digging economic moats for your xaas business | gainsight pulse 2016 keynote
Post on 12-Jan-2017
1.245 Views
Preview:
TRANSCRIPT
©2015 Gainsight. All Rights Reserved.
Digging Economic Moats for Your XaaS Business
J.B. Wood, President and CEO, TSIA
©2015 Gainsight. All Rights Reserved.
Our mission is to increase revenue and profit performance of technology companies by optimizing service businesses.
©2015 Gainsight. All Rights Reserved.
Our Global Footprint
3
65+ Countries | 500 Memberships | 300 Tech Companies
80% areFortune 100 Tech Firms
©2015 Gainsight. All Rights Reserved.
Our Research-Intensive Model
115 Deep dive audits
1150 Benchmark analyses
7K Analyst inquiries
In the last 4 years… In the last year…
130K Benchmark data points
515K Survey data points
4
©2015 Gainsight. All Rights Reserved.
"I skate to where the puck is going to be, not where it has been.” - Wayne Gretzky
©2015 Gainsight. All Rights Reserved.
2009 2011 2013
“We have a problem…”
“A new purchasingmodel is coming”
“Industrytransformation”
A Journey…“Profitable XaaS”
6
Coming This
Month!
©2015 Gainsight. All Rights Reserved.
©2015 Gainsight. All Rights Reserved.
Tech & Service 50 Index vs. Cloud 40 Index
TSIA TS50
TSIA Cloud 40
8
©2015 Gainsight. All Rights Reserved.
Revenue Multiplier (market cap/revenue)Average:Q4 2015 5.6
Lifelock
IntraLinks
Jive Software
RealPage
Athena Health
LogMeIn
Veeva Systems
Ultimate Software
ServiceNow
0.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0 16.0
1.41.71.71.81.8
2.12.6
5.15.55.55.65.7
6.17.5
7.98.18.2
8.610.4
14.1
9
©2015 Gainsight. All Rights Reserved.
However, The Mountains Are Eroding…
LiveP
erson
EGAIN
Numere
x
Carbon
ite
Bazaa
rvoice
Lifelo
ck
Chann
eladv
isor
Bottom
line T
echn
ologie
s
RingCen
tral
Corners
tone O
ndem
and
Veeva
Sys
tems
Textur
a
Athena
Hea
lth
Medida
ta
Fleetm
atics
Grou
p
Red H
at
Qualys
Ultimate
Soft
ware
Proofpo
int
Service
Now0
5
10
15
20
25
Current Last Year 10
©2015 Gainsight. All Rights Reserved.
GaaP Profitability Problem Not Going Away At Scale
11
©2015 Gainsight. All Rights Reserved.
The Slowdown Fish
PROFIT
LOSS
YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5 YEAR 6+
Time
COST REVENUE
Profits
Losses
GrowthSlowdown
costs
revenue
12
©2015 Gainsight. All Rights Reserved.
The Slowdown Fish
PROFIT
LOSS
YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5 YEAR 6+
Time
COST REVENUE
Losses
GrowthSlowdown
New Investor Messaging
“Hyper-Growth”
“Growth+
Profits”
13
©2015 Gainsight. All Rights Reserved.
Why aren’t we already there?
©2015 Gainsight. All Rights Reserved.
Economic Moats – What Drives Sustained Tech Profitability?
6. Virality/Low Cost of Sales
4. Network Effect
3. Economies of Scale
Economic Moat
5. Diverse Revenue Streams
2. Unique Capabilities
1. High Switching Costs
15
©2015 Gainsight. All Rights Reserved.
Economic Moat - Traditional Tech Alignment
Virality/Low Cost of Sales
Network Effect
Economies of Scale
Medium
Medium
Low
Economic Moat Traditional Tech
High
High
High
Diverse Revenue Streams
Unique Capabilities
High Switching Costs
16
©2015 Gainsight. All Rights Reserved.
