TWIS#7- This Week in SaaS – New Year Edition

TWIS #7- Events

This is your last opportunity to enter the draw for a pass to the SaaS University in Dallas/Ft. Worth January 26-28 worth $995.00.

As I’ve said before- the SaaS University is one of the only places to actually learn about the business of SaaS and there are some fantastic people presenting- so if you’re transitioning to SaaS, or just looking to grow your SaaS business, this is a must attend event and I’m delighted to be able to get a pass for readers.

To enter and get access to some of the best SaaS knowledge- email me jp@justinpirie.com with the subject “SaaS U Dallas”. I’m going to draw the pass this week and I’ll email everyone who enters the discount code. As normal- I’m going to give priority to people how can actually attend so please make that clear on your entry.

TWIS #7

Happy New Year! I hope everyone had a brilliant night and heads aren’t too sore this morning

I think 2010 should be the year of actionable metrics and I’ll keep trying to share with you best practice and insight.

To kick 2010 off with Matt Breznia (who wrote- No one cares about your stupid little startup- 5 tips to make them care) posted The 4 Metrics of User Acquisition and the Customer Bulls Eye where they measure:

For any user acquisition channel – PR,virality, advertising, search engine marketing – we measure success on four key metrics:  engagement, virality, profitability & scalability. I visualize each customer acquisition channel as a dart on a dartboard.   Our goal is to optimize those channels so they each hit the bull’s eye.  We are also always searching for more channels to throw at our dart board.

We’ve made systems and dashboards to track and a/b test our user acquisition funnel.  We do this for each of our user acquisition channels.

For each channel we can A/B test over 50 landing pages.  Then for each channel and landing page combination we can see how many installs we got and what the conversion rate was to install (Scale), the percentage of users active in the last 7 and last 30 days (Engagement), how many new users these installs generated through our in-application invitation systems (Virality),  what percentage of these users converted to Xobni Plus and how much we paid for one of these users (Profitability), along with several other intermediary steps to each of these objectives.

We can take several groups of users (all from the same channel) and show them different messaging on a landing page, and see the resulting effects on scale, virality, engagement, and profitability.  Or, we can run one channel at a loss simply because those users are highly viral.  This reminds me of my optimal control research from grad school, except instead of optimizing on robot speed, accuracy and energy consumption, we are optimizing on scale, virality, engagement, and profitability.

1. Virality

We are adding more and more methods by which users are telling each other about Xobni through product interactions.  Right now we only track two.  The next generation of our tracking system will have over 10 viral inputs.

2. Engagement

We record other engagement metrics beyond the active user count – like clicks per user per day, searches per users per day, etc – however right now we review these metrics in one-off manner.  I’d love to add them to our dashboard.  It’d be fascinating (and useful) to know that a user acquired with a banner ad on Facebook make 5 times as many clicks/day on our premium upsells as a user acquired through twitter.  And, I’d love to know that I can increase the number of clicks to 7 if I send these users through a landing page that messages heavily on our premium product’s features.

3. Profitability

As previously discussed, Xobni Plus is just one of 5 revenue streams that will be driving our business by the end of 2010.  We’ve already announced Xobni with Salesforce and Xobni for Blackberry.  We’ll need to add these new revenue driving products to our dashboard and I’m excited to have the new ARPU (Average Revenue Per User) to play with.

4. Scale

This is where the creativity of an artist and the tenacity of a hunter intersect.  We are always searching for new darts to throw at our dartboard.

Some food for thought for SaaS marketing metrics… In an early version of his post- he gave a screenshot of their actual dashboard which has now disappeared I’ve asked him where it’s gone…

I’m doing my best to scout out SaaS metrics for you so I read this Techcrunch post on Evernote with interest:

The more interesting numbers are the number of active users over the past 30 days, which has also doubled to 700,000 from 360,000 since last May. Those users have created a total of 76 million notes, up from 36 million in May. But most importantly, the number of premium paid subscribers has gone from about 14,000 in May to 35,000. Premium members get more storage and features for $45 a year. The conversion rate for premium subscribers is also going up. Evernote is converting 4.9 percent of monthly active users to premium accounts, up from a 3.75 percent conversion rate seven months ago.

Unlike most apps, which see sharp drop-offs after only a few months, the longer someone stays on Evernote, the more likely they are to but a premium subscription. In the first month after signing up, about 50 to 60 percent of people drop off and only 0.5 percent sign up for a premium membership. But after the first month, retention stabilizes, and by the time people are using Evernote for 12 months, the conversion rate becomes 2 percent, and 6 percent for those on the service for 18 months (and that’s counting all those drop-offs in the first few weeks, the conversion rate for active users 18 months out is 20 percent). This pattern in conversion rates makes sense, since users are basically storing their memories in Evernote and the more they do that the more valuable it becomes to them. ” You can use it for free,” says Libin, “but we want people to use it forever, so that your memories in Evernote become the most valuable thing you have, period.” (Emphasis added- Ed).

