monetizing multi-tenancy in saas by sixteen ventures. presented at saas university in dallas january...
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Slides from the January 2010 SaaS University in Dallas, Texas presented by Lincoln Murphy of Sixteen Ventures. Monetizing Multi-Tenancy - Generating Revenue through Network Effect Data and the SaaS Ecosystem. Multi-tenancy is a key element of Software-as-a-Service (SaaS); but not for the reasons you think! Achieving economies of scale, streamlining software development, maintaining one line of source code, etc. are the widest-known benefits of multi-tenancy. The real magic happens when multi-tenancy is leveraged to unlock and enhance the Network Effect created by all customers using the same system. And when the Network Effect is itself leveraged by the Ecosystem, myriad opportunities present themselves to drive growth and revenue. These are what makes being a SaaS vendor so much better than being a Legacy Software vendor!TRANSCRIPT
Monetizing Multi-Tenancy:Exploiting the Revenue Potential in
Network Effect Data & SaaS EcosystemPresented at SaaS University
Dallas, TexasJanuary 27, 2010
Copyright© 2010 Sixteen Ventures. All rights reserved.
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QuestionnaireDid you fill it out?
The goal for today...
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Photo via caveman_92223
Legacy Software Business Structure
Marketing Intellectual Property
Revenue Model
Technology
Loosely-coupled, at besthttp://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved
Legacy Software
Customers Developers
Channels
Three basic elementshttp://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved
Customers Developers
Channels
Software-as-a-Service (SaaS)
Same elementshttp://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved
Producers Consumers
Ecosystem
Software-as-a-Service (SaaS)
Different approachhttp://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved
Producers Consumers
Ecosystem
NetworkEffect
Software-as-a-Service (SaaS)
Very different approachhttp://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved
Producers Consumers
Ecosystem
NetworkEffect
Keydifferentiators
Software-as-a-Service (SaaS)
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NetworkCentricity
SaaS Business Architecture
MarketingIntellectual Property
Revenue ModelTechnology
All aspects are tightly coupledhttp://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved
Multi-Tenancy in SaaS - Technical Deep Dive
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Multi-Tenancy in SaaS - Single Instance for all Customers
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Customer Customer Customer
Customer Customer Customer
Customer Customer Customer
Network Effect!
Multi-Tenancy in SaaS - Its not just Customers!
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Customer Partner Developer
Industry Customer Partner
Customer Developer Customer
Ecosystem!
Multi-tenancy is good for...
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Economies of Scale
Easier Software Development
and Management
Improved customer
support and product
maangement
Leveraged properly, multi-tenancy turns apples to apples comparisons...
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SaaS vs. Legacy Software
vs.
Into bowling ball to apple comparisons, in your favor...
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Apple Photo via martinlabar
SaaS vs. Legacy Software Bowling Ball Photo via definetheline
vs.
Change the focus to things legacy vendors cannot deliver!
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Apple Photo via martinlabar
SaaS vs. Legacy Software Bowling Ball Photo via definetheline
SMASH
Multi-tenancy is ALSO good for...
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$$$$$$$$$$$$$$$$$$$$$$$$$$$
SaaS Revenue Model
NetworkCentricity
Marketing Intellectual Property
RevenueModelTechnology
Revenue Model made up of Revenue Streams
Products
AdvertisingServices
Subscriptions Ecosystem
Ancillary
NetworkEffect
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Products
AdvertisingServices
Subscriptions Ecosystem
Ancillary
7 SaaS Revenue Streams
NetworkEffect
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Subscriptions Ecosystem
Ancillary
NetworkEffect
Less Scalable Revenue Streams
Products
AdvertisingServices
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Products
AdvertisingServices
Subscriptions Ecosystem
Ancillary
NetworkEffect
Scalable Revenue Streams
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Products
AdvertisingServices
Subscriptions Ecosystem
Ancillary
NetworkEffect
Our Focus Today...
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Symbol Definition
Scalable Revenue Stream
Less-scalable Revenue Stream
Not Scalable in most cases
Revenue Stream Scalability Index
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.
