SlideShare a Scribd company logo
1 of 47
Download to read offline
Draft
                                                                          03/10.9




         SaaS Revenue Modeling:
     Details of the 7 Revenue Streams
http://sixteenventures.com   Copyright© 2010 Sixteen Ventures. All Rights Reserved
Legacy Software



                     Customers          Developers




                                Channels



                           Three basic elements
   http://sixteenventures.com                     Copyright© 2010 Sixteen Ventures. All Rights Reserved
Software-as-a-Service (SaaS)



                      Customers            Developers




                                   Channels



                                 Same elements
    http://sixteenventures.com                     Copyright© 2010 Sixteen Ventures. All Rights Reserved
Software-as-a-Service (SaaS)



                      Producers              Consumers




                                     Ecosystem



                                 Different approach
    http://sixteenventures.com                        Copyright© 2010 Sixteen Ventures. All Rights Reserved
Software-as-a-Service (SaaS)



                      Producers          Consumers
                                 Network
                                  Effect



                                 Ecosystem



                          Very different approach
    http://sixteenventures.com                      Copyright© 2010 Sixteen Ventures. All Rights Reserved
Software-as-a-Service (SaaS)



                      Producers          Consumers
                                 Network
                                  Effect

    Key
    differentiators
                                 Ecosystem




    http://sixteenventures.com                  Copyright© 2010 Sixteen Ventures. All Rights Reserved
The goals for a SaaS vendor should be different than a
               Legacy Software vendor


     Producers                          Scalable Revenue Streams                      Consumers


                    Understanding why* allows
                   for proper Revenue Modeling
                    *business scalability, increased CLV, leveraging multi-tenancy, etc.




 http://sixteenventures.com                                                                Copyright© 2010 Sixteen Ventures. All Rights Reserved
Legacy Software Business Structure


                                         Intellectual
                      Marketing
                                          Property




                        Technology        Revenue
                                           Model


                         Loosely-coupled, at best
   http://sixteenventures.com                       Copyright© 2010 Sixteen Ventures. All Rights Reserved
Integrated Business Architecture


                                          Intellectual
                      Marketing
                                           Property

                                 Network
                                 Centricity

                                              Revenue
                     Technology
                                               Model

          One core piece of technology must be able to support
           multiple revenue streams with different pricing and
           distribution methods for multiple market segments.
    http://sixteenventures.com                          Copyright© 2010 Sixteen Ventures. All Rights Reserved
Revenue Model




                                                Products
  Marketing          Intellectual
                      Property      Recurring                    Ecosystem
           Network                              Network
           Centricity                            Effect
                                    Services                    Advertising
  Technology          Revenue
                       Model                    Ancillary




        Revenue Model consists of Revenue Streams
    http://sixteenventures.com              Copyright© 2010 Sixteen Ventures. All Rights Reserved
SaaS is not a Revenue Model or Pricing Strategy!




        SaaS
                             ≠             Monthly
                                         Subscriptions



          If you only leverage “subscriptions” you
               are leaving money on the table


http://sixteenventures.com                 Copyright© 2010 Sixteen Ventures. All Rights Reserved
Architecture                                 Marketing


  Revenue                                       Pricing
                             separate
   Model                                       Strategy


          Understand where each piece fits into
          the overall SaaS Business Architecture


http://sixteenventures.com                Copyright© 2010 Sixteen Ventures. All Rights Reserved
Pricing Strategy must be
                separated from Revenue Streams



    Revenue                                      Pricing
                               separate
     Model                                      Strategy


Pricing Strategy is applied to customer-facing portions of
                    the Revenue Model


  http://sixteenventures.com               Copyright© 2010 Sixteen Ventures. All Rights Reserved
How can you apply Pricing Strategy without
  knowing what Revenue Streams you’ll leverage?


  Revenue                                         Pricing
                             separate
   Model                                         Strategy


            Use Pricing Strategy to drive users to
                 Scalable Revenue Streams


http://sixteenventures.com                  Copyright© 2010 Sixteen Ventures. All Rights Reserved
Agile Revenue Generation is key...



    Architecture                               Marketing


      Revenue                                     Pricing
                                 separate
       Model                                     Strategy



    Revenue Model + Vertical Specific Pricing = Agility


    http://sixteenventures.com              Copyright© 2010 Sixteen Ventures. All Rights Reserved
7 SaaS Revenue Streams



                                  Products

                     Recurring                Ecosystem
                                   Network
                                    Effect

                       Services              Advertising

                                  Ancillary

   http://sixteenventures.com                          Copyright© 2010 Sixteen Ventures. All Rights Reserved
Less Scalable Revenue Streams



                                  Products

                     Recurring                Ecosystem
                                  Network
                                   Effect

                       Services             Advertising

                                  Ancillary


   http://sixteenventures.com                         Copyright© 2010 Sixteen Ventures. All Rights Reserved
Scalable Revenue Streams



                                  Products

                     Recurring                Ecosystem

                                   Network
                                    Effect

                       Services              Advertising

                                  Ancillary

   http://sixteenventures.com                          Copyright© 2010 Sixteen Ventures. All Rights Reserved
Traditional Marketing Mix



  Revenue           Intellectual
   Model             Property                  Product                Price
          Network
          Centricity                              Marketing Mix

 Technology         Marketing                   Place            Promotion



                Price is a function of Marketing, which is
                   applied to in-built Revenue Models

   http://sixteenventures.com                        Copyright© 2010 Sixteen Ventures. All Rights Reserved
Revenue Model
                                    Primary Revenue Stream can be any of the
                                       available seven and depends upon a
                                       multitude of factors including market
                                           alignment & level of funding


  Marketing          Intellectual
                      Property            Primary Revenue
           Network
                                              Stream
           Centricity

  Technology          Revenue                Secondary
                       Model              Revenue Streams

                  Revenue Model consists of
             Primary & Secondary Revenue Streams
    http://sixteenventures.com                          Copyright© 2010 Sixteen Ventures. All Rights Reserved
Revenue Metrics

Modules        Users   Storage

   CPU         Units   Reports
                                                                               Products
Transactions   Files    etc.        Metrics
                                                                 Recurring                       Ecosystem

                                                                               Network
                                                                                Effect
                                                                 Services                       Advertising
            In SaaS, metrics are built into the application;
        This is a key differentiator from Legacy or ASP Models                 Ancillary




                       Each revenue stream contains metrics
          http://sixteenventures.com                                  Copyright© 2010 Sixteen Ventures. All Rights Reserved
Revenue Metrics

                                                                       Metrics




       Pricing Bundle #1                  Pricing Bundle #2                Pricing Bundle #3
  Modules        Users     Storage   Modules        Users   Storage   Modules        Users         Storage

     CPU         Units     Reports      CPU         Units   Reports      CPU         Units         Reports

  Transactions   Ads        etc.     Transactions   Ads      etc.     Transactions   Ads              etc.


