Monetizing Cloud Services

My Journey into the CloudDoug Caviness, Head of SaaS Solutions, cleverbridge

Over 20 years of software industry experience, including:

General Manager, Desktop Publishing, IMSI

VP Business Solutions, Egreetings Network

Manager, Hewlett Packard

VP Marketing, Riverdeep (now Houghton Mifflin Harcourt)

Co-founder CustomCD (acquired by Digital River, Inc.)

SaaS consulting engagements: AwardWallet, Gracenote, Photobucket, etc.

cleverbridge Snapshot

• Founded Early 2005• Over 200 employees in 3 offices:

Cologne (Germany) Chicago (USA) Tokyo (Japan)

3rd place in Germany and 42nd place in EMEA (growth rate of 2698%).

• Over 20 million paid transactions• Many clients already using subscription

or SaaS

Full-service cloud-based e-commerce partner:

Highlights: Sample clients:

Agenda

I. What’s in the Cloud and what’s driving Cloud adoption?

II. How is the Cloud being monetized?a. Choosing the right business modelb. Using e-commerce to make moneyc. Acquiring customers (Freemium, etc.)

III. Q&A

What is the Cloud?

Wikipedia definition:

Examples:

“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.”

Salesforce.com, LinkedIn, Dropbox, Amazon Web Services

Market Size: $40.7 billion (2011) growing to $241 billion (2020)

(Source: “Sizing the Cloud”, Forrester Research, April 21, 2011)

Market in 2011: Public cloud – 63% Virtual private cloud – 18% Private cloud – 19%

SaaS Dominates the CloudSaaS forecast for 2013: $33 billion or 81% of Public Cloud revenues 17% of the $476 billion Software market

(Sources: Forrester Research, Jan 12, 2011 “Which Software Markets Will SaaS Disrupt” Report; and Forrester Research, April 21, 2011, “Sizing the Cloud”)

• SaaS share of global software vendor revenues: 2010: $25 billion (7% of $354 billion) 2013: $81 billion (17% of $476 billion)

• SaaS will be disruptive in products that comprise about 25% of the worldwide software market (CRM, HR Mgt, IT Mgt, Security).

• Examples of projected market share (2013): >90%: blogs, wikis, web conferencing, talent mgt, compensation mgt 50% to 90%: electronic invoice presentment and payment, expense reporting 26% to 50%: sales force automation, HR mgt, customer service and support

• But SaaS is unlikely to replace all categories. For some, SaaS might just complement traditional software.

SaaS Disrupts – How Does it Affect You?

(Source: Forrester Research, Jan 12, 2011, “Which Software Markets Will SaaS Disrupt?”)

224% growth

Recent SaaS Acquisitions

Company Acquisition & Date Amount

Permira Ancestry.com (Q1‘13) $1.6 Billion

Dell Quest Software (07/12) $2.4 Billion

Salesforce GoInstant (07/12) $70 Million

Buddy Media (06/12) $689 Million

Microsoft Yammer (06/12) $1.2 Billion

Oracle Vitrue (05/12) $300 Million

Taleo (02/12) $1.9 Billion

LinkedIn SlideShare (05/12) $119 Million

Intuit Demandforce (04/12) $424 Million

Facebook Instagram (04/12) $1 Billion

SAP SuccessFactors (02/12) $3.4 Billion

Recent SaaS Funding

Company Funding Valuation

Dropbox $250 Million (10/11) $3.5 Billion

Spotify $100 Million (06/11) $2 Billion

Box $125 Million (7/12) $1.2 Billion

Evernote $70 Million (05/12) $1 Billion

ZocDoc $75 Million (9/11) $750 Million

Deezer $130 Million (10/12) $600 Million

BranchOut $25 Million (04/12) $80-85 Million

SugarSync $10 Million (06/12) Unavailable

Fuzebox $22.5 Million (7/12) Unavailable

Salesforce

Box

Adobe

Microsoft

Launched June 28, 2011

Quickbooks Online

QuickBooks Pro

Cloudability

Making Money with E-CommerceInfrastructure for scalable high-volume customer transactions

Choosing the Right E-Commerce Solution

My Account Renewals Web Orders Channel Partners

Front

Office

ContactCenter

Fraud Screening

E-commerce Services Platform

PaymentGateway

Sales TaxEngine

MerchantAccount Existing in-house systems

CRM

GL / ERP

pricin

g

subscription

billing

BI &

analytics

quote

s

chargeback

s

entitlements /

provisioning

payment

s

customer

accounts

API’

s

revenue

recognition

Back

Office

license

keys

CDN

asset

mgmt

order

mgmt

Core Solution

Business Models and Customer Acquisition

Facebook Zynga Pandora YouSendIt! Carbonite BoxBusiness Models Ad / sponsorship 84% 11% 88% Paid subscriptions 12% Other (virtual goods, usage, API licensing, white label) 16% 89%