Looking at those metrics on Evernote reminded me of this old but brilliant Andrew Chen post on Freemium:

Key idea #1: There’s Consumer freemium, and there’s Enterprise freemium

Key idea #2: Freemium playbook has already been written

And in particular:

Key idea #3: Freemium products face common design challenges

As a corollary to having a playbook of different tactics, you might also imagine that Freemium products must have similar design challenges as well. In particular, the biggest question of freemium is:

When does Free stop and Premium start?

On one hand, if you give away too much, then your conversion rate from free-to-paid ends up being too low. This means that people are too easily satisfied with your product, and have no reason to convert to being a paid user.

On the other hand, if you force the user to premium too early, then you lose out as well. They may not give your product a chance, and move on to something else, before they start down the path of converting to a premium user. Similarly, the free segment of your audience can help drive distribution and virality, and without that group, it becomes much harder to get meaningful amounts of traffic. (Emphasis added- Ed)

The economics of free are getting harder and harder to ignore. Hidden in the comments was this gem (Andrew again):

I don’t think doing Freemium is a matter of whether or not you can afford it. My view is, creating and supporting the Free product is like a marketing expense to drive usage of the Premium product. The question is whether or not you’d rather spend your marketing dollars there versus buying ads or building out a big sales team.

It’s investing in your customers so in return they invest in your interface. Simples!

Phil Wainewright continues his brilliant, original thinking this week with Cloud Delusions at the turn of the decade:

• Amateur cloud
• Firewall jealousy
• Fool’s cloud
• Isolated multi-tenancy
• Half-aaSed applications

My favourite delusion:

Firewall jealousy. A related delusion is to put more trust in your own organization’s security measures than in those of a cloud provider’s — even if the cloud provider employs many more security staff in round-the-clock shifts, has significantly more security expertise and operates much better processes based on the highest level of best practice. This ‘not my firewalls’ mentality — a variation on ‘not invented here’ — is especially egregious if your so-called ‘on-premise’ computing is actually off-site at some non-descript colocation center shared with an unknown number of other organizations.

Another brilliant blogger- Mike Dunham has written his predictions for 2010:

SaaS will continue to grow in acceptance and prevalence in the marketplace but – the term itself will fade in favor of “Cloud (insert your term).”

Real business value in SaaS will continue to improve, be better understood and measured more explicitly.

Service ecosystems will rise.

New services will focus less on “doing it all from day one” and more on their roadmap.

Integration requirements will drive standards for service-based communication and interaction.

End-user clients and platforms will continue to evolve and increase in their importance and differentiation.

Customer collaboration will become a more integrated and critical part of product management and business operations.

Agile will continue to grow in acceptance and will become the dominant approach for both development and business operations “in the cloud.”

There will be a growing awareness of the requirements and responsibilities implied by “mature services.”

SaaS vendors will stop trying to sell split versions.

Great presentation on how PBWorks used lean startup techniques (even though they didn’t know it!).

Eric Ries wrote a great post this week about Continuous Deployment for mission critical applications

Another release? Do I have to?
Most customers of most products hate new releases. That’s a perfectly reasonable reaction, given that most releases of most products are bad news. It’s likely that the new release will contain new bugs. Even worse, the sad state of product development generally means that the new “features” are as likely to be ones that make the product worse, not better. So asking customers if they’d like to receive new releases more often usually leads to a consistent answer: “No, thank you.” On the other hand, you’ll get a very different reaction if you ask customers “next time you report an urgent bug, would you prefer to have it fixed immediately or to wait for a future arbitrary release milestone?”

he goes on to say:

I want to directly challenge the belief that continuous deployment leads to lower quality software. I just don’t believe it. Continuous deployment offers three significant advantages over large batch development systems. Some of these benefits are shared by agile systems which have continuous integration but large batch releases, but others are unique to continuous deployment.

1. Faster (and better) feedback.
2. More automation.
3. Monitoring of real-world metrics.
4. Better handling of intermittent bugs.
5. Smaller batches.

For those of you who are new to continuous deployment, these benefits may not sound realistic. In order to make sense of them, you have to understand the mechanics of continuous deployment. To get started, I recommend these three posts: Continuous deployment in 5 easy steps, Timothy Fitz’s excellent Continuous Deployment at IMVU: Doing the impossible fifty times a day, and Why Continuous Deployment?

Let me close with a question. Imagine with me for a moment that continuous deployment doesn’t prevent us from doing staged releases for customers, and it actually leads to higher quality software. What’s preventing you from using it for your mission-critical application today? I hope you’ll share your thoughts in a comment.

Remember the new Startup Pyramid from TWIS#6- I’m not alone in thinking that not building in Customer Acquisition into the Product/Market Fit is bonkers- Venture Hacks thinks so too  It needs some more work- but we all have to have a holiday sometime :p While on Venture Hacks- they pulled out the best quotes from the Q &A with Sean Ellis. My favourite is “the product is half the marketing battle”- well I would say that wouldn’t I… I am a SaaS Product Guy!

Other posts:

• Worth a read are Appirio’s top posts of 2009.
• As is Peter Cohens thoughts on lead nurturing. Love the thought- “you can’t hurry love”.

Once again- a very happy new year to you all!

Justin