Think Like a Designer
The online marketplace has never been so crowded as today. Every enterprise software provider is offering an online incarnation of their traditional on-premise product. It is hard to be different and be noticed, to not be like the next vendor. Customers migrate from one service offering to the next. Being different is no longer enough to sustain a viable business, the key is being relevant and staying that way. Delivering what the customer needs, in a way that the customer wants. It means to truly put the customer first.
If you have paid attention the last couple of years and even more so the last couple of months, you know that the world is, gradually, embracing a new business model. COVID-19 uncovered the necessity of access to data and applications anytime, anywhere, and no, not anyhow, instead it must be secure.
Organizations depend on the ability of remote-working employees to stay in business and on the availability of online alternatives to the programs used when in the office.
In the coming months and years, we will see more and more Independent Software Vendors (ISVs), turn into SaaS providers. Transforming from product delivery to service offering. A massive shift in business model and consequently operating model. Read my article on the challenges ISVs face while transforming into SaaS providers.
Quantum leap into the Business of Cloud Services
The challenges Software Vendors face adopting the Service Delivery model in the post COVID-19 world
The SaaS model is a business model where customers ‘pay as they go’. No longer paying for a product, but for using it. Customers no longer own or even lease a product, instead they merely use it.
Changes in a business model, in business sustainability, is disruptive and results from the alignment of business adoption and consumer acceptance of a service-based market. This change Following a global transformation from a product development model into a service delivery model. Already going on for years, this transformation was expected to continue for the coming 5 to 10 years still. But COVID-19 changed all that and expedited the demand from customers to have online alternatives.
From Owning to Using
The pay-as-you-go model is not new. Utility companies obviously pioneered the model where we pay for what we us. The psychological aspects are evident. When you consume a shared resource, it is only fair when you are billed for your consumption only. Especially when the goods are abstract like ‘utilities’, consumers are more inclined to prefer the pay-per-use model over a flat-rates model. The latter often considered with skepticism, since the vendor is thought of to be ‘ripping you off’.
This business model is finding its way more and more into the realms of intangible good, commonly found ‘on-line’. Although this is not limited to the virtual world, established names from the physical world are adopting this model at scale. Investing billions in turning products into services. German car manufacturers BMW and Daimler are investing billions in Mobility as a Service offering. A concept that is no longer recognizable as the traditional process of car manufacturers.
Daimler and BMW invest $1.1 billion in urban mobility services
Daimler AG and BMW Group officially agreed to merge their urban mobility services into a single holding company back in…
In the world of software, we are closer to the abstract utility market than the physical world of cars. Adoption has been going on gradually.
Read my article on the topic of business model transformation for more insights on the changes between Product Delivery and Service Offering
The New Business Model
As I explain in my article The Product to Service Quantum Leap, for service providers the traditional business model based on product ownership does not work well. A fact that is often lost upon service providers that used to be successful ISVs.
All costs involved in providing the service to the customer are for the SaaS provider to bear. Operational costs are the SaaS provider’s costs and will have to be paid for with money paid by customers. This requires that cost and benefit be intertwined. Increased cost should be the result of increased revenue, a characteristic of the pay-for-use model. The more a service is used, the higher the cost involved but also the more revenue is generated.
Of course, unused services do not generate any revenue, yet they do require an investment to be created and marketed. To mitigate the risk of disinvestment is to reduce the required investment before revenue can be generated. Something that can only be successfully achieved by entering the market with a service with fewer and possibly without any bells and whistles.
The pay-as-you-go revenue model requires that services be in-market. Only during their time-in-market can they generate revenue. When the service is not available to customers, the customers cannot be billed for the use of the service.
Similarly, when your utility company does not deliver the electricity to your home, your electricity bill will be rather low. In fact, when the electricity is out for too long, they cannot even charge you the low flat fee that is associated with maintaining the infrastructure itself. They do not meet the SLA you do not have to pay.
Availability is a core aspect for SaaS offerings to be considered a means to generate the company’s revenue stream. Unavailable means unbillable.
As stated, it is important that the SaaS provider knows who is using the services and how often. Unless it is known which customers are using which services and how often, they cannot be charged anything.
Similarly, when your utility company does not install a meter into your home, they will not be able to charge you for consuming any electricity since they do not know what you have consumed. Unless they measure consumption, your electricity will be rather low.
Monitorability is a core aspect for SaaS offerings to be considered a means to generate the company’s revenue stream. Unmonitorable means unbillable.
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In this new model it is extremely important for offered services to be relevant and usable. Services that are not or no longer relevant are not used and therefore will not generate revenue. Relevant services that are not usable are in and by themselves relevant, but because the service is not usable, it still is not generating revenue.
Similarly, when your utility company delivers electricity to your home as 120V and you only have 240V appliances, you will not use the 120V powerlines into your home and your electricity bill will be rather low.
Usability is a core aspect for SaaS offerings to be considered a means to generate the company’s revenue stream. Unusable means unbillable.
Design Thinking is the Key to Success
For services to be considered revenue streams, they need to be turned into something billable. Availability and monitorability are easy to take care of. There are many architecture patterns that, when applied, result in high available and monitorable systems providing services accordingly. Making them cost-efficient is not always trivial though, both aspects are rather technical in nature and hard work combined with smart thinking will do the trick.
