When the features and functionality of Product A are essentially the same as those offered by Product B, what will truly distinguish one software company from another? For a time, SaaS manufacturers held an edge over their on-premised perpetual license based competitors, but those days are swiftly passing. The rumors of a coming shakeout in the on-demand market are steadily becoming observable reality, with SaaS vendor pitted against SaaS vendor with survival at stake. To succeed in this present arena, a company must offer a new and brand-able value to consistently attract and to retain the best customers. The winners will be those that realize that the true product is the long-term partnership. It’s not about the software anymore. What counts is the continuing connection to value.
Product As A Relationship
There is a large pool of experienced people who know how to produce and sell technology into the old market, and how to build companies around those products. They can construct business plans around typical expected margins and projected sales, and talk of supplementary income streams from an installed base in year two and so on. But the world in which those calculations and cases were valid has gone away. The venture capital firms saw the truth early and have not been funding anything in the software sector that wasn’t SaaS-based for several years. Now the rest of the technology industry needs to catch up. The rules of the game have changed; it’s time to train and field a new team that has the skills and knowledge to compete.
It’s true that software technology will still be a part of the admission ticket. The burden of making effective use of that technology to increase productivity and profitability, however, once shoved onto the customers’ shoulders, now needs to move back towards the manufacturer. The core of what the manufacturer has to offer is vertical industry knowledge and expertise in using technology. Value, in the form of enhancement and improvement of their business, is what the customers want to buy, not code. To deliver on that new product requires a manufacturer that knows how to design, produce, brand and deliver a relationship of mutual profitability to both parties, something worth maintaining over the long haul. That can only be done when relationship-thinking is embedded in the DNA of every department and member of the company.
The Metrics of Continuing Connection
Customer Lifetime Value (Average and Total), Acquisition Costs, Retention Costs, Number of Seats, Contracted Monthly Recurring Revenue, Break-Even Point, Average Duration, Churn — while useful, these metrics as typically calculated may conceal more than they reveal. The view they provide is essentially transactional in nature and inherently short-term. The real questions that need to be asked and answered to address long-term profitability and success are much harder. If you’re interested in finding out what lies beneath your metrics, let’s talk.