Beyond the Funnel: the Service in SaaS

When the care and maintenance of a major software system is resolved through SaaS, it doesn’t mean every problem is solved.

August 27, 2008 // Chris Kenton

SaaS, or Software as a ServiceSocialRep is part of a growing sector of the software market known as SaaS, or Software as a Service. The shift toward SaaS has been growing for a decade, and along with all the adjustments to the software technology, distribution and business model, the cultural mindset of the software industry also needs to change—from venture investment to vendor operations. One of the biggest changes involves the meaning of Professional Services in a SaaS environment.

In the days of monolithic enterprise applications, Professional Services were required to get the software up and running in a corporate data center. If you’re familiar with some of the frustrations that can arise from installing new software on your computer, imagine what can happen for an entire company—potentially thousands of users, dozens of different computer setups, legacy systems, application conflicts—the list is endless. If you were a vendor trying to put an application into a corporate data center, you needed an entire team, or a VAR partner, dedicated to getting the system up and keeping it running.

In the world of SaaS, most of those issues have been left by the roadside. Since software is now being served over the web from one source to just a handful of browser types or desktop clients, the need for a big professional services teams is dramatically reduced. At least, the need for services dedicated to on-premise care and feeding of customized software implementations is reduced. But at SocialRep, we’re seeing that the ebbing of one type of professional services is simply exposing the next major frontier in professional services needs.

Think of it like Maslow’s hierarchy of needs: If you don’t have enough food to survive, the quality of your housing is not a big concern. But once you have an adequate food supply, your housing issues become more pressing. We’re seeing that kind of transition now in business. When the care and maintenance of a major software system is resolved through SaaS, it doesn’t mean every problem is solved. It just means you can move on to the next issue in the hierarchy. In the world of enterprise software, that next issue is actually getting the promised business benefit from the software. If users can simply turn your system on or off at will, they no longer have the sunk cost of a million-dollar implementation to help everyone want to believe it was a worthwhile investment, and they no longer have much of a barrier to switching to a competitor.

The challenge for SaaS vendors is that providing professional services to help customers achieve business value is not traditionally part of a software company’s DNA, and in fact, investors are strongly inclined to push against it. The conventional wisdom is that services are not scalable, and therefore not a good venture investment. Services are traditionally the domain of agencies—and having run an agency, I know only too well how challenging it is to scale. Business services require smart (read: expensive) workers, who can only handle a limited number of customers, require benefits and space and heating, and all kinds of messy things that aren’t nearly as convenient as pushing out code that can serve lots of customers, 24 hours a day from somewhere in the cloud.

But the reality we’re seeing today, and that I suspect many SaaS companies will face as the sector grows, is that the sustainability of the business goes beyond efficiently acquiring customers, minimizing churn, and generating enough operating capital to grow. That’s what vendors need. Customers need to get value from the software when they turn it on, and for any vendor working on the innovative edge of business applications, chances are your customers don’t know how to get the value from the software when they turn it on. You may have developed the most brilliant technology on the planet, but if your customer doesn’t know how to leverage it to help their own business today, you’re about 90 days from the point where they decide the monthly expense isn’t worth it. But hey, just make sure your sales funnel is big enough and that won’t matter, right?

SaaS companies don’t need to become service agencies. But we strongly believe that SaaS companies offering enterprise software will have to make some commitment to professional services focused on helping customers achieve business value, not just turning the system on. Most investors don’t want to hear that. Which is a shame. It shuts down the conversation about compelling ways to provide professional services in a way that still allows the company to scale. And at the end of the day, we think that will turn out to be far more efficient than just playing the funnel game.


Leave a Comment

Your email address will not be published. Required fields are marked *

Leave a Reply