I was invited to participate in a roundtable at the Red Herring North America conference a few weeks ago. The topic was "Enterprise software - The Online Revolution." The focus was on how SaaS challenges the existing status quo in enterprise software.

I wrote down some brief summary points I wanted to share. The ideas mirror some of the points in the life cycle framework I have discussed previously for SaaS.

In the previous blog post I introduced the concept of using a customer life cycle framework as a strategy for designing a profitable software-as-a-service enterprise application. The gist of the idea is that with traditional on-premise applications, most phases in the customer life cycle are managed by people and services outside of the “core” application. The real innovation and they key to profitability for SaaS, is to build the SaaS application to handle all of these phases as scalable, standardized services.  The SaaS application handles everything from services for evaluation and purchasing, to provisioning and support, to monitoring and loyalty building.

We have identified several primary phases or “touch points” in the customer life cycle that a SaaS strategy and application design needs to address.  Whether customers follow the phases in sequence or whether they jump around unpredictably, the SaaS needs to provide service for every activity of every phase in the life cycle.

• Evaluation
• Purchasing
• Installation
• Deployment
• Customization
• Provisioning
• Training
• Support
• Monitoring and Billing
• Renewal and Referral

Each of these points represents a potential trigger for customer friction, abandonment or attrition (often referred to as “customer churn”). A subscription-based business with even moderate customer churn, is expensive to grow. The cost becomes prohibitive if customer churn is high. Moreover, given the low monthly subscription fees of SaaS, the method for managing these points needs to be scalable in software so that as you sign up more users, you don’t need to add more staff. A SaaS business can be profitable if and only if, it can achieve strong economies of scale.

Minimizing friction and maximizing efficiency/scalability does not come automatically; it has to be explicitly planned for and architected into the SaaS application design. Over the next few posts, I want to explore each of the phases in the customer life cycle and describe the key points for moving these (in whole or part) from being handled by many people, to being handled by the core SaaS application.

Common across all phases of the life cycle framework for SaaS is the need and ability for the enterprise or ISV (the organization delivering the SaaS solution to customers) to monitor customer behavior. Monitoring in SaaS is not a new idea.  Saleforce.com has been preaching the unique ability of SaaS to be metrics driven.

While traditional on-premise applications are generally a black hole as far as information about user adoption and feature usage, with SaaS, the application can be designed to monitor when and how the software is being used, or perhaps more importantly, when and where the customer stops using the software.  Monitoring becomes orders of magnitude more interesting when you extend it beyond the “primary” application (e.g. the CRM or ERP), to encompass all phases of the customer life cycle. Not only can you monitor how the customer uses the “primary” application, but you can monitor how a customer succeeds (i.e. good user experience) or fails (i.e. potential for churn) in all of the other phases in the life cycle.

For example, during the evaluation phase, while a customer is using a “try-before-you-buy” version, you can track where users click, what features of the software seem not to be used, where they get distracted, where they make mistakes, and where they stop using the trial. Essentially it is on-going user validation testing for the evaluation phase of the life cycle. You can track similar information during the other touch points of the life cycle such as purchasing, installation, support, billing, etc.

This information can then be applied to correct drop out points in the life cycle, improve effectiveness and efficiency for your customers, and quickly determine how to modify your application on a regular cycle to meet user needs, increase sales and up sell, and reduce churn.

In traditional enterprise applications, most phases in the customer life cycle are managed by people and services outside of the “core” application. In SaaS these phases are all handled as part of the application. This is the premise behind the SaaS Customer Life Cycle Framework we are developing at Catalyst Resources. 

By far the majority of our recent client work has involved adapting existing enterprise applications to SaaS, as well as designing enterprise SaaS applications from scratch. In fact, over 80% of our clients have implemented or are implementing a SaaS solution.

Most executives and VPs of development recognize that SaaS innovates in the area of the business model by switching from perpetual license to “on-demand” subscriptions and switching from selling physical software to selling a service. But the transition from software to service is not purely a business model change.

Our experience shows that more significant area of innovation and the essence of a successful “on-demand” paradigm revolves around moving all of the phases -  the “touch points” -  of customer life cycle management into the “on-demand” application. The Customer Life Cycle is the full progression of steps a customer goes through when exploring, purchasing, using, and maintaining loyalty to a product or service.

With traditional enterprise software, many departments and services are involved in supporting the customer life cycle for a particular client.  There is a large upfront sales effort with a protracted sales cycle, from a large team (pre-sales, account manager, marketing) that “manages” the buyer through the sales process.  Installation/setup including customization and provisioning requires an in-house IT department or consultant. Training and a post sales support staff manage the usage and on-going maintenance phases.

Most touch points of the Customer Life Cycle are external to the core application, handled by sales & technical staff

So with traditional enterprise applications, most of touch points in the customer life cycle are managed by people and services outside of the “core” application (e.g. the CRM or ERP).  Therefore the strategy and design of enterprise software is almost exclusively targeted on the usage phase of the life cycle. 

Our experience indicates that SaaS is different. In SaaS, all aspects of the customer life cycle are exposed to the customer and all need to be handled as part of the strategy and design of the SaaS.  You are not just migrating the core application online, you are migrating some or all aspects of the customer life cycle management and interaction online and into the software.  If the SaaS application does not provide a satisfactory experience at each touch point along the way (e.g. acquisition, usage, support, monitoring, etc)  you get customer abandonment. If the way you handle each touch point does not scale without adding staff, you lose economies of scale and profitability becomes elusive.

All touch points of the Customer Life Cycle are included as part of the core SaaS application

We think this is the real online revolution for enterprise software and we would be very interested to discuss how other companies are addressing this both at a strategy and application design level. In future blog posts, we will talk about the individual touch points and how they can be addressed, as well as broader issues about scalability and the role of RIAs.

We welcome your feedback.