Posts Tagged ‘Cloud Computing’

7 ways to price SaaS and Web Apps

July 24, 2009

With Web 2.0 Ad funded sites going out of fashion subscription based services are on the rise. Setting the right pricing for your SaaS and Web App service is a difficult decision. It is also a critical choice. Get it wrong with high prices and you could be losing out on sales. Running with very low prices may result in too many low profit customers.  The secret is in knowing your customers and competition.

Life of Brian Huggling
“Haggle properly!” (Life of Brian)

The seven ways to price SaaS and Web Apps:

  1. Cost Plus – Conventional wisdom says price on variable sales costs. However this is more of a resell/retail approach. Operational costs per  additional SaaS/Web app customer tends to be very low. It’s the customer acquisition and developing new features that requires the high investments.
  2. Match the Competition – Don’t worry about the costs. Price the service the same as your competitors and move their customers across to your service.  Unfortunately this strategy offers limited differentiation and thus customers won’t move. If you don’t have any competitors check that there is a market in the gap.
  3. Undercut the Competition – Start a price war and storm the market! This may grab the attention of some budget conscious customers. Unfortunately if it does work the impact does not last long.  This strategy also leaves less money for acquiring new customers and future product developments.
  4. Price Higher than Competitors - If your service is very similar to your direct competitors charge slightly more than them. Then focus on being a quality service. However you’ll have do something much better than your competitor. Find a feature or service level that the customer really values and your competitor is weak at.
  5. Differentiate – Build a very different feature set and charge much more than your competitors. The challenge is you’ve got to have an outstanding service that fits a need. Your business message also needs to be very strong to justify the higher price.
  6. Hide Your Prices – Many modern SaaS services such as  TactileCRM and Freshbooks, etc publish all their prices. Some, like  Echosign, have a salesforce to sell the service. Others let the service sell itself. If you don’t publish your pricing your salespeople can upsell  the service levels when the customer comes calling. Pricing is often hidden this way in the corporate world of software.
  7. Segment - Offer several service level to suite different customer types. Huddle and DNS Made Easy offer and range of service levels for small businesses and corporate customers. The pricing on these service levels varies a great deal.

Like I said it’s not easy. A mixture of the above pricing strategies may be the  answer. A lot of the decision relies on knowing the market well i.e. the customers and the competitors. Choose a price strategy early on, test the market, and be flexible. A word of warning: it’s much easier to decrease prices than to increase them. Good luck!

The reality of website/SaaS downtime & slowdowns

July 3, 2009

As you can imagine the subject of website downtime/slowdowns is very close to my heart. Our startups new app monitors websites for uptime and performance. The full impact of Website downtime has just really hit me. This week part of The Pitch website frustratingly went down. On the same day the premier Web host provider Rackspace had a full hours outage which impacted many, many websites. These failures got me thinking. How common is downtime and what are the downstream effects for both ecommerce and SaaS apps/sites?

Downtime with the XXXX

Customers get angry when web pages are down. Don’t blame them.

Sh*t downtime Happens

As our good friend and Cloud Computing expert Simon Wardley says Cloud downtime is inevitable. Its going to happen. However that does not mean we should be complacent and accept it. Ecommerce consumers certainly aren’t. They’re increasingly less tolerant of downtime. The effects are real. A Harris survey in 2008 found that consumers abandon or switch 42% of all transactions when they have a problem. This is up 12% on 2007.

Also 84%  of online consumers share negatives  experience’s with others (Harris).  Many of these problems are technical and performance related. A reputation which took considerable effort to establish can vanish overnight. The downtime message spreads at the speed of light through Twitter across 10′s millions of users. You can become known for being unreliable.

I’ve done some routing around to find evidence of how common website downtime is. According to Pingdom the average website is down for two hours per month!! That could be alot of visitors or customers lost. Sainburys, a leading UK supermarket, website was down for three hours during one day last year and at various other times. A large number of customers were tracked immediately moving from Sainburys to a competitor.

Downtime costs

Back in 99′ Ebay’s 22-Hour outage was estimated to have cost them $2 Million. The Register figured UK  Website downtime to cost £565m a year in 2002. This included “indirect costs, such as loss of reputation, lost future sales and the cost of storing unsold goods”. Harris says (2008) transaction problems impact £11.9b of sales. The impact of downtime has other downsides. Google penalizes your long term Ads Quality Score when your site or landing page is down.

Despite the interruptions the outlook remains very strong for ecommerce and for other web services.  Cloud/SaaS is forecast to grow massively over the next five years. IDC are saying upto 33% of IT spending growth by 2013!! This growth includes many of the free services such as Gmail, Facebook, etc which we have come to love. As Cloud inertia grows more and more chargeable apps are going to switch to the web.

A very similar downtime and slowdown reality to ecommerce also applies software-as-service (SaaS) apps. Only the churn rate of customers is slower i.e. SaaS users/consumers are on short term billing contracts. The effect is not a immediate loss of sales. Unless they are trying to sign up of course. However the resulting loss of sales and reputation is the same. The Cloud and SaaS apps have much to learn from ecommerce’s 15 years of experience. And ecommerce still has a long way to go.

Related Post:

Website/SaaS downtime: bad planning or bad luck

Microsoft profits tumble: Big switch tipping point?

May 1, 2009

Is this the Tipping Point from on-premise software to software as a service? On the same week Microsoft announced a 32% drop in profits Apple reported sky rocketing profits.  Still the Redmond giant has a long way to fall. It makes a cool $1b Nett profit every single day! However, this is a striking contrast in fortunes during a recession. The downturn is acting as a catalyst of change and speeding up the Big Switch to cloud software services. The way we access and use technology applications is changing.

falling-stack-of-coins2At the heart of Apple’s iPhone success is the App Store and iTunes. Apple is successfully up-ending how music is distributed and how mobile phones are used. Microsoft’s poor financial results also follows the closing down of Microsoft Encarta last month. Microsoft gave up the fight because its traditional software could no longer compete with the likes of Wikipedia. The good and bad news keeps coming thick and fast. Only two months ago the SaaS CRM provider Salesforce.com reported a 34% increased in revenues and broke the philological $1b revenue barrier.

Its far too early to write Microsoft off but can the giant keep up with the increasing rate of change? Microsoft has rarely lead from the front but they have turned around and court up in the past. Microsoft’s response to the Cloud Computing Big Switch is Azure. The challenge for Microsoft will be to move away from its reliance on software licence revenues to a service based model. I’m not entirely sure they will be able to pull this one off..

Cloud Computing: ‘Old wine in new bottles’?

April 9, 2009

I attended the Salesforce.com Cloudforce event in London this week and found this great introduction to Cloud Computing on the event website:

Mark Benioff of Salesforce is leading the charge against on-premise software. However the idea of Cloud Computing is not a new one. We had a false start earlier this century with ASP (Application Service Provider).  Before that Bureau services have been available for 45 years!  Today we have more acronyms in this market than you can shake a stick at – Cloud Computing aka Software-as-a-Service or on-demand services, etc.  All these names have the same underlying principle: a multi-tenant, pay as you go and elastic on-line service.

Is the latest title Cloud Computing a case of ‘Old wine in new bottles’? Perhaps it is. However technology has now enabled the old Bureau type services to be delivered with the rich GUI we have now come to expect from our PC’s and Mac’s. Cloud Computing – A new service 50 years in the making :)


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