“Participate in Your Success”August 28, 2010

Designing Products for the Cloud

Considerations for Product Managers

By Steve Keifer

What is Cloud Computing?

“A standardized IT capability

(services, software or infrastructure)

delivered via Internet technologies in

a pay-per-use, self-service way”

“Cloud computing is Internet-based

computing, whereby shared

resources, software, and information

are provided to computers and other

devices on demand like the

electricity grid.”

Source: Wikipedia

Source: Forrester

Confusion Abounds

“The interesting thing about cloud

computing is that we've redefined

cloud computing to include

everything that we already do.”

“I can't think of anything that isn't

cloud computing with all of these

announcements.”

Larry EllisonCEO Oracle

Oracle World 2008

Key Tenets of Cloud Computing

– Infrastructure delivered as a Service

– Commoditized and standardized

hardware and software platform

– Ability to quickly move, change, add

and delete applications

– Massive scalability both upwards and

downwards with same economics

– Pay by consumption units (e.g.

gigabytes, CPU cycles)

– No upfront implementation fees or

long term contracts

– Multi-tenant architecture with shared

infrastructure

Battle Between the Cloud Idealists

versus the Cloud Washers

Is Life Different in the Cloud?

Impacts on Product Management

“No member of the development effort

faces greater change in moving into the

SaaS world than the product manager.”

“Not only are on-demand products different from their on-

premise counterparts, but the development processes required

to create, maintain and enhance a SaaS product are different.

SaaS Dictates Different Product Management Priorities – November 2008

Requirements Gathering

• SaaS applications are not designed

to be customized

• Flawed understanding of customer's

requirements increases likelihood

that product fails in market

• Responsibility for collecting

requirements, analyzing what they

mean, converting into development

priorities

Product Management Bears a

Higher Burden for Understanding

Customer Needs

Gathering Requirements

Salesforce.com

Idea Exchange

• Launched in fall 2006

invited customers to item

development priorities

• Users can vote to

promote ideas for

inclusion in upcoming

release

• Instead of holding big

meetings to wrangle over

features, developers can

move forward knowing

what people want

Salesforce.com Idea Exchange

Try Before You Buy

“Conspicuous Value” - Value

proposition must be

immediately obvious, without a

salesperson standing at

customer's shoulder to explain

Customer should be able to

demo a product, move to

sandbox, and take online

training in a matter of days

Sales People or the Web?

• A 30% cost of sale can’t be supported

by most companies. It’s as simple as

that.

• You can’t spend enough time with the

customer to help with his education,

and that means he’s on his own more

often.

• The customer isn’t paused until the next

sales meeting, waiting to be feted and

wowed by your solution selling

greatness.

• That’s now a small channel to his mind.

• He’s on the Internet, researching,

browsing your website, browsing your

competitors websites.

Everyone is

Researching Products

& Price on the Internet

These Days Nick Van Weerdenburg

http://testdrivenmarketing.com/286/is-sales-become-marketing-technical-support

Pricing is a Key Driver

Advantages of Cloud & SaaS

– No capital investment

– Limited upfront fees

– Scale up according to demand

– Scale down to reduce costs

– Predictability of future costs

– Fund more projects simultaneously

– Total cost of ownership should be lower

Cloud & SaaS Pricing Models

Many Different Pricing Models

• Usage-based metrics -

transactions, users, documents,

purchase orders

• Subscription models - size of

company - revenue or employees;