Economic Moat XaaS 1.0 – All Same or Worse
Virality/Low Cost of Sales
Network Effect
Economies of Scale
Medium
Medium
Low
Economic Moat Traditional Tech
High
High
High
Diverse Revenue Streams
Unique Capabilities
High Switching Costs
XaaS 1.0
Medium
Low
Low
Low
Medium
Medium
17
©2015 Gainsight. All Rights Reserved.
The Cost of Sales Problem
©2015 Gainsight. All Rights Reserved.
Sales and Marketing as a Percentage of Revenue
50%
40%
Workday LicensedSoftware
Rackspace Google
30%
20%
10%
0%
52%
60%
40% 38%29%
14% 13%Saas
CompaniesSalesforce
19
©2015 Gainsight. All Rights Reserved.
XaaS Revenue Waterfall
20
115%
$115m
100%
$100m
End of Year Revenue:
Total $’s End of Year
Starting ARR: Total $’s Available
to Renew at Beginning of Year
90%
$90mRetentionDollars
UpsellDollars
Cross Sell
Dollars
Customer Churn Dollars
DownsellDollars
Retention Rate = 90% Expansion Rate = 25%
Churn = 7% $3mDownsell = 3%
$7m
Upsell = 10%$10m
Xsell = 15%
$15m
YoY Growth Rate = 15%
Source: TSIA SRG Cloud Benchmark Study 20
©2015 Gainsight. All Rights Reserved.
Effectiveness
Efficiency
Data Quality
Stickiness
Quantity
Who
Land New Customer
LAND ADOPT
DescriptiveAnalytics
PredictiveAnalytics
OutcomeAnalytics
Consumption Analytics Platform
Cost-EffectiveSelling
Channels
Data-driven and CGT-driven
Lead Gen
X-SellSellers
RenewalSellers
UpsellSellers
Large UpsellSellers
EXPAND RENEW
OutcomeEngineering
Customer Success Team
Customer Service Teams
CustomerGrowthTeams
TSIA LAER Model – The Key to Reducing Cost of Sales
21
©2015 Gainsight. All Rights Reserved.
Economic Moats XaaS 2.0
Virality/Low Cost of Sales
Network Effect
Economies of Scale
Medium
Medium
Low
Economic Moat Traditional Tech
High
High
High
Diverse Revenue Streams
Unique Capabilities
High Switching Costs
XaaS 1.0
Medium
Low
Low
Low
Medium
Medium
XaaS 2.0
Medium
22
©2015 Gainsight. All Rights Reserved.
The Revenue Diversification Problem
©2015 Gainsight. All Rights Reserved.
The Three Profiles of Xaas
Future ValueAggregator
Unit of Consumptionby Customers(users, pageviews, clicks, etc.)Confident in Pricing/Revenue Model
Revenues GrowingFaster Than Expenses
Profitability Horizon
Mid-TermWedge
Current ProfitMaximizer
24
©2015 Gainsight. All Rights Reserved.
FVA Profit Horizon
PROFIT
LOSS
YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5 YEAR 6+
Time
Future Value Aggregator
COST REVENUE
25
©2015 Gainsight. All Rights Reserved.
The Three Profiles of Xaas
Rapid Growth(usually triple-digit)
Future ValueAggregator
Unit of Consumptionby Customers(users, pageviews, clicks, etc.)Confident in Pricing/Revenue Model
Revenues GrowingFaster Than Expenses
Profitability Horizon
Not yet
No
5+ years
Mid-TermWedge
Current ProfitMaximizer
26
©2015 Gainsight. All Rights Reserved.
MTW Profit Horizon
PROFIT
LOSS
YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5 YEAR 6+
Time
Mid-TermWedge
COST REVENUE
27
©2015 Gainsight. All Rights Reserved.
The Three Profiles of Xaas
Future ValueAggregator
Mid-TermWedge
Current ProfitMaximizer
Growth(high double-digit+)
Unit of Consumptionby Customers(users, pageviews, clicks, etc.)Confident in Pricing/Revenue Model
Revenues GrowingFaster Than Expenses
Profitability Horizon
Yes
Yes, maybe barely
3 to 5 years
28
©2015 Gainsight. All Rights Reserved.