                           Metrics from any or all revenue streams that are
                         represented in the application are bundled, along with
                            timeframes (monthly, annual, etc.), during Pricing
                                  Strategy based on marketing goals

       http://sixteenventures.com                                                            Copyright© 2010 Sixteen Ventures. All Rights Reserved
Revenue Metrics

                                                                    Metrics
    Different bundles for different market segments




       Pricing Bundle #1                Pricing Bundle #2                 Pricing Bundle #3
  Modules        Users   Storage   Modules        Users   Storage    Modules        Users        Storage

     CPU         Units   Reports      CPU         Units   Reports       CPU         Units        Reports

  Transactions   Ads      etc.     Transactions   Ads      etc.      Transactions   Ads             etc.



           Separating Revenue Model & Pricing Strategy improves agility
             and allows pricing to be aligned with market requirements;
            critical when tightly focusing on a target market segment or
                           when entering adjacent markets

       http://sixteenventures.com                                                   Copyright© 2010 Sixteen Ventures. All Rights Reserved
Revenue Metrics

                                                                    Metrics
    Different bundles for different market segments




       Pricing Bundle #1                Pricing Bundle #2                 Pricing Bundle #3
  Modules        Users   Storage   Modules        Users   Storage    Modules        Users        Storage

     CPU         Units   Reports      CPU         Units   Reports       CPU         Units        Reports

  Transactions   Ads       etc.    Transactions   Ads      etc.      Transactions   Ads             etc.




                          But what are these metrics? How are the pricing
                         bundles determined? These are tied to your company
                                          and your market!

       http://sixteenventures.com                                                   Copyright© 2010 Sixteen Ventures. All Rights Reserved
Key Concepts in SaaS Revenue Modeling


                                         Move any repeatable
                 SaaS is about Rules,   processes common to
                   not Exceptions       all clients into the SaaS
                                                application




                 Critical to focus as   Be aware of all revenue
                 much on revenue             streams when
                streams beyond the        architecting system
                application as within    even if they will only
                 the core product        be used in the future




    http://sixteenventures.com                       Copyright© 2010 Sixteen Ventures. All Rights Reserved
Revenue Stream Scalability Index

             Symbol                          Definition

                                     Scalable Revenue Stream

                                  Less-scalable Revenue Stream

                                    Not Scalable in most cases

     Scalability refers to margins per revenue stream; the more a revenue
     stream can benefit from economies of scale & improve margins with
      growth, the more “scalable” the revenue stream. Its not possible to
      eliminate all of the non-scalable streams (nor should you), but their
     value should be improved and the price charged should reflect that.
    http://sixteenventures.com                             Copyright© 2010 Sixteen Ventures. All Rights Reserved
Products                                                                Recurring
 Recurring               Ecosystem

             Network


                                                  Pros                              Cons
              Effect

 Services                Advertising


             Ancillary

                                            1-Infinity Scaling            Revenue Recognition

   -Examples -                         Captive Audience for upsell         High initial CAC
  Subscriptions
  Per User, Per                                                           Churn / Customer
                                       Predictable revenue stream
     Month                                                                   Retention
Per Transaction
                                         Flexibility in pricing for
  Usage-based                               different markets
                                                                      No large up-front payments
 Capacity-based
Pre-paid Credits                        Downside guarantee on         Cannot be idle; must focus
                                               CLTV                    on CLTV/ARPU growth


     http://sixteenventures.com                                             Copyright© 2010 Sixteen Ventures. All Rights Reserved
Products                                                         Ecosystem
Recurring               Ecosystem

            Network
             Effect

 Services               Advertising


            Ancillary
                                              Pros                            Cons

                                                                        Unwanted
                                         1-Infinity Scaling        interdependencies can
 -Examples -                                                        grow if unchecked
Affiliate Sales                         Improved value for       Lack of visibility into value
  Channels                             ecosystem partners            chain for clients
     APIs
White Label                           Exposure to ancillary &
                                                                 Need to market to end-
  Licensing                                                     users to create demand in
                                         adjacent markets
                                                                front of channel partners


    http://sixteenventures.com                                        Copyright© 2010 Sixteen Ventures. All Rights Reserved
Products                                                                 Ancillary
  Recurring               Ecosystem

              Network
               Effect

  Services                Advertising            Pros                             Cons
              Ancillary
                                                                     Some options are complex
                                             Super margins
                                                                      and not applicable early
                                                                     Overuse of add-on “fees”
  -Examples -                             Often not tied to any
                                                                      can hurt other revenue
                                             underlying cost
Processing Fees                                                              streams
  Setup Fees                            Discounts / Float are tied
  Other Fees                              directly to the proxy      You can really turn away
  Discounts                             nature of the SaaS vendor    clients by nickel & diming
                                             in a Multi-tent         them with fees that have
     Float                              environment and have no          no underlying value
                                         direct exposure to the         associated with them
                                                  clients

      http://sixteenventures.com                                          Copyright© 2010 Sixteen Ventures. All Rights Reserved
Products                                                        Network Effect
 Recurring               Ecosystem

             Network
              Effect



                                                    Pros                                 Cons
  Services               Advertising


             Ancillary



                                        Fully leverages data collected in      Privacy concerns require
                                           multi-tenant environment       disclosure of intentions by vendor

  -Examples -                              An asset that increases
                                                                            Requires planning up front an
                                                                          execution early on data collection
 Anonymized/                           exponentially in value as usage of
                                                                             otherwise value is lost until
                                          the system grows linearly
Aggregate Data                                                                     capture begins

   Reports                              Leverage ecosystem partners to
                                        develop reports or add value to
                                                                             Vendor must be diligent in
                                                                              adhering to regulations,
 Benchmarks                                    data through APIs            governance, and privacy laws

     APIs                              Does not require a “critical mass”
                                                                            Careful planning to determine
                                                                              when network effect data
                                           of users as many think for
                                                                            becomes valuable & to whom
                                       network effect data to be valuable
                                                                                       required

     http://sixteenventures.com                                                  Copyright© 2010 Sixteen Ventures. All Rights Reserved
Products                                                                      Products
Recurring               Ecosystem

            Network


                                                 Pros                                  Cons
             Effect

Services                Advertising


            Ancillary
                                           Can be high margin             Requires capital to produce


                                       Can produce vendor lock-in      1-1 or 1-few on each transaction

 -Examples -                          Can develop ancillary revenue
                                                                            Support costs are high
 Equipment                                      streams
                                                                             Logistics, supply chain
  Devices                             Will improve value of Network     management, returns, support,
 Appliances                           Effect Data through automation    etc. add to overhead in dealing
                                                                                with hardware
 Hardware
                                       Inbuilt support for channel
                                        relationships can allow the
                                                                       Installation & support are difficult
                                      hardware partner to integrate
                                       (OEM) the product w/SaaS

    http://sixteenventures.com                                                Copyright© 2010 Sixteen Ventures. All Rights Reserved
Products                                                                         Services
Recurring               Ecosystem

