely. 

In its most basic form, a business to business invoice has to communicate six things: 

• the seller’s identity
• what was purchased, usually by referencing a purchase order number and line number
• the value and how it was calculated
• taxes applied
• currency
• location and method of payment (electronic or physical)

 

Most consumers only care about the first, third and last points.  Businesses need them all, especially when the auditors arrive.  Things like corporate tax identifiers, company registration numbers and other information that looks needlessly bureaucratic is essential to getting your invoice through the maze of approvals and checks at the receiving end.  Even if payment is automatic, poor preparation of the invoice can lead to needless effort resolving issues that should never have come up in the first place.

Freemium conversions: Sales versus Finance - whose job is it?

An automated billing solution smooths out the flow of revenue and cash from freemium renewals by ending the debate over whose job it is to remind your customers to renew. 

Let’s just say that you’re commercializing an open source product on the freemium model.  You have a million or two “free” users and a nicely growing group of paid subscribers getting the enhanced version of the product.  While you might not consider your customers “subscribers”, the term “subscription” in this context is a bit of payments and billing jargon that describes an enduring business relationship that has to be invoiced occasionally to keep it alive.   

Depending on your business model, but most likely once a year, your existing paid premium subscribers need to renew their subscriptions.  The question is, which part or your org chart should be responsible for making sure renewals happen?  In most companies, Finance takes the position that coaxing customers to renew isn’t their job, and that they wouldn’t be very good at it even if it was.  Meanwhile, to keep the growth rolling, your sales force is tightly focused on generating new revenue from new customers.  They’re loath to stop pursing new business and turn their attention to what looks like a low-value maintenance job.   

But, regardless of whether anyone wants to do it, somebody has to reach out and remind your customers that it’s time to renew.  Your customers are more focused on using the product than paying for it. Chances are good that if you don’t remind them to renew, they just won’t get around to it.  If the “premium” part of their service stops when they don’t renew, they will probably get around to renewing in a few months, but then again, maybe they won’t.   

What’s our experience in this model?  Well, in the last few months, two freemium business-model companies have begun using Monexa Billing to automate their renewals.  It’s a simple solution to a vexing problem.  The subscription billing application remembers the customers’ details and it automatically reminds them when their subscriptions are about to run out.  This keeps the sales force selling to new customers, and allows the finance staff to respond only to exceptions where payments don’t arrive properly.    

You get a smooth revenue flow, peace between finance and sales, and best of all you have happy, up-to-date paying customers.