mediascience's posterous http://mediascience.posterous.com Most recent posts at mediascience's posterous posterous.com Tue, 26 Jul 2011 06:52:00 -0700 SaaS Benchmarks | Acquisition Cost and Churn Challenges http://mediascience.posterous.com/saas-benchmarks-acquisition-cost-and-churn-ch http://mediascience.posterous.com/saas-benchmarks-acquisition-cost-and-churn-ch

SaaS Benchmarks | Acquisition Cost and Churn Challenges

By Joel York on March 8, 2011

saas benchmarkI routinely get asked questions like the following: What is a typical churn rate for SaaS? How much should I pay my SaaS sales reps? What is a good time frame to recover acquisition costs? A few years ago, the best answers I could give were simply based on my own experience and conversations with other SaaS colleagues. However, as SaaS has matured as a category, some high quality SaaS benchmark studies have appeared.

Recent conversations with Lauren Kelley over at OPEXEngine highlight for me how SaaS companies across the board struggle with customer acquisition costs (CAC) and churn. The 2010 OPEXEngine SaaS benchmark study shows a WIDE range of results across these critical performance metrics, indicating that there is no one right way to tackle these challenges that will work for SaaS companies across all sizes and sectors. But, there are plenty of wrong ways.

SaaS Benchmark Results – Customer Acquisition Cost

SaaS companies vary a lot in their willingness to invest in customer acquisition. For example, the OPEXEngine SaaS benchmark report gives an average payback period for CAC alone of about 18 months (CAC per new customer divided by average recurring revenue per customer). However, SasS companies with expected growth rates in the 20-50% range had a payback period of only 6.5 months, while those with expected growth rates over 50% had an average payback period of….drum roll….35 months! Ouch. While it makes sense to invest heavily in customer acquisition during high growth, SaaS Metrics Rule of Thumb #6 | Growth Creates Pressure to Reduce Total Cost of Service, highlights the importance of keeping average CAC per customer in check as you grow. Even if you’re angling toward an IPO with a churn rate under 10%, I think it’s near impossible to justify a 3 year payback period just to cover CAC. Talk about negative cash flow!!

SaaS Benchmark Results – Churn

The situation with churn is similar. While the average churn rate is about 13%, there is a wide range of performance across private SaaS companies. For example, the OPEXEngine SaaS benchmark study shows higher churn rates for SaaS companies targeting the SMB market and lower churn rates for those targeting large enterprise customers. Clearly the strong correlation between adoption costs and switching costs is playing out here, as enterprise customers are both harder to get and harder to lose. Moreover, SMBs are much more likely to go out of business altogether than large enterprises.

As you might expect, churn varies consistently with SaaS business scale and maturity. The OPEXEngine SaaS benchmark report gives a median churn rate of 8.5% for private SaaS companies with more than $10M in revenue, and a whopping 20% median churn rate for SaaS companies with less than $10M in revenue. A handful of startups have reported churn rates as high as 60%! This makes sense as you would expect churn to be high as a startup is figuring out its sales and marketing model, and then to settle down as improvements are made. Many of these smaller SaaS companies are also in the high growth category. So, if you happen to be the lucky SaaS startup with a 20%+ churn rate (meaning an average lifetime of < 5 years) AND a CAC payback period of 3+ years, you’ve got some serious business challenges on your hands.

The Value of SaaS Benchmarks for Growing Companies

Studies like the OPEXEngine SaaS benchmark report are great tools for SaaS executives at both large and small SaaS companies, and are especially useful for SaaS executives that are navigating the path from small to large. When both revenue and costs are in extreme and continuous flux, benchmarks help you focus on the problem areas and avoid wasting time reinventing the wheel. In addition to the CAC and churn metrics discussed here, this particular study includes a wide range of operational, financial and productivity metrics broken out by company size and growth rate, e.g., average deal size, hosting expenses, revenue per employee, and complete cost structure SaaS benchmarks covering expenses for sales, marketing, R&D, services, support, etc. For more information on how to participate in or purchase the OPEXEngine SaaS benchmark report, please see the highlight box below.

How to Get the OPEXEngine SaaS Benchmark Report

You can currently buy the 2010 Private Saas Benchmarking Report that I used for the analysis above at www.opexengine.com. In addition, the latest 2011 OPEXEngine benchmark survey of software and SaaS has just been launched with an expanding universe of participating companies and SaaS benchmarks. In particular, there are more pre-IPO SaaS companies participating as well as larger SaaS companies up to $350M in 2010 revenues.

To participate, go to www.opexengine.com and register for the 2011 benchmarking. Upon registration, you’ll receive instructions about where to enter the survey on the OPEXEngine secure site. Participants receive a confidential Individual Company Report as well as the full, 70 page, 2011 Software Benchmarking Industry Report upon completion of the benchmarking.

Discounts for Participants, SIIA Members and Startups!
Pricing for these reports for participants is tiered by revenues and SIIA membership.
Companies with 2010 revenues under $10M: $999 or free for current SIIA members.
Companies with 2010 revenues over $10M: $1995 or $999 for current SIIA members.

(Cross-posted @ Chaotic Flow by Joel York)

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Tue, 19 Apr 2011 05:39:00 -0700 Zipcar’s IPO: A $1B Subscription Economy Success Story | Zuora, Inc. http://mediascience.posterous.com/zipcars-ipo-a-1b-subscription-economy-success http://mediascience.posterous.com/zipcars-ipo-a-1b-subscription-economy-success

« Jimdo, a German-Based B2C Juggernaut Goes Global | Main

April 15, 2011

Zipcar’s IPO: A $1B Subscription Economy Success Story

by Kyle Christensen, Senior Director of Product Marketing


It started in the technology sector, as new business models often do. Salesforce.com offered a completely different approach to buying software. Why throw down millions of dollars for servers and CD’s when you could subscribe to software, delivered as a service, over the internet?