            Network
             Effect




                                                  Pros                                   Cons
 Services               Advertising


            Ancillary



                                      Core-competency for professional
                                       services companies moving to                  1-1 or 1-few
                                                   SaaS
 -Examples -                                     High price                 Exception, not rule-based
Programming
 Installation                                Often high-margin
                                                                         Human-centric and humans don’t
                                                                                scale efficiently
  Content
  Creation                            When more repeatable processes
                                        are inbuilt to SaaS application, Takes away resources from more
   Training                            services in less demand, but can working on more scalable revenue
                                      be more expensive since they are               streams
                                               more specialized

    http://sixteenventures.com                                                 Copyright© 2010 Sixteen Ventures. All Rights Reserved
Products                                                                Advertising
    Recurring               Ecosystem

                Network
                 Effect                                 Pros                                    Cons
    Services                Advertising       (mostly tongue-in-cheek)                      (all serious)
                Ancillary

                                          You don’t have to convince people Ads for SaaS products are part of
                                             that your product has value         a hope-based strategy

 Ads only work when they                   You don’t have to manage cash
   are the main revenue                                                            De-values core product
                                                        flow
     stream and not an
  afterthought. When ads
 work, the main customers                  Clients don’t have to pay you to   Difficult to plan and forecast sales
  of the company are the                      use the product you built             (impressions? clicks?)
advertisers and the revenue
  generated is part of the                  There are close to 3B sets of
                                                                              Too much inventory (each screen)
 recurring revenue stream                   eyeballs, if you only get 1% of
                                                                                  and not enough demand
                                                   those to click...




        http://sixteenventures.com                                                  Copyright© 2010 Sixteen Ventures. All Rights Reserved
Wait... what about Free? If you have to ask...




Download the Reality of Freemium in SaaS paper (PDF) today!

    http://saasrevenue.com              Copyright© 2009 Sixteen Ventures / Lincoln Murphy. All Rights Reserved
Appendix A:
         Case Studies in SaaS Network Effect &
             Ecosystem Revenue Modeling




http://sixteenventures.com              Copyright© 2010 Sixteen Ventures. All Rights Reserved
Quick Start Sessions
SaaS Case Studies

        SaaS Product                    Description of the SaaS offering

       End-Customer             Description of the SaaS vendor’s end-customer

                           Who did the end-customer buy from, listen to, etc. that the
      End-Customer’s
                         SaaS vendor could leverage, and help, in an effort to secure the
      Trusted Advisors
                                          end-customer relationship


                         What benefits the clients derived from the network centricity
      Network Effect
                                of the SaaS solution, including aggregate data



                           How the Vendor derived value from, and added value to, its
         Ecosystem
                               ecosystem, including VARs, SIs, Distributors, etc.


      Revenue Streams                    How the Vendor makes money


   http://sixteenventures.com                                         Copyright© 2010 Sixteen Ventures. All Rights Reserved
SaaS Case Study #1 - SCM/EDI Vendor
      SaaS Product                       Retail Supply Chain / EDI

     End-Customer       Small to Medium Consumer Packaged Goods manufacturer


                     •Big Box Retailers
    End-Customer’s •Freight Brokers
    Trusted Advisors •Third-party Logistics Providers
                     •Manufacturers reps

                       Benchmarks on retail category performance available to all of
    Network Effect
                                 the end-customers’ Trusted Advisors

                       Pre-built EDI maps, access to discounted & expedited shipping,
       Ecosystem
                             visibility for intermediaries and interested parties

                        Recurring (monthly & per-transaction), Ecosystem, Network
    Revenue Streams
                                           Effect Data, Services


 http://sixteenventures.com                                          Copyright© 2010 Sixteen Ventures. All Rights Reserved
SaaS Case Study #2 - Pharmaceutical Distributor

                        Vendor Managed Inventory Control System (internal product
      SaaS Product
                                   re-architected & exposed as SaaS)

     End-Customer             Fragmented network of small independent pharmacies

                     •Pharma Distributor that created the SaaS product
    End-Customer’s •Industry Association
    Trusted Advisors •Product Suppliers (whom the Distributor buys from; value-
                      pull)

                       Sophisticated inventory system allows distributor to aggregate
    Network Effect
                          order history and current inventory for all pharmacies

                        Use aggregate data to predict restocks, share that w/ vendor
       Ecosystem
                                to get better terms for the pharmacy client
                       Ancillary (float interest), Ecosystem (distributor commissions),
    Revenue Streams      improved margins), Network Effect Data (suppliers pay),
                                    Services, Products (hardware device)

 http://sixteenventures.com                                         Copyright© 2010 Sixteen Ventures. All Rights Reserved
SaaS Case Study #3 - Healthcare Revenue Cycle Mgmt
       SaaS Product                        Revenue Cycle Management

      End-Customer              Fragmented network of small independent hospitals


                      •Hospital Industry Associations
     End-Customer’s •Independent Consulting Firms
     Trusted Advisors •Complementary Software Vendors
                      •Insurance companies and Government Payors

                               Revenue & Collection Benchmarks against similar-sized
     Network Effect
                                               Hospitals (per-bed)

                          Medicare, Medicaid, and Commercial Payer clearinghouse,
        Ecosystem                               Channel partners
                              (visibility into their customers’ usage of system)

                        Recurring (per-transaction, % collected), Ecosystem, Network
     Revenue Streams
                                       Effect Data, Services, Products


  http://sixteenventures.com                                          Copyright© 2010 Sixteen Ventures. All Rights Reserved
SaaS Case Study #4 - Restaurant Menu Management

      SaaS Product            Managed Care Menu Management (ancillary market)

     End-Customer                       Small Assisted Living Facilities

    End-Customer’s     •Food Distributors
    Trusted Advisors   •Industry Association
                       •Assisted Living Management Companies

                       Aggregate menu item usage data to help negotiate better deals
    Network Effect
                        for end-clients (through channel partners where applicable)


                            Directly monetized relationship with Food Distributor
       Ecosystem          (channel) to salvage unprofitable existing relationship w/o
                         getting in front of partner or negatively affecting end-client

                          Recurring (Annual per-location), Ecosystem (Distributor
    Revenue Streams
                            visibility), Network Effect Data, Services, Products


 http://sixteenventures.com                                           Copyright© 2010 Sixteen Ventures. All Rights Reserved
SaaS Case Study #5 - Mail Center Management

      SaaS Product                Mail Center Management & Package Tracking

     End-Customer                  Large Corporate & Fortune 500 mailrooms

                     •Mailing Industry Associations
    End-Customer’s •Shipping Carrier Auditors
    Trusted Advisors •Industry Consultants
                     •Complementary Software and Hardware Vendors
                        Most Mail Center managers are in a position to justify their
                        existence so benchmarks against other Mail Centers helped
    Network Effect
                         prove operational efficiency, Complementary vendors and
                                industry associations found data useful, too
                       shipment tracking, spend management & procurement, carrier
       Ecosystem
                                                  audits

                              Recurring (per-transaction), Ancillary (carrier audits),
    Revenue Streams
                                           Ecosystem, Network Effect

 http://sixteenventures.com                                             Copyright© 2010 Sixteen Ventures. All Rights Reserved
SaaS Case Study #6 - Treasury Management