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EcosystemProducts
AdvertisingServices
Subscriptions
Ancillary
NetworkEffect
Ecosystem
-Examples - PlatformChannels
APIsWhite Label
Licensing
Pros Cons
1-Infinity ScalingUnwanted
interdependencies can grow if unchecked
Improved value for ecosystem partners
Lack of visibility into value chain for clients
Exposure to ancillary & adjacent markets
Need to market to end-users to create demand in front of channel partners
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Products
AdvertisingServices
Subscriptions Ecosystem
Ancillary
NetworkEffect
-Examples -Anonymized/
Aggregate DataReports
BenchmarksAPIs
Pros Cons
Fully leverages data collected in multi-tenant environment
Privacy concerns require disclosure of intentions by vendor
An asset that increases exponentially in value as usage of
the system grows linearly
Requires planning up front an execution early on data collection
otherwise value is lost until capture begins
Leverage ecosystem partners to develop reports or add value to
data through APIs
Vendor must be diligent in adhering to regulations,
governance, and privacy laws
Does not require a “critical mass” of users as many think for
network effect data to be valuable
Careful planning to determine when network effect data
becomes valuable & to whom required
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Network Effect
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Gaining mainstream acceptance...
Tweet via rwang0
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SaaS Vendor End Customer
SaaS Distribution - Myth
The common fantasy is since its “on the web” the web is the distribution channel. Maybe, but you might want to
explore that further; just to be sure.
Web
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SaaS Vendor End Customer
SaaS Distribution - More Likely
Intermediary
You might not know about them!
What if you don’t have to use an intermediary? Can you? Its called leverage, but the key is to remember that rarely will you compel 3rd
parties with only revenue share agreements for SaaS. The vendor should dig deeper and find out what they can solve for them.
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EDI Vendor
ConsumerPackaged Goods
Manufacturer
SaaS Distribution - Example
Manufacturers Rep
SaaS vendor has a shared customer with the manufacturers rep. The SaaS vendor has figured out that the easiest way to reach the end-customer is through the Manufacturers rep. The SaaS vendor builds support for the Manufacturers Rep into the product giving them a reason to compel the
shared end-customers to use the product.
SaaS Company Intermediary End-customer
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SaaS Vendor End Customer
SaaS Distribution - Value Chain view is limited
IntermediaryIntermediaryIntermediaryIntermediaryIntermediaryIntermediaryIntermediaryIntermediaryIntermediary
Industry Association
Independent Developers
Analyst FirmsIndustry Associations
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SaaS Vendor
Application Customer
SaaS Distribution - Value Network Reality
IntermediariesStand-alone Consumers
Platform
Trusted AdvisorsTraditional Channels
Independent DevelopersOther Software Vendors
IndividualsEnterprises
SaaS Vendor sits in the middle of everything!
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SaaS Vendor
Application Customer
SaaS Distribution - Value Network Reality
IntermediariesStand-alone Consumers
Platform
The possibilities are endless!
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Questionnaire
SaaS Vendor
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Question 2 Application Customer
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Question 3 Stand-alone ConsumersPlatformIntermediaries
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Question 4 Stand-alone ConsumersPlatformIntermediaries
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Question 5 Stand-alone Consumers
Intermediaries Platform
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Apple Photo via kylemay
The sooner the better...
Who What When
Where Why How
Metrics Governance Privacy
Commingled Segmented Anonymized
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Did we reach the goal?
SaaS Revenue Modeling &Business Architecture
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@lincolnmurphy
(972) 200-9317
Appendix A:Case Studies in SaaS Network Effect &
Ecosystem Revenue Modeling
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SaaS Product Description of the SaaS offering
End-Customer Description of the SaaS vendor’s end-customer
End-Customer’s Trusted Advisors
Who did the end-customer buy from, listen to, etc. that the SaaS vendor could leverage, and help, in an effort to secure the
end-customer relationship
Network EffectWhat benefits the clients derived from the network centricity
of the SaaS solution, including aggregate data
EcosystemHow the Vendor derived value from, and added value to, its
ecosystem, including VARs, SIs, Distributors, etc.
