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Monetizing Multi-Tenancy:Exploiting the Revenue Potential in

Network Effect Data & SaaS EcosystemPresented at SaaS University

Dallas, TexasJanuary 27, 2010

Copyright© 2010 Sixteen Ventures. All rights reserved.

http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved

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The goal for today...


Photo via caveman_92223



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Legacy Software Business Structure

Marketing Intellectual Property

Revenue Model

Technology

Loosely-coupled, at besthttp://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved



Legacy Software

Customers Developers

Channels

Three basic elementshttp://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved



Customers Developers

Channels

Software-as-a-Service (SaaS)

Same elementshttp://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved



Producers Consumers

Ecosystem


Different approachhttp://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved



Producers Consumers

Ecosystem

NetworkEffect


Very different approachhttp://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved



Producers Consumers

Ecosystem

NetworkEffect

Keydifferentiators





NetworkCentricity

SaaS Business Architecture

MarketingIntellectual Property

Revenue ModelTechnology

All aspects are tightly coupledhttp://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved



Multi-Tenancy in SaaS - Technical Deep Dive


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Multi-Tenancy in SaaS - Single Instance for all Customers


Customer Customer Customer



Network Effect!



Multi-Tenancy in SaaS - Its not just Customers!


Customer Partner Developer

Industry Customer Partner

Customer Developer Customer

Ecosystem!



Multi-tenancy is good for...


Economies of Scale

Easier Software Development

and Management

Improved customer

support and product

maangement



Leveraged properly, multi-tenancy turns apples to apples comparisons...


Photo via martinlabar

SaaS vs. Legacy Software

vs.



http://www.flickr.com/photos/martinlabar/221908814/


Into bowling ball to apple comparisons, in your favor...


Apple Photo via martinlabar

SaaS vs. Legacy Software Bowling Ball Photo via definetheline

vs.





http://www.flickr.com/photos/definetheline/2337952675/


Change the focus to things legacy vendors cannot deliver!


Apple Photo via martinlabar

SaaS vs. Legacy Software Bowling Ball Photo via definetheline

SMASH







Multi-tenancy is ALSO good for...


$$$$$$$$$$$$$$$$$$$$$$$$$$$



SaaS Revenue Model

NetworkCentricity

Marketing Intellectual Property

RevenueModelTechnology

Revenue Model made up of Revenue Streams

Products

AdvertisingServices

Subscriptions Ecosystem

Ancillary

NetworkEffect




Products

AdvertisingServices


Ancillary

7 SaaS Revenue Streams

NetworkEffect





Ancillary

NetworkEffect

Less Scalable Revenue Streams

Products

AdvertisingServices




Products

AdvertisingServices


Ancillary

NetworkEffect

Scalable Revenue Streams




Products

AdvertisingServices


Ancillary

NetworkEffect

Our Focus Today...




Symbol Definition

Scalable Revenue Stream

Less-scalable Revenue Stream

Not Scalable in most cases

Revenue Stream Scalability Index

Scalability refers to margins per revenue stream; the more a revenue stream can benefit from economies of scale & improve margins with growth, the more “scalable” the revenue stream. Its not possible to eliminate all of the non-scalable streams (nor should you), but their value should be improved and the price charged should reflect that.




EcosystemProducts

AdvertisingServices

Subscriptions

Ancillary

NetworkEffect

Ecosystem

-Examples - PlatformChannels

APIsWhite Label

Licensing

Pros Cons

1-Infinity ScalingUnwanted

interdependencies can grow if unchecked

Improved value for ecosystem partners

Lack of visibility into value chain for clients

Exposure to ancillary & adjacent markets

Need to market to end-users to create demand in front of channel partners




Products

AdvertisingServices


Ancillary

NetworkEffect

-Examples -Anonymized/

Aggregate DataReports

BenchmarksAPIs

Pros Cons

Fully leverages data collected in multi-tenant environment

Privacy concerns require disclosure of intentions by vendor

An asset that increases exponentially in value as usage of

the system grows linearly

Requires planning up front an execution early on data collection

otherwise value is lost until capture begins

Leverage ecosystem partners to develop reports or add value to

data through APIs

Vendor must be diligent in adhering to regulations,

governance, and privacy laws

Does not require a “critical mass” of users as many think for

network effect data to be valuable

Careful planning to determine when network effect data

becomes valuable & to whom required


Network Effect




Gaining mainstream acceptance...

