May 13, 2008

How to Use Customer Life Cycle as a Strategy for SaaS

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.