Waterstone Management Group
June 10, 2014
In an increasingly cloud-based world, delivering a world-class customer experience is a whole new ballgame for many technology companies. Given the recurring revenue centric approach of most cloud offerings, software, hardware and infrastructure company executives are realizing that the post-sale operating model is critical for reaching profitability goals as their businesses scale. Maintenance, Customer Support, and Retention (MCR) functions need to move to the forefront and become the most essential areas to drive profitability within the subscription model.
Understanding how best to operate, organize and enable these functions are critical for exceeding customer expectations, delivering business benefits and growing the downstream recurring revenue base for each account.
Given the maturity of the Software as a Service (SaaS) market segment, Software Customer Experience executives are on the front line in addressing the challenges of scaling subscription based models. The traditional software economic model consisted of high upfront license pricing coupled with very attractive on-going maintenance fees. The post-sale maintenance business often provided a majority of revenue and high margin (70%+ of total margin). This resulted in less pressure to create efficient and effective MCR functions.
In contrast, software as a service (SaaS) Customer Experience executives are forced to offset lower upfront initial license prices and lack of maintenance revenues with up-selling to premium tiers, cross-selling new apps, selling premium services and adding additional users (as illustrated in Figure 1). This requires a new operating model and capabilities – one that requires solution selling, customer success management and lower cost customer support amongst others. In addition, customer behaviors are changing and higher expectations exist on how they interact and get problems addressed in an on-demand world.
The table below highlights the major challenges around four key operating levers: cost structure, product adoption, consistency of experience, and organizational capabilities. Legacy software companies making the transition to cloud have another layer of complexity around each of these levers as they must support hybrid models (on-premise and cloud) simultaneously.
In working with dozens of software and technology companies over the last several years, we have outlined four key imperatives for Software Customer Experience Executives to help develop and operate a new MCR model for the next stage of Cloud Services growth. Two of these imperatives, shown in Figure 2, are described below.
To address the loss of Maintenance revenue and the lower upfront license costs, cloud software companies must monetize additional offerings – in essence re-defining the offering portfolio to include anything that will drive increased revenue. Further complicating this is customers' expectation that a SaaS offering doesn’t require traditional upgrades and other requirements of traditional perpetual license models.
This means that while traditional customer support still needs to be offered—cloud providers need to take a step further to ensure additional revenue through perhaps offering premium support tiers, cross-selling 3rd party applications, proactively promoting downstream professional services and driving penetration of higher subscription tiers.
To determine what should be offered, companies must take a broad view of the offering portfolio and proactively manage new offering development and retirement. Questions that must be considered are what offerings are offered for ‘free’ with the base subscription, how to price (flat fee, monthly subscription premium) and acceptable margins that offset customer acquisition cost and potential churn.
The second key imperative is for companies to manage customer service delivery costs as their SaaS business scales. This often means augmenting traditional phone and email support with new support delivery channels, including self-service portals, online communities and social media. While self-support is a low-cost support option, support sites and digital channels are modestly effective at best, according to TSIA benchmarking surveys.
Further, the overall trend is that effectiveness of these channels has actually been decreasing over the last decade. Social media has become an attractive support channel, given its low cost and broad reach. However, limited tracking of social media statistics currently constrain understanding of how effective social media actually is as a support channel.
We recommend that software companies do need to embrace digital support channels but need to operate them fundamentally differently than in the past. First, these channels should no longer be managed by marketing, website or other stakeholder groups but need to be under the control of the Customer Experience lead.
Second, performance of these channels needs to be measured as they are in other channels. Measurements like customer resolution rate, time to resolution and customer satisfaction need to be used just as they are tracked in the contact center today.
Lastly, if an online community or forum is used, it needs to be monitored for potential customer support and product related issues. A recent study by Edison Research showed that over 40% of customers who contact a company via social media expect a response with an hour and nearly 60% expect it within the business day.
Neil Jain is a partner at Waterstone Management Group, with more than 15 years of experience formulating growth strategies and improving operations for technology companies. At Waterstone, Neil has successfully led a number of client engagements across the software, hardware, and telecom segments with businesses that range from emerging high-growth companies to the Fortune 100.
Singu Srinivas, a partner at Waterstone Management Group, has nearly 20 years of experience working with Fortune 500 and smaller high-growth technology companies. His experience has centered on creating growth strategies, developing go-to-market capabilities, and enhancing the operational effectiveness of B2B and B2C technology companies, as well as the services arms of manufacturers, retailers and ISPs.
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