     SaaS Product                      Treasury & Cash Management

    End-Customer                Large Corporate & Fortune 500 mailrooms

                    •Industry Associations
   End-Customer’s •Anti-Money Laundering Groups
   Trusted Advisors •Banks
                    •Consultants
                       Aggregation of transactional details across industries, locales,
   Network Effect      etc. Benchmarks on interest, float, sweeps, etc. against similar
                                                industries
                         Anonymous Aggregated (A/A) data used by Anti-Money
                       Laundering groups to “teach” their software patterns, Banks
      Ecosystem
                       and Consultants leverage A/A of their clients & others in the
                       system to judge performance and offer guidance, upsell, etc.
                          Recurring (per user, per-transaction), Ancillary (float,
   Revenue Streams      brokerage/forex commissions), Ecosystem, Network Effect
                                                  Data

http://sixteenventures.com                                           Copyright© 2010 Sixteen Ventures. All Rights Reserved
SaaS Case Study #7 - Bank Spend Management

      SaaS Product                        Bank Spend Management

     End-Customer                Local and Regional Banks & Credit Unions
                     •Industry associations
    End-Customer’s •Local & Regional Printing Companies
    Trusted Advisors •Complementary Software Vendors
                     •Office Supply vendors
                          Aggregate orders across bank branches allows vendors to
                        aggregate order history and current inventory for customers,
    Network Effect
                         customers get group purchasing power through aggregation
                          under one SaaS vendor in addition to core product value
                       Office Supply vendors gain visibility into the buying behavior of
                       specific target market, complementary software vendors gain
       Ecosystem
                       visiblity into transaction history of customers for inclusion in
                                                 their product
                        Recurring (per branch, vendor visibility), Ancillary, Ecosystem
    Revenue Streams
                                (vendor commissions, API), Network Effect

 http://sixteenventures.com                                          Copyright© 2010 Sixteen Ventures. All Rights Reserved
Appendix B:
        Seven SaaS Revenue Streams Worksheet




http://sixteenventures.com            Copyright© 2010 Sixteen Ventures. All Rights Reserved
http://sixteenventures.com
                Seven Revenue
              Streams Worksheet

Consumers          Original     Other                           Stand-Alone
                  Producers   Producers                         Consumers


Recurring

Ecosystem


Network Effect


Ancillary

Products

Services

Advertising
                                          Copyright© 2010 Sixteen Ventures. All Rights Reserved
Follow @lincolnmurphy on Twitter


Share this with your colleagues, too:   Twitter
                                        LinkedIn
                                        Facebook

   If you need help with your Revenue Model, Pricing
 Strategy, Distribution or other SaaS Business Strategy
 issues contact Sixteen Ventures and get started today!

                     (972) 200-9317

                                            http://saasrevenue.com

More Related Content

More from Lincoln Murphy

Slides from SaaS & Web App Pricing Roundtable
Slides from SaaS & Web App Pricing RoundtableSlides from SaaS & Web App Pricing Roundtable
Slides from SaaS & Web App Pricing RoundtableLincoln Murphy
 
How to Optimize Your SaaS Revenue Streams - Rackspace SaaS & Cloud 2010
How to Optimize Your SaaS Revenue Streams - Rackspace SaaS & Cloud 2010How to Optimize Your SaaS Revenue Streams - Rackspace SaaS & Cloud 2010
How to Optimize Your SaaS Revenue Streams - Rackspace SaaS & Cloud 2010Lincoln Murphy
 
Making Channels Work to Grow Your SaaS / Cloud Business
Making Channels Work to Grow Your SaaS / Cloud BusinessMaking Channels Work to Grow Your SaaS / Cloud Business
Making Channels Work to Grow Your SaaS / Cloud BusinessLincoln Murphy
 
Monetizing Multi-Tenancy in SaaS by Sixteen Ventures. Presented at SaaS Unive...
Monetizing Multi-Tenancy in SaaS by Sixteen Ventures. Presented at SaaS Unive...Monetizing Multi-Tenancy in SaaS by Sixteen Ventures. Presented at SaaS Unive...
Monetizing Multi-Tenancy in SaaS by Sixteen Ventures. Presented at SaaS Unive...Lincoln Murphy
 
SaaS Business Model: A Unique Business Architecture
SaaS Business Model: A Unique Business ArchitectureSaaS Business Model: A Unique Business Architecture
SaaS Business Model: A Unique Business ArchitectureLincoln Murphy
 
7 SaaS Revenue Streams
7 SaaS Revenue Streams7 SaaS Revenue Streams
7 SaaS Revenue StreamsLincoln Murphy
 
SaaS Business Architecture - Definition Update
SaaS Business Architecture - Definition UpdateSaaS Business Architecture - Definition Update
SaaS Business Architecture - Definition UpdateLincoln Murphy
 
SaaS Business Architecture
SaaS Business ArchitectureSaaS Business Architecture
SaaS Business ArchitectureLincoln Murphy
 
Business Implications Of Multi Tenancy In SaaS
Business Implications Of Multi Tenancy In SaaSBusiness Implications Of Multi Tenancy In SaaS
Business Implications Of Multi Tenancy In SaaSLincoln Murphy
 
Business Case For Multi Tenancy in SaaS
Business Case For Multi Tenancy in SaaSBusiness Case For Multi Tenancy in SaaS
Business Case For Multi Tenancy in SaaSLincoln Murphy
 
Start Smart: Positioning Your Software Venture for Success (v2)
Start Smart: Positioning Your Software Venture for Success (v2)Start Smart: Positioning Your Software Venture for Success (v2)
Start Smart: Positioning Your Software Venture for Success (v2)Lincoln Murphy
 
Start Smart: Positioning Your Software Venture for Success (2 hour version)
Start Smart: Positioning Your Software Venture for Success (2 hour version)Start Smart: Positioning Your Software Venture for Success (2 hour version)
Start Smart: Positioning Your Software Venture for Success (2 hour version)Lincoln Murphy
 

More from Lincoln Murphy (12)

Slides from SaaS & Web App Pricing Roundtable
Slides from SaaS & Web App Pricing RoundtableSlides from SaaS & Web App Pricing Roundtable
Slides from SaaS & Web App Pricing Roundtable
 
How to Optimize Your SaaS Revenue Streams - Rackspace SaaS & Cloud 2010
How to Optimize Your SaaS Revenue Streams - Rackspace SaaS & Cloud 2010How to Optimize Your SaaS Revenue Streams - Rackspace SaaS & Cloud 2010
How to Optimize Your SaaS Revenue Streams - Rackspace SaaS & Cloud 2010
 
Making Channels Work to Grow Your SaaS / Cloud Business
Making Channels Work to Grow Your SaaS / Cloud BusinessMaking Channels Work to Grow Your SaaS / Cloud Business
Making Channels Work to Grow Your SaaS / Cloud Business
 
Monetizing Multi-Tenancy in SaaS by Sixteen Ventures. Presented at SaaS Unive...
Monetizing Multi-Tenancy in SaaS by Sixteen Ventures. Presented at SaaS Unive...Monetizing Multi-Tenancy in SaaS by Sixteen Ventures. Presented at SaaS Unive...
Monetizing Multi-Tenancy in SaaS by Sixteen Ventures. Presented at SaaS Unive...
 
