Monetizing Cloud Services

My Journey into the Cloud

Doug 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
Full-service cloud-based e-commerce partner: Sample clients:

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

Highlights:
Founded Early 2005 Over 200 employees in 3 offices: Cologne (Germany) Chicago (USA) Tokyo (Japan) Over 20 million paid transactions Many clients already using subscription or SaaS

Agenda
I. Whats in the Cloud and whats driving Cloud adoption?

II. How is the Cloud being monetized? a. Choosing the right business model b. Using e-commerce to make money c. Acquiring customers (Freemium, etc.)
III. Q&A

What is the Cloud?

Wikipedia definition: 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 $40.7 billion (2011) growing to $241 billion (2020) Market in 2011: Public cloud 63% Virtual private cloud 18% Private cloud 19%

Examples:

Market Size:

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

SaaS Dominates the Cloud

SaaS 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 Disrupts How Does it Affect You?

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

224% growth

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.

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

Recent SaaS Acquisitions

Company
Permira

Acquisition & Date

Ancestry.com (Q113)

Amount
$1.6 Billion

Dell
Salesforce

Quest Software (07/12)

GoInstant (07/12) Buddy Media (06/12)

$2.4 Billion
$70 Million $689 Million

Microsoft
Oracle

Yammer (06/12)
Vitrue (05/12) Taleo (02/12)

$1.2 Billion
$300 Million $1.9 Billion $119 Million $424 Million $1 Billion $3.4 Billion

LinkedIn Intuit Facebook SAP

SlideShare (05/12) Demandforce (04/12) Instagram (04/12) SuccessFactors (02/12)

Recent SaaS Funding

Company
Dropbox Spotify Box Evernote ZocDoc Deezer BranchOut SugarSync Fuzebox

Funding
$250 Million (10/11) $100 Million (06/11) $125 Million (7/12) $70 Million (05/12) $75 Million (9/11) $130 Million (10/12) $25 Million (04/12) $10 Million (06/12) $22.5 Million (7/12)

Valuation
$3.5 Billion $2 Billion $1.2 Billion $1 Billion $750 Million $600 Million $80-85 Million Unavailable Unavailable

Salesforce

Box

Adobe

Microsoft

Launched June 28, 2011

Quickbooks Online

QuickBooks Pro

Cloudability

Making Money with E-Commerce

Infrastructure for scalable high-volume customer transactions

Choosing the Right E-Commerce Solution

Front Office My Account Renewals Web Orders Channel Partners Contact Center

E-commerce Services Platform

quotes subscription billing
BI & analytics

pricing

entitlements / provisioning

Back Office

CRM
APIs payments chargebacks asset mgmt order mgmt license keys

customer accounts

revenue recognition

GL / ERP

Payment Gateway Merchant Account

Fraud Screening

Sales Tax Engine

CDN

Existing in-house systems Core Solution

Business Models and Customer Acquisition

B2C Provider Examples: Business Models

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

16%

Members / Users (active) % of members paid (est.)

Avg. Rev per User Avg. Direct Rev per Paid User (est.) % of Rev from E-comm.

1.01B 0%
$4.63

184M 1.9%
$5.27

59.2M 2.2%
$6.63 (e)

28M (e) 2.0%

$1.40 (e)

1.3M 100%
$37.73

14M <8%
Unknown

N/A
13%+

$82 (qtr)
89%

$32
12%+

$71
Unknown

$38
100%

Unknown
Unknown

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

B2C Provider Examples: Acquisition Tactics

Facebook Acquisition Tactics Caution! Freemium % of members paid (est.) Free trial "Trojan Horse" White-label partners API for developers Network Effect Switching Costs 0% Zynga Pandora YouSendIt! Carbonite Box 100% <8%

1.9%

2.2%

2.0%

(w/CC)

H H

H H L L-M

L L-M L L-M

M L-M

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

Freemium: not a silver bullet for everyone

Attributes that align with Freemium
Potential to scale to millions of users
Strong network effect Ad / Sponsorship model

Caveats
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 doesnt fit enterprise market

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

Convert Free to Paid: process starts at registration

Convert Free to Paid: display premium functionality throughout user experience

Retention Tactic: show benefits that will be lost

InMail Messages

Profile Organizer

Full Profile Views

You will lose your current You will lose access to saved You will lose access to full InMail credits when you cancel profiles, notes, and folders profile views for out of network your account. profiles.
Your Premium Account will be canceled on November 2, 2012. There are no partial refunds. You will have access to your account until November 2, 2012. You will continue to have your LinkedIn profile as a Basic (free) Account holder.

Retention Tactic: Dunning process

Email notification

Retention Tactic: Dunning process (cont.)

Email notification
Pop-up window

Retention Tactic: Dunning process (cont.)

Email notification
Pop-up window

Retention Tactic: Dunning process (cont.)

Email notification

B2C Provider Examples: Acquisition Tactics (cont.)

Facebook Acquisition Tactics Freemium Caution! % of members paid (est.) Free trial "Trojan Horse" White-label partners API for developers 0% Zynga Pandora YouSendIt! Carbonite Box

1.9%

2.2%

2.0% (w/CC) 100%

<8%

Network Effect
Switching Costs

H
H

H
H

L
L-M

L
L-M

L
L-M

M
L-M

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

B2B Provider Examples: Business Models

Salesforce LinkedIn 27% 19% 54% Twilio

Business Models Ad / sponsorship Paid subscriptions Other (pro svcs, virtual goods, usage, API licensing, white-label)

94% 6%

Members / Users (active) % of members paid (est.)

104K + businesses 100%

$27,445 (account) $27,445 (account) Unknown

117M 1.0%

>100K Unknown

Avg. Rev per User Avg. Direct Rev per Paid User (est.) % of Rev from E-comm.

$7.62 $145 44%

Unknown Unknown Unknown

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

B2B Provider Examples: Acquisition Tactics

Salesforce Acquisition Tactics Freemium Caution! % of members paid (est.) Free trial "Trojan Horse" White-label partners API for developers 100% LinkedIn Twilio

1.0% (w/CC)

Unknown

Network Effect
Switching Costs % of Rev spent on Mktg & Sls

High
High 53%

High
High 34%

Low
High Unknown

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

Wrap-up things to consider

Business Models Ad / Sponsorship Subscriptions Virtual goods Usage White label Customer Acquisition Freemium Free trial Trojan Horse White label API licensing

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