business entities

• Bracketed tiers

• Add-ons - new modules, storage,

support

Many Pricing Models Emulate

Mobile Phone Schemes

Implementation Fees

Most significant cost

outlays for providers occur

upon activation or

installation of the service

Customers seeking to

preserve cash and avoid

large upfront payments

Attracts customers with

weak financial viability or

poor credit history

Contract Terms

Customers want the

flexibility to terminate

contracts and switch to

alternative vendors

Investors want the

predictability of long-term

contracts with monthly

recurring revenues and

highly visible backlogs

Commodity Pricing Models

“Pork-Belly” Commodities Pricing

Supply and Demand– Demand is low and supply is

high - instances cost a

fraction of a cent per hour

– Supply is low and demand is

high - instances cost more

than a regular instance

Price Caps– Automatically shut down once

reaching threshold

– When prices go back down

automatically restart

Billing Systems

Can Billing Support:– Per User

– Per Transaction

– Per Mailbox

– Per Document

– Free Trials

– Tiered Pricing

– Spot Pricing

Cloud and SaaS pricing Innovation is

Limited by Ability to Meter and Bill

Vendor Managed Upgrades

The Enterprise Software

Upgrade Treadmill leads to

Upgrade Fatigue

SaaS and Cloud Offer

– Frequent upgrades

– Predictable costs

– Minimal downtime

– Minimal testing

– No customization

– Changes occur via

configuration

Multi-Tenant

Common, Shared Platform Single, Dedicated Platform

Supporting Customization

Big Customers Want

to Bully Vendors

“This public cloud

business is only a

sustainable business

model if a provider

…does not follow the

demand of its largest

customers to offer more

customized solutions”

Source: Forrester Research - The Evolution of Cloud

Computing Markets (July 2010)

Service Interruptions

Google 2 hour 20 minute outage for all

enterprise applications due to power failure

Workday's SaaS for human resources, financial

applications and payroll was down for 15 hours

Amazon EC2 cloud disruption in Northern

Virginia data center for 5 hours

Overheating problem in Wikipedia's European

data center caused 1 hour global outage

Intuit Turbotax, Quickbooks Online, Quicken

online sites for 36 hoursJune 2010

March 2010

December 2009

February 2010

September 2009

Trust by Salesforce.com

Customer Bill of Rights

Transparency to

– Availability metrics

– Performance concerns

– Known bugs

– Security breeches

– Financial results

– Regulatory compliance

– Technical interoperability

– Data center locations

– 3rd party providers

Source: Altimeter Research - Customer Bill of Rights – Software as a Service

Operational Requirements

Who Owns

Requirements for:

• Service Level Agreements

• Backup & Recovery Policies

• Health & Performance

Monitoring

• Disaster Recovery Strategies

• Call Center Response Times

• Data Center Maintenance

Windows

What is the Role of the

Product Manager?

Integration – Bridge to Other Apps

Connecting Cloud and SaaS-based Products to

Behind-the-Firewall Enterprise Applications

Shareholder Expectations

Valuations depend upon

achieving expected

financial metrics

– More predictable recurring

revenues and cash flow

– Multi-year contractual

relationships with high renewal

rates

– Opportunity to leverage

economies-of-scale and

shared resources

– Lower margins, but bigger

overall spend

– Capturing the 3/4 of IT spend

not addressable with selling a

server or software license

– Lower R&D expenses due to

single code base and minimal

customization

How to Measure Success?

New Metrics beyond

Revenue, Profit and Loss

New Metrics for Cloud & SaaS

– Rate of customer acquisition

– Growth of net new subscribers

– Annual recurring revenue per

account

– Length of contractual

relationships

– Customer lifetime value

– Number of users per account

– Current to initial contract value

(Same store sales)

– Backlog

– New bookings

– Deferred revenues

Additional Resources

http://www.pragmaticmarketing.com/publications/topics/08/saas-

product-management

http://www.forrester.com/rb/Research/saas_dictates_different_product

_management_priorities/q/id/45055/t/2

http://www.quantumwhisper.com/product-management-

tidbits/bid/19051/SaaS-Product-Management-Challenges

http://techprodo.com/wordpress/?p=92

http://blog.softwareinsider.org/2009/10/12/research-report-customer-

bill-of-rights-software-as-a-service/

http://www.forrester.com/rb/Research/how_secure_is_cloud/q/id/45778

/t/2

http://chaotic-flow.com/saas-competitive-advantage-saas-economics-

101-e-book/

SaaS Product

Management

SaaS Dictates Different

Product Management

Priorities

SaaS Product

Management

Challenges

SaaS Product

Management – Is there

a Difference?

Customer Bill of Rights

– Software as a Service

How Secure is Your

Cloud?

SaaS Economics 101

Pragmatic

Marketing

Forrester

Research

Product

Management

Tidbits

Techprodo

Blogspot

Altimeter

Group

Forrester

Research

Chaotic

Flow

Contact Details

Blog – http://outsideinmarketing.wordpress.com

Twitter - @stevekeifer

SlideShare – http://www.slideshare.net/stevekeifer

LinkedIn – http://www.linkedin.com/in/stevekeifer

More Thoughts on Product Marketing &

Product Management

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