SaaS Business Model: A Unique Business Architecture
SaaS Business Model: A Unique Business ArchitectureSaaS Business Model: A Unique Business Architecture
SaaS Business Model: A Unique Business Architecture
 
7 SaaS Revenue Streams
7 SaaS Revenue Streams7 SaaS Revenue Streams
7 SaaS Revenue Streams
 
SaaS Business Architecture - Definition Update
SaaS Business Architecture - Definition UpdateSaaS Business Architecture - Definition Update
SaaS Business Architecture - Definition Update
 
SaaS Business Architecture
SaaS Business ArchitectureSaaS Business Architecture
SaaS Business Architecture
 
Business Implications Of Multi Tenancy In SaaS
Business Implications Of Multi Tenancy In SaaSBusiness Implications Of Multi Tenancy In SaaS
Business Implications Of Multi Tenancy In SaaS
 
Business Case For Multi Tenancy in SaaS
Business Case For Multi Tenancy in SaaSBusiness Case For Multi Tenancy in SaaS
Business Case For Multi Tenancy in SaaS
 
Start Smart: Positioning Your Software Venture for Success (v2)
Start Smart: Positioning Your Software Venture for Success (v2)Start Smart: Positioning Your Software Venture for Success (v2)
Start Smart: Positioning Your Software Venture for Success (v2)
 
Start Smart: Positioning Your Software Venture for Success (2 hour version)
Start Smart: Positioning Your Software Venture for Success (2 hour version)Start Smart: Positioning Your Software Venture for Success (2 hour version)
Start Smart: Positioning Your Software Venture for Success (2 hour version)
 

Recently uploaded

Borderless Access - Global Panel book-unlock 2024
Borderless Access - Global Panel book-unlock 2024Borderless Access - Global Panel book-unlock 2024
Borderless Access - Global Panel book-unlock 2024Borderless Access
 
The Vietnam Believer Newsletter_MARCH 25, 2024_EN_Vol. 003
The Vietnam Believer Newsletter_MARCH 25, 2024_EN_Vol. 003The Vietnam Believer Newsletter_MARCH 25, 2024_EN_Vol. 003
The Vietnam Believer Newsletter_MARCH 25, 2024_EN_Vol. 003believeminhh
 
Fabric RFID Wristbands in Ireland for Events and Festivals
Fabric RFID Wristbands in Ireland for Events and FestivalsFabric RFID Wristbands in Ireland for Events and Festivals
Fabric RFID Wristbands in Ireland for Events and FestivalsWristbands Ireland
 
Graham and Doddsville - Issue 1 - Winter 2006 (1).pdf
Graham and Doddsville - Issue 1 - Winter 2006 (1).pdfGraham and Doddsville - Issue 1 - Winter 2006 (1).pdf
Graham and Doddsville - Issue 1 - Winter 2006 (1).pdfAnhNguyen97152
 
Entrepreneurship & organisations: influences and organizations
Entrepreneurship & organisations: influences and organizationsEntrepreneurship & organisations: influences and organizations
Entrepreneurship & organisations: influences and organizationsP&CO
 
NASA CoCEI Scaling Strategy - November 2023
NASA CoCEI Scaling Strategy - November 2023NASA CoCEI Scaling Strategy - November 2023
NASA CoCEI Scaling Strategy - November 2023Steve Rader
 
Borderless Access - Global Panel book-unlock 2024
Borderless Access - Global Panel book-unlock 2024Borderless Access - Global Panel book-unlock 2024
Borderless Access - Global Panel book-unlock 2024Borderless Access
 
Building Your Personal Brand on LinkedIn - Expert Planet- 2024
 Building Your Personal Brand on LinkedIn - Expert Planet-  2024 Building Your Personal Brand on LinkedIn - Expert Planet-  2024
Building Your Personal Brand on LinkedIn - Expert Planet- 2024Stephan Koning
 
Michael Vidyakin: Introduction to PMO (UA)
Michael Vidyakin: Introduction to PMO (UA)Michael Vidyakin: Introduction to PMO (UA)
Michael Vidyakin: Introduction to PMO (UA)Lviv Startup Club
 
Boat Trailers Market PPT: Growth, Outlook, Demand, Keyplayer Analysis and Opp...
Boat Trailers Market PPT: Growth, Outlook, Demand, Keyplayer Analysis and Opp...Boat Trailers Market PPT: Growth, Outlook, Demand, Keyplayer Analysis and Opp...
Boat Trailers Market PPT: Growth, Outlook, Demand, Keyplayer Analysis and Opp...IMARC Group
 
Borderless Access - Global B2B Panel book-unlock 2024
Borderless Access - Global B2B Panel book-unlock 2024Borderless Access - Global B2B Panel book-unlock 2024
Borderless Access - Global B2B Panel book-unlock 2024Borderless Access
 
MC Heights construction company in Jhang
MC Heights construction company in JhangMC Heights construction company in Jhang
MC Heights construction company in Jhangmcgroupjeya
 
Chicago Medical Malpractice Lawyer Chicago Medical Malpractice Lawyer.pdf
Chicago Medical Malpractice Lawyer Chicago Medical Malpractice Lawyer.pdfChicago Medical Malpractice Lawyer Chicago Medical Malpractice Lawyer.pdf
Chicago Medical Malpractice Lawyer Chicago Medical Malpractice Lawyer.pdfSourav Sikder
 
Anyhr.io | Presentation HR&Recruiting agency
Anyhr.io | Presentation HR&Recruiting agencyAnyhr.io | Presentation HR&Recruiting agency
Anyhr.io | Presentation HR&Recruiting agencyHanna Klim
 
NewBase 25 March 2024 Energy News issue - 1710 by Khaled Al Awadi_compress...
NewBase  25 March  2024  Energy News issue - 1710 by Khaled Al Awadi_compress...NewBase  25 March  2024  Energy News issue - 1710 by Khaled Al Awadi_compress...
NewBase 25 March 2024 Energy News issue - 1710 by Khaled Al Awadi_compress...Khaled Al Awadi
 
Live-Streaming in the Music Industry Webinar
Live-Streaming in the Music Industry WebinarLive-Streaming in the Music Industry Webinar
Live-Streaming in the Music Industry WebinarNathanielSchmuck
 
Ethical stalking by Mark Williams. UpliftLive 2024
Ethical stalking by Mark Williams. UpliftLive 2024Ethical stalking by Mark Williams. UpliftLive 2024
Ethical stalking by Mark Williams. UpliftLive 2024Winbusinessin
 
Lecture_6.pptx English speaking easyb to
Lecture_6.pptx English speaking easyb toLecture_6.pptx English speaking easyb to
Lecture_6.pptx English speaking easyb toumarfarooquejamali32
 
Team B Mind Map for Organizational Chg..
Team B Mind Map for Organizational Chg..Team B Mind Map for Organizational Chg..
Team B Mind Map for Organizational Chg..dlewis191
 

Recently uploaded (20)

