Monetizing Multi-Tenancy in SaaS by Sixteen Ventures. Presented at SaaS University in Dallas January 2010

Monetizing Multi-Tenancy:
Exploiting the Revenue Potential in
Network Effect Data & SaaS Ecosystem
Presented at SaaS University
Dallas, Texas
January 27, 2010

Copyright© 2010 Sixteen Ventures. All rights reserved.

Questionnaire
Did you ﬁll it out?

http://sixteenventures.com Copyright© 2010 Sixteen Ventures. All Rights Reserved

The goal for today...

Photo via caveman_92223


Legacy Software Business
Structure

Intellectual
Marketing
Property

Revenue
Technology
Model

Loosely-coupled, at best

Legacy Software

Customers Developers

Channels

Three basic elements

Software-as-a-Service (SaaS)

Customers Developers

Channels

Same elements


Producers Consumers

Ecosystem

Different approach


Producers Consumers

Network
Effect

Ecosystem

Very different approach


Producers Consumers

Network
Effect

Key
differentiators Ecosystem


SaaS Business Architecture

Intellectual
Marketing
Property

Network
Centricity

Technology Revenue Model

All aspects are tightly coupled

Multi-Tenancy in SaaS - Technical Deep Dive

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Multi-Tenancy in SaaS - Single Instance for all Customers

Customer Customer Customer



Network Effect!

Multi-Tenancy in SaaS - Its not just Customers!

Customer Partner Developer

Industry Customer Partner

Customer Developer Customer

Ecosystem!

Multi-tenancy is good for...

Improved
Easier Software
customer
Economies of Development
support and
Scale and
product
Management
maangement


Leveraged properly, multi-tenancy turns
apples to apples comparisons...

vs.

SaaS vs. Legacy Software
Photo via martinlabar


Into bowling ball to apple comparisons, in
your favor...

vs.

SaaS vs. Legacy Software Bowling Ball Photo via deﬁnetheline
Apple Photo via martinlabar


Change the focus to things legacy vendors
cannot deliver!

S
M
A
S
H

SaaS vs. Legacy Software Bowling Ball Photo via deﬁnetheline
Apple Photo via martinlabar


Multi-tenancy is ALSO good for...

$$$
$$$
$$$
$$$
$$$
$$$
$$$
$$$
$$$


SaaS Revenue Model

Intellectual Products
Marketing
Property Subscriptions Ecosystem

Network Network
Centricity Effect
Services Advertising
Revenue
Technology
Model Ancillary

Revenue Model made up of Revenue Streams

7 SaaS Revenue
Streams
Products

Subscriptions Ecosystem

Network
Effect


Ancillary


Less Scalable Revenue
Streams
Products


Network
Effect


Ancillary


Scalable Revenue
Streams
Products


Network
Effect


Ancillary


Our Focus Today...
Products


Network
Effect


Ancillary


Revenue Stream Scalability Index

Symbol Definition

Scalable Revenue Stream

Less-scalable Revenue Stream

Not Scalable in most cases

Scalability refers to margins per revenue stream; the more a revenue
stream can benefit from economies of scale & improve margins with
growth, the more “scalable” the revenue stream. Its not possible to
eliminate all of the non-scalable streams (nor should you), but their
value should be improved and the price charged should reflect that.

Products Ecosystem

Network
Effect


Ancillary
Pros Cons

Unwanted
1-Inﬁnity Scaling interdependencies can
-Examples - grow if unchecked
Platform
Improved value for Lack of visibility into value
Channels ecosystem partners chain for clients
APIs
White Label
Need to market to end-
Licensing Exposure to ancillary &
users to create demand in
adjacent markets
front of channel partners


Products Network Effect

Network
Effect


Pros Cons
Ancillary

Fully leverages data collected in Privacy concerns require
multi-tenant environment disclosure of intentions by vendor
Requires planning up front an
-Examples - An asset that increases
execution early on data collection
exponentially in value as usage of
Anonymized/ the system grows linearly
otherwise value is lost until
Aggregate Data capture begins

Reports Leverage ecosystem partners to Vendor must be diligent in
develop reports or add value to adhering to regulations,
Benchmarks data through APIs governance, and privacy laws
APIs Careful planning to determine
Does not require a “critical mass”
when network effect data
of users as many think for
becomes valuable & to whom
network effect data to be valuable
required


Gaining mainstream acceptance...

