I had dinner the other night with a friend who is a very successful software company CEO. When I say successful, I mean both as in growing a traditional software company from next to nothing to a very successful IPO some years back, repeating the exercise in a very different market segment, and now successfully growing an innovative SaaS start up. He made a really interesting point at our dinner:
Most companies in the SaaS space, and virtually all those on the sidelines with their cries of, “You can’t make money in SaaS” are missing a key point – they are trying to build a 2.0 business using 1.0 sales and marketing strategies!
His point is that rather than follow 2.0 approaches to sales and marketing, many companies are relying on traditional lead generation mechanisms and ‘feet on the street’ sales forces. This is not only anachronistic, it is doomed to failure for most of them – the economics of this distribution method will just not hold up for most of them. The SaaS naysayers, with their claims that SaaS does not present a sustainable business model, may well be proven correct – at least if they follow a 1.0 sales and marketing approach to a 2.0 solution! Why not leverage all the power of 2.0 to market and sell 2.0 solutions? Why not use multi-media presentations – short and punchy, delivered over the web, with a layered, interactive approach instead of sales forces? Why not use demand pull, which better fits today’s hectic executive calendars and short attention spans, rather than supply push approaches, with salespeople playing their games with executive assistants to get their feet in the door?
There’s a corollary to this 1.0 marketing mix approach to 2.0 solutions – that is the 1.0 delivery approach to 2.0 solutions. Take social networking as an example – perhaps a quintessential 2.0 application. Facebook, Linked-in and their rapidly proliferating and verticalized alternatives have been largely effective for at least a couple of reasons:
- They satisfy a social networking need.
- They have an incredibly low barrier to entry due to their SaaS delivery.
Ironically, as companies start to bring 2.0-type social networking capabilities (collaboration, tagging, communities of practice, communities of interest, threaded conversations, wikis, et al) into their corporate environments, many are doing so with 1.0 delivery mechanisms – they are installing large, complex technology inside their firewalls. The classic example of this is Microsoft’s Sharepoint. From what I am seeing so far, while Sharepoint can add important and valuable capabilities to an organization that was previously using email and shared folders for collaboration, it typically fails to really satisfy the broader social networking needs and opportunities that exist in the corporate environment. If technology-enabled social networking is inherently a 2.0 capability, why should we expect an inherently 1.0 delivery mechanism to be effective? Again, that is both anachronistic and similarly doomed to failure.
My conclusion to this, although I may be over generalizing, is:
Don’t try to use 1.0 sales and marketing methods on 2.0 delivery channels, and don’t try to use 1.0 delivery channels for 2.0 solutions.
Filed under: Next Generation Enterprise, Web 2.0, social networking | Tagged: Cloud computing, collaboration, Enterprise 2.0, Next Generation Enterprise, SaaS, social networking, Web 2.0
The classic example of this is Microsoft’s Sharepoint.
Andy
Vaughn,
Your “SaaS – A Missing Link” blog goes straight to an important, but specific aspect of what is likely to be the most significant change in the business of building and selling commercial software products in the last 25 years. My interest is less with new start-up SaaS vendors, who frankly have no excuse for not realizing that this new product model requires a new business execution model, but with the existing community of Independent Software Vendors, ISVs. I believe that 2009 is going to be a critical time for traditional on-premise software vendors to decide whether they should jump into the SaaS pool. Not dip their toes – it’s too late for that. It’s time to swim or quite possibly drown.
For those existing ISVs who want to make the move to SaaS, the immediate thought is how to achieve the technical leap of leveraging their existing on-premise applications into off-premise, multi-tenant SaaS solutions. However, as radical a re-engineering requirement is the business model changes that will be required for the ISV to emerge as a viable SaaS vendor. New sales and marketing approaches are just two aspects of these required business model changes.
Paul Holland
Vaughan, this all makes sense–the new environment certainly seems to require new techniques to be successful (though at the Enterprise level, the most successful 2.0 software vendors seem to be using a fairly traditional sales force). Perhaps in a future post you can be more prescriptive?
What are the sales and marketing tactics and strategies that work? Where have they worked?
How have progressive IT shops overcome skepticsm, security concerns, inertia etc. to begin making the move to 2.0 delivery mechanisms?
I am less skeptic every day, yet I still want to see someone besides SFDC prove that there is money to be made. I know there are a few smaller, more targeted vendors out there that are possibly making money too. This blog would be a great forum to identify and discuss the techniques that make this technology commercially viable.
Esteban
Esteban, you raise some great questions, as usual, and I will try to get more prescriptive in future posts, but here’s some initial reactions to your points. Your note that “the most successful 2.0 software vendors seem to be using a fairly traditional sales force” is true, but that was very early in the game – innovative vendors with innovative solutions selling to early adopters. Under these conditions, anything is possible. But now, as we move beyond the early adopters, I believe a very different vendor business model is needed to “cross the chasm” as Geoffrey Moore would put it.
Your second question gets to a different set of issues – consumer as opposed to vendor oriented. Again, I will comment in subsequent posts, but the ‘early adopter’ point applies here as well. CRM, for example, and Salesforce.com’s value proposition were sufficiently compelling for early adopters to overcome the inertia and jump into the SaaS fray. The question is, how to ‘cross the chasm’ into the larger market, and while feet-on-the-street sales forces will have their place, I don’t believe this will be the predominant sales vehicle for 2.0 solutions. If 2.0 is real, it must mean 2.0 for the vendors as well as for the consumers.
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