Tweet via rwang0



http://twitter.com/rwang0/status/7690862367

http://twitter.com/rwang0/status/7690862367


SaaS Vendor End Customer

SaaS Distribution - Myth

The common fantasy is since its “on the web” the web is the distribution channel. Maybe, but you might want to

explore that further; just to be sure.

Web





SaaS Distribution - More Likely

Intermediary

You might not know about them!

What if you don’t have to use an intermediary? Can you? Its called leverage, but the key is to remember that rarely will you compel 3rd

parties with only revenue share agreements for SaaS. The vendor should dig deeper and find out what they can solve for them.




EDI Vendor

ConsumerPackaged Goods

Manufacturer

SaaS Distribution - Example

Manufacturers Rep

SaaS vendor has a shared customer with the manufacturers rep. The SaaS vendor has figured out that the easiest way to reach the end-customer is through the Manufacturers rep. The SaaS vendor builds support for the Manufacturers Rep into the product giving them a reason to compel the

shared end-customers to use the product.

SaaS Company Intermediary End-customer





SaaS Distribution - Value Chain view is limited

IntermediaryIntermediaryIntermediaryIntermediaryIntermediaryIntermediaryIntermediaryIntermediaryIntermediary

Industry Association

Independent Developers



Analyst FirmsIndustry Associations


SaaS Vendor

Application Customer

SaaS Distribution - Value Network Reality

IntermediariesStand-alone Consumers

Platform

Trusted AdvisorsTraditional Channels

Independent DevelopersOther Software Vendors

IndividualsEnterprises

SaaS Vendor sits in the middle of everything!




SaaS Vendor

Application Customer

SaaS Distribution - Value Network Reality

IntermediariesStand-alone Consumers

Platform

The possibilities are endless!




Questionnaire

SaaS Vendor




Question 2 Application Customer




Question 3 Stand-alone ConsumersPlatformIntermediaries




Question 4 Stand-alone ConsumersPlatformIntermediaries




Question 5 Stand-alone Consumers

Intermediaries Platform




Apple Photo via kylemay

The sooner the better...

Who What When

Where Why How

Metrics Governance Privacy

Commingled Segmented Anonymized



http://www.flickr.com/photos/kylemay/1470605905



Apple Photo via kylemay

Did we reach the goal?





SaaS Revenue Modeling &Business Architecture


@lincolnmurphy

[email protected]

(972) 200-9317



http://twitter.com/lincolnmurphy


mailto:[email protected]


Appendix A:Case Studies in SaaS Network Effect &

Ecosystem Revenue Modeling




SaaS Product Description of the SaaS offering

End-Customer Description of the SaaS vendor’s end-customer

End-Customer’s Trusted Advisors

Who did the end-customer buy from, listen to, etc. that the SaaS vendor could leverage, and help, in an effort to secure the

end-customer relationship

Network EffectWhat benefits the clients derived from the network centricity

of the SaaS solution, including aggregate data

EcosystemHow the Vendor derived value from, and added value to, its

ecosystem, including VARs, SIs, Distributors, etc.

Revenue Streams How the Vendor makes money

SaaS Case Studies




SaaS Product Retail Supply Chain / EDI

End-Customer Small to Medium Consumer Packaged Goods manufacturer


•Big Box Retailers•Freight Brokers•Third-party Logistics Providers•Manufacturers reps

Network EffectBenchmarks on retail category performance available to all of

the end-customers’ Trusted Advisors

EcosystemPre-built EDI maps, access to discounted & expedited shipping,

visibility for intermediaries and interested parties

Revenue StreamsSubscriptions (monthly & per-transaction), Ecosystem,

Network Effect Data, Services

SaaS Case Study #1 - SCM/EDI Vendor




SaaS ProductVendor Managed Inventory Control System (internal product

re-architected & exposed as SaaS)

End-Customer Fragmented network of small independent pharmacies


•Pharma Distributor that created the SaaS product•Industry Association•Product Suppliers (whom the Distributor buys from; value-pull)