Where it becomes challenging is when it comes to usability and relevance.
Let us start with relevance because that is the easiest of the two to determine.
For a service to be relevant it must deliver value to the user. The user must experience a benefit when using the service. One that goes beyond the initial thrill to use something new.
To some extent, relevance can be measured. Service that are used are of relevance. The challenge is to understand the level of relevance of a service. Determining how relevant a service is to a user, a customer, will allow us to understand how important it is to further invest in the development of the service.
Only tracking usage of a service will only tell us so much. The insights will not go beyond the fact that we know the service is used or not. These insights are rather binary in nature. To understand how relevant a service is to the customers we must turn into Designers and think like them. Design Thinkers observe their customers very closely, they track how, over time, the customer’s use of the service evolves. Design Thinkers make it a point to understand the changes in the service consumption of customers; Is there a sudden up-take in consumption or is it changing gradually? Is consumption declining? Is it declining in favor of other services?
Relevance can only be determined when measured over time, running experiments and in general applying concepts from scientific research. Idea à Hypothesis à Experiment à Learn.
Understanding what services are used by a customer and why their consumption of these services changes over time is key in determining which services are considered important to the customers and which are not. Relevance.
But importance is not the same as urgency. Understanding which services, which features are important to customers, does not mean understanding how urgent it is to address these services and features to be improved. To understand the urgency it is required to understand how flawed a service is from a user’s perspective.
To be able to determine what services are more important and eligible to be further invested in is not a matter of relevance only, but also a matter of usability. Relevant services that are not usable are more urgent to be ‘fixed’ than relevant services that are usable. A relevant service will address a customer’s problem after all and will be of value. Value that can only be delivered when the service is usable, hence it needs fixing.
Usability can be measured in many ways, and the most effective way is by observing a user’s behavior. Observing how a customer uses a service is indicative to its usability. Observing that a user follows the ‘long path’ to a function instead of using a short-cut is one observation that may lead to improving documentation of the service, or to implement a system that provides tips to the user. By simply tracking a user’s click-pattern in the application is a way to identify these kinds of usability aspects.
Observing that a user is not using service although it would be the sensible thing to do, is less trivial. It requires deep understanding of the application, of the user and of the user’s context. A service that is not used (as often) as would be expected, is relevant but unusable. Making the service more usable, making it better accessible, will be accompanied with a matching level of urgency.
Understanding a user’s behavior regarding the consumption of available services and how that behavior changes over time is key in determining which services are more urgent to be ‘fixed’ than other services. Usability.
Design Thinkers obsessively observe their users and, in their obsession, they learn to understand their users inside out. Know their objects of desire, their needs to ultimate happiness. Design Thinkers continuously strive to learn more and more about the patterns of their users. Anticipating their user’s next move, Design Thinkers create an environment where they are perfectly positioned to observe their user’s behavior.
When a SaaS provider wants to be able to know which services are most important to its customers and which service are most urgent to be considered for development, it needs to think like a Design Thinker. The SaaS provider must know its customers the way a Design Thinkers know their user. It must be able to anticipate every move its customers are planning to make, like Design Thinkers know exactly where their users will click.
Design Thinkers put their users above all else. Understanding that without users a product is not being used. They obsess about the desires of the user.
Many service providers, especially in the SaaS market, have a mission statement or a strategic tenet that mentions that the customer always comes first. Every business decision is made based on whether it serves the customer or not.
Putting the customer first also means that one continuously seeks ways to deliver the most relevant services to the customers in the most usable manner. To invest in only those areas that benefit the customers either directly or indirectly. It also means to stop investing time and money in areas that are of no relevance.
Within Amazon, everybody is told to be obsessive about customer satisfaction. Urban legend has it that not satisfying a customer by providing outstanding services is ground for being fired. Every customer can send Jeff Bezos an email to express satisfaction with the services received from Amazon as a customer, or to express dissatisfaction.
As SaaS providers are learning about their customers through the lenses of Design Thinkers, they learn about the customer’s indifference around having the license to use services. Instead they consider access to the service as a given and will be happy to pay for their use of the service instead. That is, when the service is of relevance and convenient to use.
Customers will be happy to pay for something that is worth more than it costs them. They will stay loyal when provided with value for their money. Customers, in general, are loyal to those companies that are obsessively concerned about their wellbeing.
In a SaaS world, customers are loyal, because it is valuable to stay with their service provider. In an on-premise world, customers are seemingly loyal, because it is too costly to move away from their product vendor.
An obsession with customers is a good characterization of a Customer First mission. Putting the customer first is requiring SaaS providers to have a deep understanding of the customer’s needs, desires, and behavior. That means that they must think like Design Thinkers, and obsessively observe customer’s behavior.
Only when the service provider knows its customers as Design Thinkers know their user’s object of desire, they understand which services are prone to generate the most revenue and need to be further invested in and which are not likely to generate revenue and should be sunset.
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The text very explicitly communicates my own personal views, experiences and practices. Any similarities with the views, experiences and practices of any of my previous or current clients, customers or employers are strictly coincidental. This post is therefore my own, and I am the sole author of it and am the sole copyright holder of it.
Special thanks to my lovely wife Olcay, as well as my friend Sytse who took the time and made the effort to review my article. I am confident that the article’s quality was significantly improved by their feedback.