Borderless Access - Global Panel book-unlock 2024
Borderless Access - Global Panel book-unlock 2024Borderless Access - Global Panel book-unlock 2024
Borderless Access - Global Panel book-unlock 2024
 
The Vietnam Believer Newsletter_MARCH 25, 2024_EN_Vol. 003
The Vietnam Believer Newsletter_MARCH 25, 2024_EN_Vol. 003The Vietnam Believer Newsletter_MARCH 25, 2024_EN_Vol. 003
The Vietnam Believer Newsletter_MARCH 25, 2024_EN_Vol. 003
 
Fabric RFID Wristbands in Ireland for Events and Festivals
Fabric RFID Wristbands in Ireland for Events and FestivalsFabric RFID Wristbands in Ireland for Events and Festivals
Fabric RFID Wristbands in Ireland for Events and Festivals
 
Graham and Doddsville - Issue 1 - Winter 2006 (1).pdf
Graham and Doddsville - Issue 1 - Winter 2006 (1).pdfGraham and Doddsville - Issue 1 - Winter 2006 (1).pdf
Graham and Doddsville - Issue 1 - Winter 2006 (1).pdf
 
Entrepreneurship & organisations: influences and organizations
Entrepreneurship & organisations: influences and organizationsEntrepreneurship & organisations: influences and organizations
Entrepreneurship & organisations: influences and organizations
 
NASA CoCEI Scaling Strategy - November 2023
NASA CoCEI Scaling Strategy - November 2023NASA CoCEI Scaling Strategy - November 2023
NASA CoCEI Scaling Strategy - November 2023
 
Borderless Access - Global Panel book-unlock 2024
Borderless Access - Global Panel book-unlock 2024Borderless Access - Global Panel book-unlock 2024
Borderless Access - Global Panel book-unlock 2024
 
Building Your Personal Brand on LinkedIn - Expert Planet- 2024
 Building Your Personal Brand on LinkedIn - Expert Planet-  2024 Building Your Personal Brand on LinkedIn - Expert Planet-  2024
Building Your Personal Brand on LinkedIn - Expert Planet- 2024
 
Michael Vidyakin: Introduction to PMO (UA)
Michael Vidyakin: Introduction to PMO (UA)Michael Vidyakin: Introduction to PMO (UA)
Michael Vidyakin: Introduction to PMO (UA)
 
Boat Trailers Market PPT: Growth, Outlook, Demand, Keyplayer Analysis and Opp...
Boat Trailers Market PPT: Growth, Outlook, Demand, Keyplayer Analysis and Opp...Boat Trailers Market PPT: Growth, Outlook, Demand, Keyplayer Analysis and Opp...
Boat Trailers Market PPT: Growth, Outlook, Demand, Keyplayer Analysis and Opp...
 
Borderless Access - Global B2B Panel book-unlock 2024
Borderless Access - Global B2B Panel book-unlock 2024Borderless Access - Global B2B Panel book-unlock 2024
Borderless Access - Global B2B Panel book-unlock 2024
 
MC Heights construction company in Jhang
MC Heights construction company in JhangMC Heights construction company in Jhang
MC Heights construction company in Jhang
 
Chicago Medical Malpractice Lawyer Chicago Medical Malpractice Lawyer.pdf
Chicago Medical Malpractice Lawyer Chicago Medical Malpractice Lawyer.pdfChicago Medical Malpractice Lawyer Chicago Medical Malpractice Lawyer.pdf
Chicago Medical Malpractice Lawyer Chicago Medical Malpractice Lawyer.pdf
 
Anyhr.io | Presentation HR&Recruiting agency
Anyhr.io | Presentation HR&Recruiting agencyAnyhr.io | Presentation HR&Recruiting agency
Anyhr.io | Presentation HR&Recruiting agency
 
NewBase 25 March 2024 Energy News issue - 1710 by Khaled Al Awadi_compress...
NewBase  25 March  2024  Energy News issue - 1710 by Khaled Al Awadi_compress...NewBase  25 March  2024  Energy News issue - 1710 by Khaled Al Awadi_compress...
NewBase 25 March 2024 Energy News issue - 1710 by Khaled Al Awadi_compress...
 
Investment Opportunity for Thailand's Automotive & EV Industries
Investment Opportunity for Thailand's Automotive & EV IndustriesInvestment Opportunity for Thailand's Automotive & EV Industries
Investment Opportunity for Thailand's Automotive & EV Industries
 
Live-Streaming in the Music Industry Webinar
Live-Streaming in the Music Industry WebinarLive-Streaming in the Music Industry Webinar
Live-Streaming in the Music Industry Webinar
 
Ethical stalking by Mark Williams. UpliftLive 2024
Ethical stalking by Mark Williams. UpliftLive 2024Ethical stalking by Mark Williams. UpliftLive 2024
Ethical stalking by Mark Williams. UpliftLive 2024
 
Lecture_6.pptx English speaking easyb to
Lecture_6.pptx English speaking easyb toLecture_6.pptx English speaking easyb to
Lecture_6.pptx English speaking easyb to
 
Team B Mind Map for Organizational Chg..
Team B Mind Map for Organizational Chg..Team B Mind Map for Organizational Chg..
Team B Mind Map for Organizational Chg..
 