Members / Users (active) 1.01B 184M 59.2M 28M (e) 1.3M 14M

% of members paid (est.) 0% 1.9% 2.2% 2.0% 100% <8%

Avg. Rev per User $4.63 $5.27 $6.63 (e) $1.40 (e) $37.73 UnknownAvg. Direct Rev per Paid User (est.) N/A $82 (qtr) $32 $71 $38 Unknown

% of Rev from E-comm. 13%+ 89% 12%+ Unknown 100% Unknown

B2C Provider Examples: Business Models

(Source: 10Q filings for publically listed companies and other public domain sources)

Facebook Zynga Pandora YouSendIt! Carbonite Box

Acquisition Tactics Freemium

% of members paid (est.) 0% 1.9% 2.2% 2.0% 100% <8%

Free trial (w/CC)

"Trojan Horse"

White-label partners

API for developers

Network Effect H H L L L M

Switching Costs H H L-M L-M L-M L-M

B2C Provider Examples: Acquisition Tactics

Caution!

(Source: 10Q filings for publically listed companies and other public domain sources)

Freemium: not a silver bullet for everyone

• Potential to scale to millions of users

• Strong network effect

• Ad / Sponsorship model

• High switching costs for user

• Range of features or products to

induce non-paying customers to buy

• B2C or SMB focus

• Freemium is treated as Marketing cost

• A fraction of users become buyers

• Attracts large numbers of people that

will never buy

• Ongoing operational costs associated

with non-buyers (Chargify)

• Can take time to pay off (Evernote)

• Generally doesn’t fit enterprise market

(Sources: “When Freemium Fails, Wall Street Journal, Aug. 22, 2012; “Is Freemium Right for My Business?”, Building Keystones blog)

Attributes that align with Freemium Caveats

Convert Free to Paid: process starts at registration

Convert Free to Paid: display premium functionality throughout user experience

You will lose your current InMail credits when you cancel your account.

InMail Messages Full Profile ViewsProfile Organizer

• Your Premium Account will be canceled on November 2, 2012.

• You will continue to have your LinkedIn profile as a Basic (free) Account holder. • There are no partial refunds. You will have access to your account until November 2, 2012.

Retention Tactic: show benefits that will be lost

You will lose access to saved profiles, notes, and folders

You will lose access to full profile views for out of network profiles.

Retention Tactic: Dunning process

Email notification

Email notification Pop-up window

Retention Tactic: Dunning process (cont.)

Email notification Pop-up window

Retention Tactic: Dunning process (cont.)

Email notification

Retention Tactic: Dunning process (cont.)

Facebook Zynga Pandora YouSendIt! Carbonite Box

Acquisition Tactics Freemium

% of members paid (est.) 0% 1.9% 2.2% 2.0% 100% <8%

Free trial (w/CC)

"Trojan Horse"

White-label partners

API for developers

Network Effect H H L L L M

Switching Costs H H L-M L-M L-M L-M

B2C Provider Examples: Acquisition Tactics (cont.)

Caution!

(Source: 10Q filings for publically listed companies and other public domain sources)

Salesforce LinkedIn TwilioBusiness Models Ad / sponsorship 27% Paid subscriptions 94% 19% Other (pro svcs, virtual goods, usage, API licensing, white-label) 6% 54%

Members / Users (active) 104K +

businesses 117M >100K% of members paid (est.) 100% 1.0% Unknown

Avg. Rev per User$27,445

(account) $7.62 UnknownAvg. Direct Rev per Paid User (est.)

$27,445(account) $145 Unknown

% of Rev from E-comm. Unknown 44% Unknown

B2B Provider Examples: Business Models

(Source: 10Q filings for publically listed companies and other public domain sources)

Salesforce LinkedIn Twilio

Acquisition Tactics Freemium

% of members paid (est.) 100% 1.0% Unknown

Free trial (w/CC)

"Trojan Horse"

White-label partners

API for developers

Network Effect High High Low

Switching Costs High High High

% of Rev spent on Mktg & Sls 53% 34% Unknown

B2B Provider Examples: Acquisition Tactics

(Source: 10Q filings for publically listed companies and other public domain sources)

Caution!

Wrap-up – things to consider

Business Models

Ad / Sponsorship

Subscriptions

Virtual goods

Usage

White label

API licensing

Customer Acquisition

Freemium

Free trial

“Trojan Horse”

White label

API licensing

A couple of other things to think about:• Does your service benefit from the network effect?• What are the switching costs for your customers?

Thank you

Q & A