Revenue Streams How the Vendor makes money
SaaS Case Studies
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SaaS Product Retail Supply Chain / EDI
End-Customer Small to Medium Consumer Packaged Goods manufacturer
End-Customer’s Trusted Advisors
•Big Box Retailers•Freight Brokers•Third-party Logistics Providers•Manufacturers reps
Network EffectBenchmarks on retail category performance available to all of
the end-customers’ Trusted Advisors
EcosystemPre-built EDI maps, access to discounted & expedited shipping,
visibility for intermediaries and interested parties
Revenue StreamsSubscriptions (monthly & per-transaction), Ecosystem,
Network Effect Data, Services
SaaS Case Study #1 - SCM/EDI Vendor
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SaaS ProductVendor Managed Inventory Control System (internal product
re-architected & exposed as SaaS)
End-Customer Fragmented network of small independent pharmacies
End-Customer’s Trusted Advisors
•Pharma Distributor that created the SaaS product•Industry Association•Product Suppliers (whom the Distributor buys from; value-pull)
Network EffectSophisticated inventory system allows distributor to aggregate
order history and current inventory for all pharmacies
EcosystemUse aggregate data to predict restocks, share that w/ vendor
to get better terms for the pharmacy client
Revenue StreamsAncillary (float interest), Ecosystem (distributor commissions),
improved margins), Network Effect Data (suppliers pay), Services, Products (hardware device)
SaaS Case Study #2 - Pharmaceutical Distributor
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SaaS Product Revenue Cycle Management
End-Customer Fragmented network of small independent hospitals
End-Customer’s Trusted Advisors
•Hospital Industry Associations•Independent Consulting Firms•Complementary Software Vendors•Insurance companies and Government Payors
Network EffectRevenue & Collection Benchmarks against similar-sized
Hospitals (per-bed)
EcosystemMedicare, Medicaid, and Commercial Payer clearinghouse,
Channel partners(visibility into their customers’ usage of system)
Revenue StreamsSubscriptions (per-transaction, % collected), Ecosystem,
Network Effect Data, Services, Products
SaaS Case Study #3 - Healthcare Revenue Cycle Mgmt
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SaaS Product Managed Care Menu Management (ancillary market)
End-Customer Small Assisted Living Facilities
End-Customer’s Trusted Advisors
•Food Distributors•Industry Association•Assisted Living Management Companies
Network EffectAggregate menu item usage data to help negotiate better deals
for end-clients (through channel partners where applicable)
EcosystemDirectly monetized relationship with Food Distributor
(channel) to salvage unprofitable existing relationship w/o getting in front of partner or negatively affecting end-client
Revenue StreamsSubscriptions (Annual per-location), Ecosystem (Distributor
visibility), Network Effect Data, Services, Products
SaaS Case Study #4 - Restaurant Menu Management
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SaaS Product Mail Center Management & Package Tracking
End-Customer Large Corporate & Fortune 500 mailrooms
End-Customer’s Trusted Advisors
•Mailing Industry Associations•Shipping Carrier Auditors•Industry Consultants•Complementary Software and Hardware Vendors
Network Effect
Most Mail Center managers are in a position to justify their existence so benchmarks against other Mail Centers helped prove operational efficiency, Complementary vendors and
industry associations found data useful, too
Ecosystemshipment tracking, spend management & procurement, carrier
audits
Revenue StreamsSubscriptions (per-transaction), Ancillary (carrier audits),
Ecosystem, Network Effect
SaaS Case Study #5 - Mail Center Management
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SaaS Product Treasury & Cash Management
End-Customer Large Corporate & Fortune 500 mailrooms
End-Customer’s Trusted Advisors
•Industry Associations•Anti-Money Laundering Groups•Banks•Consultants
Network EffectAggregation of transactional details across industries, locales, etc. Benchmarks on interest, float, sweeps, etc. against similar
industries
Ecosystem
Anonymous Aggregated (A/A) data used by Anti-Money Laundering groups to “teach” their software patterns, Banks and Consultants leverage A/A of their clients & others in the system to judge performance and offer guidance, upsell, etc.
Revenue StreamsSubscriptions (per user, per-transaction), Ancillary (float,
brokerage/forex commissions), Ecosystem, Network Effect Data
SaaS Case Study #6 - Treasury Management
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SaaS Product Bank Spend Management
End-Customer Local and Regional Banks & Credit Unions
End-Customer’s Trusted Advisors
•Industry associations•Local & Regional Printing Companies•Complementary Software Vendors•Office Supply vendors
Network Effect
Aggregate orders across bank branches allows vendors to aggregate order history and current inventory for customers, customers get group purchasing power through aggregation
under one SaaS vendor in addition to core product value
Ecosystem
Office Supply vendors gain visibility into the buying behavior of specific target market, complementary software vendors gain visiblity into transaction history of customers for inclusion in
their product
Revenue StreamsSubscriptions (per branch, vendor visibility), Ancillary, Ecosystem (vendor commissions, API), Network Effect
SaaS Case Study #7 - Bank Spend Management
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Appendix B:Seven SaaS Revenue Streams Worksheet
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Seven RevenueStreams Worksheet
Subscriptions
Ecosystem
Network Effect
Ancillary
Products
Services
Advertising
OriginalProducers
Stand-AloneConsumers
Consumers OtherProducers
Copyright© 2010 Sixteen Ventures. All Rights Reserved
http://sixteenventures.com
SaaS Revenue Modeling &Business Architecture
http://sixteenventures.com
@lincolnmurphy
(972) 200-9317