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.

Cloud Billing - Are telecom billing vendors really the right fit?

While here at Monexa we regularly get excited about subscribers, recurring billing and payment processing, we understand the rest of the world doesn't always share our excitement. It seems everything the cloud topic touches these days is getting attention and subscription billing is now along for the ride!

IDC has just published a Cloud Billing research paper where they draw comparisons between telecom providers and emerging cloud infrastructure providers when it comes to billing for their services. For frequent readers of this blog you won't be surprised to hear that we completely agree with the thesis of the IDC paper. One of our favorite topics is pricing strategies (see our post on SaaS Pricing Strategies) for SaaS and Cloud subscription services and we often draw comparisons to the mobile phone industry.

At Monexa we have a unique perspective on this topic. We cut our teeth handling subscription billing for the Telecom and ISP world and have moved into providing our on-demand recurring billing solution to SaaS and Cloud providers over the last 2 years. Comparing our experiences with our Telecom and ISP customers to the direction our SaaS and Cloud infrastructure customers are going we can offer some concrete examples of the fit:

• Metering: Cloud infrastructure providers in particular but many SaaS application providers have highly metered services. The best way to link value with your pricing strategy is often through usage based pricing.
• Subscription Plans and Pricing: A common criticism of purely metered services is the uncertainty factor. We see many providers now rolling out plans that bundle a certain amount of usage or provide unlimited usage for a fixed price. I've often pointed to GoGrid's pricing plans as a great example of this move toward the telecom model.
• Reseller support: Virtually all of our SaaS and Cloud customers are rolling out channel strategies this year for their subscription services. As a result they are working through how to support their resellers from a marketing (think white-labeled or co-branded online storefronts) and billing (who owns the billing relationship?) perspective.
• Partner Products: In the telecom world many of the products and services are not delivered by the telecom vendor themselves. SaaS and Cloud providers are beginning to bundle services from partners into their offerings and will be looking for their billing solutions to help with revenue settlement.

Clearly, there is a capability fit for providers of Telecom billing solutions to move into the cloud billing space (we ourselves are proof of it). The question we at Monexa have is this:

Is there is a cultural fit between telecom billing providers and the growing cloud infrastructure providers?

Time to value: This is a key mantra of the SaaS and Cloud community. The model for selling Operational Support System (OSS) solutions, of which billing is one piece, to telecom vendors has included very long sales cycles, very long and expensive implementations and highly customized on-premise software.

Because our solution has always been delivered on-demand, and our pricing structure has very low implementation costs we've never felt like a traditional telecom software vendor. If our customers aren't making money, we aren't either.

Culture and Language: Not only is there a significant terminology/language gap between the telecom and the cloud infrastructure worlds but we also see a significant discrepancy in what each market finds important.

As we identified these issues, we brought people with SaaS backgrounds onto the Monexa team and quickly devoted engineering resources to capabilities our new customers and prospects felt were important such as a rich UI experience.

Outside of our subscription billing capability fit, our on-demand philosophy and our willingness to quickly adjust to a new market have been the two biggest factors in our successful move into the SaaS and Cloud billing markets.

I'm certainly not going to say Telecom Billing vendors can't make the transition (look at us) but I strongly believe the functional fit of their products is only one of many factors they need to consider.

The Economic Downturn and SaaS Companies - Part 2

While attending the excellent SIIA On Demand conference in San Jose, there was a lot of talk about surviving the economic downturn as a SaaS company.  Many of the points in Part 1 of this blog were discussed (somewhat gratifying) but a more fundamental question was posed.

Are you selling oxygen?

Can companies breathe without your product?  Is your SaaS product a true "need" for businesses to succeed or is it a "nice to have"?  When companies look to trim costs, which column will your product fall into?

In stronger economic times, companies that sell "nice to have" products can grow and prosper.  In down markets, purchasing companies will cut the nice to have products to preserve margins and cash, while keeping those mission critical solutions.

As SaaS companies looking for success in a down market, we need to ensure that we are selling products that are critical to our customer's business success.  Here are several things to focus on:

1. Marketing must emphasise those elements of your products that keep companies running.  Do not promote ‘cool' features; stress the core features that will help drive costs down or revenue up.
2. Product value must be quantified and provided to our product champions.  Ensure that product champions within enterprises have the tools to defend it against the forces of rationalization.  Often the decision to cut will have nothing to do with the department that uses and loves your product. The decision likely comes from the finance department but a strong dollar oriented argument can stay the execution.
3. Think sticky.  Focus energy on integration and engagement with key clients such that the switching costs grow greater than the option to cut or downsize.
4. And ultimately, if your product is not oxygen to your customers, change it or find customers who breathe your particular type of air.