This week we saw yet another proof point that the Subscription Economy is taking over. No, not with news of another SaaS company assuming leadership in a technology sector (although SaaS will be 85% of all new software by next year.) Not with an old guard media company transitioning to a new digital subscription strategy (that was last month.) We see it in an industry that’s not exactly known as “bleeding edge”: The automotive industry.


This week Zipcar announced an IPO at $18 per share to raise a total of $174.3 million to expand the company’s network (currently over half a million subscribers.) And the market promptly drove the share price up to $30. That's a $1 billion valuation. It’s no wonder. Why drop $30,000 on a single car that you’re stuck with for the next 5-10 years? Leasing was the next step in the evolution...you pay only for the value of the car that you use for 2-3 years. But that still doesn’t deliver the true value of the Subscription Economy. You're still locked into one vehicle, with no room to ramp your usage up or down. Then Zipcar came along and figured it out, fully embracing the concept of cars delivered as a service. Take a station wagon to get groceries on Thursday, grab a convertible to cruse the coast on Friday, then pick up an SUV to shoot up to the mountains on Saturday. Plus you’ve got gas-as-a-service and insurance-as-a-service bundled in. You pay more when you need to ramp up your millage and time, or you can throttle it back if you need to. Not a bad option with gas prices being what they are today.


It’s that subscription flexibility that’s tied to both the service you get and the price you pay that has customers demanding new subscription services across technology, media, communications, and now transportation. Congratulations on your success in the Subscription Economy, Zipcar! We can’t wait to see who’s next.

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Thu, 31 Mar 2011 06:58:00 -0700 Software as Services | ZDNet http://mediascience.posterous.com/software-as-services-zdnet http://mediascience.posterous.com/software-as-services-zdnet
Phil Wainewright

Since 1998, Phil Wainewright has been a thought leader in cloud computing as a blogger, analyst and consultant. He founded pioneering website ASPnews.com, and later Loosely Coupled, which covered enterprise adoption of web services and SOA. As CEO of strategic consulting group Procullux Ventures, he has developed an evaluation framework to help ISVs and enterprises select cloud platforms, and advises US and European vendors on messaging, positioning and go-to-market. His newest role as an industry advocate is vice-president of EuroCloud.

Interesting SaaS blog from ZDNet.

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Wed, 16 Mar 2011 01:22:00 -0700 eXo Platform kicks off “the year of PaaS” and extends enterprise portals to the cloud http://mediascience.posterous.com/exo-platform-kicks-off-the-year-of-paas-and-e http://mediascience.posterous.com/exo-platform-kicks-off-the-year-of-paas-and-e

Yesterday, Gartner declared that 2011 will be the year of Platform as a Service (PaaS). Not only does this mean we’ll be seeing a wave of innovation but also a consolidation of various offers over the next few years.

Well, we’ve perhaps already witnessed a bit of consolidation. Like with VMware’s acquisition of WaveMaker just last week. This acquisition – which took place only a few months after Cloudbees bought Stax – should naturally strengthen VMware’s PaaS range.

As for innovation, new offers are also starting to pop up – especially with Amazon Web Service’s launch of Elastic Beanstalk in January. More traditionally an Infrastrure as a service (IaaS) provider, AWS seems to be clearly making its way towards PaaS as well. The product (still in beta) is designed to let developers upload their application and then keep their hands off while the system automatically handles deployment.

And coincidentally, eXo Platform is also launching a new cloud-based service for java developers, called eXo Cloud IDE. The Franco-American company is the publisher of a user experience platform for java, aiming to make java applications and websites faster to build and easier to deploy. Cloud IDE, which will be in private beta through the 2nd trimester of 2011, is the first of a series of free services to be provided in the eXo cloud services package. This hosted environment facilitates social coding and the collaborative development of gadgets and mashups that can be deployed directly to popular java PaaS. In the future, the team says it would like to extend support beyond java to cover additional programming languages like Rails, .NET, Node.js, and Play.

The company – which recently nominated the former Director of Red Hat France, Yann Aubry, to lead the company’s sales efforts in the EMEA region – has also announced the launch of eXo Platform 3.5, a multi-tenant user experience platform for java systems. In addition to multi-latency and cloud management capabilities, the new platform apparently features a number of improvements making it easier to write, test and deploy gadgets, mashups, HTML5 and content applications.

The company founded in 2003 closed a €4 million Series A round with Auriga Ventures and XAnge last year. eXo – which been called one of the “three musketeers” of French open source (alongside Bonitasoft and Talend) by French Newspaper La Tribune – says that it seeks to provide the shortest and most efficient path to the cloud for java enterprises with its new offers. Developers, feel free to chime in.

eXo Platform image

Website: exoplatform.com
Location:San Francisco, California, United States
Founded: 2003
Funding: $6M

eXo offers the next generation of Java middleware designed for the new era of cloud-based services. The eXo Platform makes Java websites and applications faster to build and easier to deploy, and offers modern features such as content, collaboration,… Learn More

Information provided by CrunchBase

See what you think Phil, any implications for MS? Either from potential tech/dev perspective or maybe just how we see the world...

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Tue, 15 Mar 2011 02:19:00 -0700 Insights On SaaS From The $32 million HubSpot Mega-VC Round http://mediascience.posterous.com/insights-on-saas-from-the-32-million-hubspot http://mediascience.posterous.com/insights-on-saas-from-the-32-million-hubspot
Media_httponstartupsc_iojca

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