CPM Profit Horizon
PROFIT
LOSS
YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5 YEAR 6+
Time
Current ProfitMaximizer
COST REVENUE
29
©2015 Gainsight. All Rights Reserved.
The Three Profiles of Xaas
30
Future ValueAggregator
Mid-TermWedge
Current ProfitMaximizer
Growth, could beslowing
Unit of Consumptionby Customers(users, pageviews, clicks, etc.)Confident in Pricing/Revenue Model
Revenues GrowingFaster Than Expenses
Profitability Horizon
Yes, usually multiple
Yes
Current to 3 years
©2015 Gainsight. All Rights Reserved.
Friction Extremes
31
Easy AcquisitionEasy Adoption
Maximize Margin
EASY PROFITABLE
©2015 Gainsight. All Rights Reserved.
The Friction Curve
32
FUTURE VALUEAGGREGATOR
MID-TERMWEDGE
CURRENT PROFIT
MAXIMIZER
Harder PurchaseDecision
Easier PurchaseDecision
Higher ProfitsPer Customer
Lower ProfitsPer Customer
©2015 Gainsight. All Rights Reserved.
Iron Triangle
Portfolio& Pricing
Customer Engagement ModelFinancial Keys
Key XaaS profits decisions live in these three areas
©2015 Gainsight. All Rights Reserved.
The 3x3 of XaaS
PortfolioAnd Pricing
CustomerEngagement
Model
FinancialKeys
FUTURE VALUE
AGGREGATOR
MID-TERMWEDGE
CURRENT PROFIT
MAXIMIZER
• Revenue mix• Margin and profit targets• Sales and marketing• Key performance metrics
• New customer landing strategy• Adoption framework• Customer expansion model• Renewal responsibility
• Technology offer definition• Value-added service offer definition• Offer(s) pricing model
Harder PurchaseDecision
Easier PurchaseDecision
Higher ProfitsPer Customer
Lower ProfitsPer Customer
34
©2015 Gainsight. All Rights Reserved.
XaaS Revenue Streams
TOTALS
Revenue Streams
Technology Subscription
Premium Annuity Account Services
Professional Services
Transaction Revenues
Aggregate Business Model
% of Company Revenue
COGS%
GM%
S&M%
R&D%
G&A%
OI%
35
©2015 Gainsight. All Rights Reserved.LowAverageHigh
Gross Margin Profiles (TRIMMED RANGE)
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
0%SOFTWAREPRODUCT
GROSS MARGIN
SUBSCRIPTIONGROSS MARGIN
ANNUITY SERVICES
GROSS MARGIN
PROJECT SERVICES
GROSS MARGIN
TRANSACTION SERVICES
GROSS MARGIN
36
©2015 Gainsight. All Rights Reserved.
Bundle Growth Chart
ATTRIBUTE
Portfolio Components
Core Offer
Tech Support
Module A
Tech Support
Outcome Services
FVA STAGE NEAR-TERMWEDGE STAGE
CURRENTPROFIT STAGE
Core Tech Subscription
Adjacent Modules
Attached Services
Operational Services
Adoption Services
Information Services
Outcome Services
Basic Basic
Consulting
Tech Support
Basic
DiverseCompleteSimple
1 5 10TOTAL NUMBER OF OFFER BUNDLES
Core Offer
Module A
Implementation
Premium
Data Supplement
Core Offer
Module B
Implementation
Managed Services
Premium
Data Supplement
Advanced Analytics
Pay for Performance
37
©2015 Gainsight. All Rights Reserved.
FVA Revenue Streams
TOTALS
Revenue Streams
Technology Subscription
Premium Annuity Account Services
Professional Services
Transaction Revenues
Aggregate Business Model
% of Company Revenue 90% 10% 100%
COGS% 40% 40% 40%GM% 60% 60% 60%
S&M% 60% 15% 56%R&D% 20% 20% 20%G&A% 15% 15% 15%
OI% -35% 10% -30.5%
38
©2015 Gainsight. All Rights Reserved.