Updated 7 SaaS Revenue Streams with Details

  • 1. Draft 03/10.9 SaaS Revenue Modeling: Details of the 7 Revenue Streams http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved
  • 2. Legacy Software Customers Developers Channels Three basic elements http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved
  • 3. Software-as-a-Service (SaaS) Customers Developers Channels Same elements http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved
  • 4. Software-as-a-Service (SaaS) Producers Consumers Ecosystem Different approach http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved
  • 5. Software-as-a-Service (SaaS) Producers Consumers Network Effect Ecosystem Very different approach http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved
  • 6. Software-as-a-Service (SaaS) Producers Consumers Network Effect Key differentiators Ecosystem http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved
  • 7. The goals for a SaaS vendor should be different than a Legacy Software vendor Producers Scalable Revenue Streams Consumers Understanding why* allows for proper Revenue Modeling *business scalability, increased CLV, leveraging multi-tenancy, etc. http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved
  • 8. Legacy Software Business Structure Intellectual Marketing Property Technology Revenue Model Loosely-coupled, at best http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved
  • 9. Integrated Business Architecture Intellectual Marketing Property Network Centricity Revenue Technology Model One core piece of technology must be able to support multiple revenue streams with different pricing and distribution methods for multiple market segments. http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved
  • 10. Revenue Model Products Marketing Intellectual Property Recurring Ecosystem Network Network Centricity Effect Services Advertising Technology Revenue Model Ancillary Revenue Model consists of Revenue Streams http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved
  • 11. SaaS is not a Revenue Model or Pricing Strategy! SaaS ≠ Monthly Subscriptions If you only leverage “subscriptions” you are leaving money on the table http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved
  • 12. Architecture Marketing Revenue Pricing separate Model Strategy Understand where each piece fits into the overall SaaS Business Architecture http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved
  • 13. Pricing Strategy must be separated from Revenue Streams Revenue Pricing separate Model Strategy Pricing Strategy is applied to customer-facing portions of the Revenue Model http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved
  • 14. How can you apply Pricing Strategy without knowing what Revenue Streams you’ll leverage? Revenue Pricing separate Model Strategy Use Pricing Strategy to drive users to Scalable Revenue Streams http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved
  • 15. Agile Revenue Generation is key... Architecture Marketing Revenue Pricing separate Model Strategy Revenue Model + Vertical Specific Pricing = Agility http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved
  • 16. 7 SaaS Revenue Streams Products Recurring Ecosystem Network Effect Services Advertising Ancillary http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved
  • 17. Less Scalable Revenue Streams Products Recurring Ecosystem Network Effect Services Advertising Ancillary http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved
  • 18. Scalable Revenue Streams Products Recurring Ecosystem Network Effect Services Advertising Ancillary http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved
  • 19. Traditional Marketing Mix Revenue Intellectual Model Property Product Price Network Centricity Marketing Mix Technology Marketing Place Promotion Price is a function of Marketing, which is applied to in-built Revenue Models http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved
  • 20. Revenue Model Primary Revenue Stream can be any of the available seven and depends upon a multitude of factors including market alignment & level of funding Marketing Intellectual Property Primary Revenue Network Stream Centricity Technology Revenue Secondary Model Revenue Streams Revenue Model consists of Primary & Secondary Revenue Streams http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved
  • 21. Revenue Metrics Modules Users Storage CPU Units Reports Products Transactions Files etc. Metrics Recurring Ecosystem Network Effect Services Advertising In SaaS, metrics are built into the application; This is a key differentiator from Legacy or ASP Models Ancillary Each revenue stream contains metrics http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved
  • 22. Revenue Metrics Metrics Pricing Bundle #1 Pricing Bundle #2 Pricing Bundle #3 Modules Users Storage Modules Users Storage Modules Users Storage CPU Units Reports CPU Units Reports CPU Units Reports Transactions Ads etc. Transactions Ads etc. Transactions Ads etc. Metrics from any or all revenue streams that are represented in the application are bundled, along with timeframes (monthly, annual, etc.), during Pricing Strategy based on marketing goals http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved
  • 23. Revenue Metrics Metrics Different bundles for different market segments Pricing Bundle #1 Pricing Bundle #2 Pricing Bundle #3 Modules Users Storage Modules Users Storage Modules Users Storage CPU Units Reports CPU Units Reports CPU Units Reports Transactions Ads etc. Transactions Ads etc. Transactions Ads etc. Separating Revenue Model & Pricing Strategy improves agility and allows pricing to be aligned with market requirements; critical when tightly focusing on a target market segment or when entering adjacent markets http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved
  • 24. Revenue Metrics Metrics Different bundles for different market segments Pricing Bundle #1 Pricing Bundle #2 Pricing Bundle #3 Modules Users Storage Modules Users Storage Modules Users Storage CPU Units Reports CPU Units Reports CPU Units Reports Transactions Ads etc. Transactions Ads etc. Transactions Ads etc. But what are these metrics? How are the pricing bundles determined? These are tied to your company and your market! http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved
  • 25. Key Concepts in SaaS Revenue Modeling Move any repeatable SaaS is about Rules, processes common to not Exceptions all clients into the SaaS application Critical to focus as Be aware of all revenue much on revenue streams when streams beyond the architecting system application as within even if they will only the core product be used in the future http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved
  • 26. Revenue Stream Scalability Index Symbol Definition Scalable Revenue Stream Less-scalable Revenue Stream Not Scalable in most cases Scalability refers to margins per revenue stream; the more a revenue stream can benefit from economies of scale & improve margins with growth, the more “scalable” the revenue stream. Its not possible to eliminate all of the non-scalable streams (nor should you), but their value should be improved and the price charged should reflect that. http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved
  • 27. Products Recurring Recurring Ecosystem Network Pros Cons Effect Services Advertising Ancillary 1-Infinity Scaling Revenue Recognition -Examples - Captive Audience for upsell High initial CAC Subscriptions Per User, Per Churn / Customer Predictable revenue stream Month Retention Per Transaction Flexibility in pricing for Usage-based different markets No large up-front payments Capacity-based Pre-paid Credits Downside guarantee on Cannot be idle; must focus CLTV on CLTV/ARPU growth http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved
  • 28. Products Ecosystem Recurring Ecosystem Network Effect Services Advertising Ancillary Pros Cons Unwanted 1-Infinity Scaling interdependencies can -Examples - grow if unchecked Affiliate Sales Improved value for Lack of visibility into value Channels ecosystem partners chain for clients APIs White Label Exposure to ancillary & Need to market to end- Licensing users to create demand in adjacent markets front of channel partners http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved
  • 29. Products Ancillary Recurring Ecosystem Network Effect Services Advertising Pros Cons Ancillary Some options are complex Super margins and not applicable early Overuse of add-on “fees” -Examples - Often not tied to any can hurt other revenue underlying cost Processing Fees streams Setup Fees Discounts / Float are tied Other Fees directly to the proxy You can really turn away Discounts nature of the SaaS vendor clients by nickel & diming in a Multi-tent them with fees that have Float environment and have no no underlying value direct exposure to the associated with them clients http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved
  • 30. Products Network Effect Recurring Ecosystem Network Effect Pros Cons Services Advertising Ancillary Fully leverages data collected in Privacy concerns require multi-tenant environment disclosure of intentions by vendor -Examples - An asset that increases Requires planning up front an execution early on data collection Anonymized/ exponentially in value as usage of otherwise value is lost until the system grows linearly Aggregate Data capture begins Reports Leverage ecosystem partners to develop reports or add value to Vendor must be diligent in adhering to regulations, Benchmarks data through APIs governance, and privacy laws APIs Does not require a “critical mass” Careful planning to determine when network effect data of users as many think for becomes valuable & to whom network effect data to be valuable required http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved
  • 31. Products Products Recurring Ecosystem Network Pros Cons Effect Services Advertising Ancillary Can be high margin Requires capital to produce Can produce vendor lock-in 1-1 or 1-few on each transaction -Examples - Can develop ancillary revenue Support costs are high Equipment streams Logistics, supply chain Devices Will improve value of Network management, returns, support, Appliances Effect Data through automation etc. add to overhead in dealing with hardware Hardware Inbuilt support for channel relationships can allow the Installation & support are difficult hardware partner to integrate (OEM) the product w/SaaS http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved
  • 32. Products Services Recurring Ecosystem Network Effect Pros Cons Services Advertising Ancillary Core-competency for professional services companies moving to 1-1 or 1-few SaaS -Examples - High price Exception, not rule-based Programming Installation Often high-margin Human-centric and humans don’t scale efficiently Content Creation When more repeatable processes are inbuilt to SaaS application, Takes away resources from more Training services in less demand, but can working on more scalable revenue be more expensive since they are streams more specialized http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved
  • 33. Products Advertising Recurring Ecosystem Network Effect Pros Cons Services Advertising (mostly tongue-in-cheek) (all serious) Ancillary You don’t have to convince people Ads for SaaS products are part of that your product has value a hope-based strategy Ads only work when they You don’t have to manage cash are the main revenue De-values core product flow stream and not an afterthought. When ads work, the main customers Clients don’t have to pay you to Difficult to plan and forecast sales of the company are the use the product you built (impressions? clicks?) advertisers and the revenue generated is part of the There are close to 3B sets of Too much inventory (each screen) recurring revenue stream eyeballs, if you only get 1% of and not enough demand those to click... http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved
  • 34. Wait... what about Free? If you have to ask... Download the Reality of Freemium in SaaS paper (PDF) today! http://saasrevenue.com Copyright© 2009 Sixteen Ventures / Lincoln Murphy. All Rights Reserved
  • 35. Appendix A: Case Studies in SaaS Network Effect & Ecosystem Revenue Modeling http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved
  • 37. SaaS Case Studies SaaS Product Description of the SaaS offering End-Customer Description of the SaaS vendor’s end-customer Who did the end-customer buy from, listen to, etc. that the End-Customer’s SaaS vendor could leverage, and help, in an effort to secure the Trusted Advisors end-customer relationship What benefits the clients derived from the network centricity Network Effect of the SaaS solution, including aggregate data How the Vendor derived value from, and added value to, its Ecosystem ecosystem, including VARs, SIs, Distributors, etc. Revenue Streams How the Vendor makes money http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved
  • 38. SaaS Case Study #1 - SCM/EDI Vendor SaaS Product Retail Supply Chain / EDI End-Customer Small to Medium Consumer Packaged Goods manufacturer •Big Box Retailers End-Customer’s •Freight Brokers Trusted Advisors •Third-party Logistics Providers •Manufacturers reps Benchmarks on retail category performance available to all of Network Effect the end-customers’ Trusted Advisors Pre-built EDI maps, access to discounted & expedited shipping, Ecosystem visibility for intermediaries and interested parties Recurring (monthly & per-transaction), Ecosystem, Network Revenue Streams Effect Data, Services http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved
  • 39. SaaS Case Study #2 - Pharmaceutical Distributor Vendor Managed Inventory Control System (internal product SaaS Product re-architected & exposed as SaaS) End-Customer Fragmented network of small independent pharmacies •Pharma Distributor that created the SaaS product End-Customer’s •Industry Association Trusted Advisors •Product Suppliers (whom the Distributor buys from; value- pull) Sophisticated inventory system allows distributor to aggregate Network Effect order history and current inventory for all pharmacies Use aggregate data to predict restocks, share that w/ vendor Ecosystem to get better terms for the pharmacy client Ancillary (float interest), Ecosystem (distributor commissions), Revenue Streams improved margins), Network Effect Data (suppliers pay), Services, Products (hardware device) http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved
  • 40. SaaS Case Study #3 - Healthcare Revenue Cycle Mgmt SaaS Product Revenue Cycle Management End-Customer Fragmented network of small independent hospitals •Hospital Industry Associations End-Customer’s •Independent Consulting Firms Trusted Advisors •Complementary Software Vendors •Insurance companies and Government Payors Revenue & Collection Benchmarks against similar-sized Network Effect Hospitals (per-bed) Medicare, Medicaid, and Commercial Payer clearinghouse, Ecosystem Channel partners (visibility into their customers’ usage of system) Recurring (per-transaction, % collected), Ecosystem, Network Revenue Streams Effect Data, Services, Products http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved
  • 41. SaaS Case Study #4 - Restaurant Menu Management SaaS Product Managed Care Menu Management (ancillary market) End-Customer Small Assisted Living Facilities End-Customer’s •Food Distributors Trusted Advisors •Industry Association •Assisted Living Management Companies Aggregate menu item usage data to help negotiate better deals Network Effect for end-clients (through channel partners where applicable) Directly monetized relationship with Food Distributor Ecosystem (channel) to salvage unprofitable existing relationship w/o getting in front of partner or negatively affecting end-client Recurring (Annual per-location), Ecosystem (Distributor Revenue Streams visibility), Network Effect Data, Services, Products http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved
  • 42. SaaS Case Study #5 - Mail Center Management SaaS Product Mail Center Management & Package Tracking End-Customer Large Corporate & Fortune 500 mailrooms •Mailing Industry Associations End-Customer’s •Shipping Carrier Auditors Trusted Advisors •Industry Consultants •Complementary Software and Hardware Vendors Most Mail Center managers are in a position to justify their existence so benchmarks against other Mail Centers helped Network Effect prove operational efficiency, Complementary vendors and industry associations found data useful, too shipment tracking, spend management & procurement, carrier Ecosystem audits Recurring (per-transaction), Ancillary (carrier audits), Revenue Streams Ecosystem, Network Effect http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved
  • 43. SaaS Case Study #6 - Treasury Management SaaS Product Treasury & Cash Management End-Customer Large Corporate & Fortune 500 mailrooms •Industry Associations End-Customer’s •Anti-Money Laundering Groups Trusted Advisors •Banks •Consultants Aggregation of transactional details across industries, locales, Network Effect etc. Benchmarks on interest, float, sweeps, etc. against similar industries Anonymous Aggregated (A/A) data used by Anti-Money Laundering groups to “teach” their software patterns, Banks Ecosystem and Consultants leverage A/A of their clients & others in the system to judge performance and offer guidance, upsell, etc. Recurring (per user, per-transaction), Ancillary (float, Revenue Streams brokerage/forex commissions), Ecosystem, Network Effect Data http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved
  • 44. SaaS Case Study #7 - Bank Spend Management SaaS Product Bank Spend Management End-Customer Local and Regional Banks & Credit Unions •Industry associations End-Customer’s •Local & Regional Printing Companies Trusted Advisors •Complementary Software Vendors •Office Supply vendors Aggregate orders across bank branches allows vendors to aggregate order history and current inventory for customers, Network Effect customers get group purchasing power through aggregation under one SaaS vendor in addition to core product value Office Supply vendors gain visibility into the buying behavior of specific target market, complementary software vendors gain Ecosystem visiblity into transaction history of customers for inclusion in their product Recurring (per branch, vendor visibility), Ancillary, Ecosystem Revenue Streams (vendor commissions, API), Network Effect http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved
  • 45. Appendix B: Seven SaaS Revenue Streams Worksheet http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved
  • 46. http://sixteenventures.com Seven Revenue Streams Worksheet Consumers Original Other Stand-Alone Producers Producers Consumers Recurring Ecosystem Network Effect Ancillary Products Services Advertising Copyright© 2010 Sixteen Ventures. All Rights Reserved
  • 47. Follow @lincolnmurphy on Twitter Share this with your colleagues, too: Twitter LinkedIn Facebook If you need help with your Revenue Model, Pricing Strategy, Distribution or other SaaS Business Strategy issues contact Sixteen Ventures and get started today! (972) 200-9317 http://saasrevenue.com