Network EffectSophisticated inventory system allows distributor to aggregate

order history and current inventory for all pharmacies

EcosystemUse aggregate data to predict restocks, share that w/ vendor

to get better terms for the pharmacy client

Revenue StreamsAncillary (float interest), Ecosystem (distributor commissions),

improved margins), Network Effect Data (suppliers pay), Services, Products (hardware device)

SaaS Case Study #2 - Pharmaceutical Distributor




SaaS Product Revenue Cycle Management

End-Customer Fragmented network of small independent hospitals


•Hospital Industry Associations•Independent Consulting Firms•Complementary Software Vendors•Insurance companies and Government Payors

Network EffectRevenue & Collection Benchmarks against similar-sized

Hospitals (per-bed)

EcosystemMedicare, Medicaid, and Commercial Payer clearinghouse,

Channel partners(visibility into their customers’ usage of system)

Revenue StreamsSubscriptions (per-transaction, % collected), Ecosystem,

Network Effect Data, Services, Products

SaaS Case Study #3 - Healthcare Revenue Cycle Mgmt




SaaS Product Managed Care Menu Management (ancillary market)

End-Customer Small Assisted Living Facilities


•Food Distributors•Industry Association•Assisted Living Management Companies

Network EffectAggregate menu item usage data to help negotiate better deals

for end-clients (through channel partners where applicable)

EcosystemDirectly monetized relationship with Food Distributor

(channel) to salvage unprofitable existing relationship w/o getting in front of partner or negatively affecting end-client

Revenue StreamsSubscriptions (Annual per-location), Ecosystem (Distributor

visibility), Network Effect Data, Services, Products

SaaS Case Study #4 - Restaurant Menu Management




SaaS Product Mail Center Management & Package Tracking

End-Customer Large Corporate & Fortune 500 mailrooms


•Mailing Industry Associations•Shipping Carrier Auditors•Industry Consultants•Complementary Software and Hardware Vendors

Network Effect

Most Mail Center managers are in a position to justify their existence so benchmarks against other Mail Centers helped prove operational efficiency, Complementary vendors and

industry associations found data useful, too

Ecosystemshipment tracking, spend management & procurement, carrier

audits

Revenue StreamsSubscriptions (per-transaction), Ancillary (carrier audits),

Ecosystem, Network Effect

SaaS Case Study #5 - Mail Center Management




SaaS Product Treasury & Cash Management

End-Customer Large Corporate & Fortune 500 mailrooms


•Industry Associations•Anti-Money Laundering Groups•Banks•Consultants

Network EffectAggregation of transactional details across industries, locales, etc. Benchmarks on interest, float, sweeps, etc. against similar

industries

Ecosystem

Anonymous Aggregated (A/A) data used by Anti-Money Laundering groups to “teach” their software patterns, Banks and Consultants leverage A/A of their clients & others in the system to judge performance and offer guidance, upsell, etc.

Revenue StreamsSubscriptions (per user, per-transaction), Ancillary (float,

brokerage/forex commissions), Ecosystem, Network Effect Data

SaaS Case Study #6 - Treasury Management




SaaS Product Bank Spend Management

End-Customer Local and Regional Banks & Credit Unions


•Industry associations•Local & Regional Printing Companies•Complementary Software Vendors•Office Supply vendors

Network Effect

Aggregate orders across bank branches allows vendors to aggregate order history and current inventory for customers, customers get group purchasing power through aggregation

under one SaaS vendor in addition to core product value

Ecosystem

Office Supply vendors gain visibility into the buying behavior of specific target market, complementary software vendors gain visiblity into transaction history of customers for inclusion in

their product

Revenue StreamsSubscriptions (per branch, vendor visibility), Ancillary, Ecosystem (vendor commissions, API), Network Effect

SaaS Case Study #7 - Bank Spend Management




Appendix B:Seven SaaS Revenue Streams Worksheet




Seven RevenueStreams Worksheet

Subscriptions

Ecosystem

Network Effect

Ancillary

Products

Services

Advertising

OriginalProducers

Stand-AloneConsumers

Consumers OtherProducers

Copyright© 2010 Sixteen Ventures. All Rights Reserved




SaaS Revenue Modeling &Business Architecture


@lincolnmurphy

[email protected]

(972) 200-9317







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