CompetitorA’s Price
CompetitorB’s Price
Core Subscription Prices and Margins Get Squeezed!
39
©2015 Gainsight. All Rights Reserved.
Expanding the Portfolio of Offers
ATTRIBUTE
Portfolio Components
Core Offer
Tech Support
Module A
Tech Support
Outcome Services
FVA STAGE NEAR-TERMWEDGE STAGE
CURRENTPROFIT STAGE
Core Tech Subscription
Adjacent Modules
Attached Services
Operational Services
Adoption Services
Information Services
Outcome Services
Basic Basic
Consulting
Tech Support
Basic
DiverseCompleteSimple
1 5 10TOTAL NUMBER OF OFFER BUNDLES
Core Offer
Module A
Implementation
Premium
Data Supplement
Core Offer
Module B
Implementation
Managed Services
Premium
Data Supplement
Advanced Analytics
Pay for Performance
40
©2015 Gainsight. All Rights Reserved.
MTW Revenue Streams
Revenue Streams
Technology Subscription
Premium Annuity Account Services
Professional Services
Transaction Revenues
Aggregate Business Model
% of Company Revenue 70% 20% 10% 100%
COGS% 35% 35% 65% 38%GM% 65% 65% 35% 62%
S&M% 45% 12% 8% 35%R&D% 18% 10% 5% 15%G&A% 12% 12% 12% 12%
OI% -10% 31% 10% 0%
41
©2015 Gainsight. All Rights Reserved.
Strategic Diversification
ATTRIBUTE
Portfolio Components
Core Offer
Tech Support
Module A
Tech Support
Outcome Services
FVA STAGE NEAR-TERMWEDGE STAGE
CURRENTPROFIT STAGE
Core Tech Subscription
Adjacent Modules
Attached Services
Operational Services
Adoption Services
Information Services
Outcome Services
Basic Basic
Consulting
Tech Support
Basic
DiverseCompleteSimple
1 5 10TOTAL NUMBER OF OFFER BUNDLES
Core Offer
Module A
Implementation
Premium
Data Supplement
Core Offer
Module B
Implementation
Managed Services
Premium
Data Supplement
Advanced Analytics
Pay for Performance
42
©2015 Gainsight. All Rights Reserved.
CPM Revenue Streams
TOTALS
Revenue Streams
Technology Subscription
Premium Annuity Account Services
Professional Services
Transaction Revenues
Aggregate Business Model
% of Company Revenue 55% 20% 15% 10% 100%
COGS% 25% 25% 60% 10% 29%GM% 75% 75% 40% 90% 71%
S&M% 42% 10% 5% 5% 26%R&D% 20% 10% 5% 8% 15%
G&A% 10% 10% 10% 10% 10%
OI% 3% 45% 20% 67% 20%
43
©2015 Gainsight. All Rights Reserved.
The Profitable Economic Moats of XaaS 2.0
Virality/Low Cost of Sales
Network Effect
Economies of Scale
Medium
Medium
Low
Economic Moat Traditional Tech
High
High
High
Diverse Revenue Streams
Unique Capabilities
High Switching Costs
XaaS 1.0
Medium
Low
Low
Low
Medium
Medium
XaaS 2.0
Medium
High
High
Medium
High
High
44
©2015 Gainsight. All Rights Reserved.
Customer Success Will Play A Central Role in Profitable XaaS 2.0
• Drive down sales costs• Optimize waterfall economic performance• Diversify revenue streams
A Lot More Than Just Adoption and NPS!
www.tsia.comReserve Your Copy: http://info.tsia.com/xaasplaybook
Introducing TSIA’s New Book
©2015 Gainsight. All Rights Reserved.
Digging Economic Moats for Your XaaS Business
THANKS!
J.B. WoodPresident and CEO
top related