Tweet via rwang0


SaaS Distribution - Myth

Web
SaaS Vendor End Customer

The common fantasy is since its “on the web” the web is
the distribution channel. Maybe, but you might want to
explore that further; just to be sure.


SaaS Distribution - More Likely

You might not know
about them!

SaaS Vendor Intermediary End Customer

What if you don’t have to use an intermediary? Can you? Its called
leverage, but the key is to remember that rarely will you compel 3rd
parties with only revenue share agreements for SaaS. The vendor
should dig deeper and ﬁnd out what they can solve for them.


SaaS Distribution - Example

SaaS
Company Intermediary End-customer
Consumer
Manufacturers Packaged
EDI Vendor Rep Goods
Manufacturer

SaaS vendor has a shared customer with the manufacturers rep. The SaaS
vendor has ﬁgured out that the easiest way to reach the end-customer is
through the Manufacturers rep. The SaaS vendor builds support for the
Manufacturers Rep into the product giving them a reason to compel the
shared end-customers to use the product.


SaaS Distribution - Value Chain view is limited
Industry
Association

Intermediary
Intermediary
Intermediary
Intermediary
SaaS Vendor Intermediary
Intermediary End Customer
Intermediary
Intermediary
Intermediary

Independent
Developers


SaaS Distribution - Value Network Reality

Trusted Advisors Analyst Firms
Traditional Channels Stand-alone Industry Associations
Intermediaries
Consumers

SaaS Vendor

Individuals
Independent Developers Application Enterprises
Other Software Vendors Platform
Customer

SaaS Vendor sits in the middle of everything!

SaaS Distribution - Value Network Reality

Stand-alone
Intermediaries
Consumers

SaaS Vendor

Application
Platform
Customer

The possibilities are endless!

Questionnaire

SaaS Vendor


Question 2 Application
Customer


Question 3 Stand-alone
Intermediaries Platform
Consumers


Consumers


The sooner the better...

Who What When

Where Why How

Metrics Governance Privacy

Commingled Segmented Anonymized

Apple Photo via kylemay


Did we reach the goal?

Apple Photo via kylemay


SaaS Revenue Modeling &
Business Architecture

(972) 200-9317
lincoln@sixteenventures.com
http://sixteenventures.com

@lincolnmurphy

Appendix A:
Case Studies in SaaS Network Effect &
Ecosystem Revenue Modeling


SaaS Case Studies

SaaS Product Description of the SaaS offering

End-Customer Description of the SaaS vendor’s end-customer

Who did the end-customer buy from, listen to, etc. that the
End-Customer’s
SaaS vendor could leverage, and help, in an effort to secure the
Trusted Advisors
end-customer relationship

What beneﬁts the clients derived from the network centricity
Network Effect
of the SaaS solution, including aggregate data

How the Vendor derived value from, and added value to, its
Ecosystem
ecosystem, including VARs, SIs, Distributors, etc.

Revenue Streams How the Vendor makes money


SaaS Case Study #1 - SCM/EDI Vendor
SaaS Product Retail Supply Chain / EDI

End-Customer Small to Medium Consumer Packaged Goods manufacturer

•Big Box Retailers
End-Customer’s •Freight Brokers
Trusted Advisors •Third-party Logistics Providers
•Manufacturers reps

Benchmarks on retail category performance available to all of
Network Effect
the end-customers’ Trusted Advisors

Pre-built EDI maps, access to discounted & expedited shipping,
Ecosystem
visibility for intermediaries and interested parties

Subscriptions (monthly & per-transaction), Ecosystem,
Revenue Streams
Network Effect Data, Services


SaaS Case Study #2 - Pharmaceutical Distributor

Vendor Managed Inventory Control System (internal product
SaaS Product
re-architected & exposed as SaaS)

End-Customer Fragmented network of small independent pharmacies

•Pharma Distributor that created the SaaS product
End-Customer’s •Industry Association
Trusted Advisors •Product Suppliers (whom the Distributor buys from; value-
pull)

Sophisticated inventory system allows distributor to aggregate
Network Effect
order history and current inventory for all pharmacies

Use aggregate data to predict restocks, share that w/ vendor
Ecosystem
to get better terms for the pharmacy client
Ancillary (ﬂoat interest), Ecosystem (distributor commissions),
Revenue Streams improved margins), Network Effect Data (suppliers pay),
Services, Products (hardware device)


SaaS Case Study #3 - Healthcare Revenue Cycle Mgmt
SaaS Product Revenue Cycle Management

End-Customer Fragmented network of small independent hospitals

•Hospital Industry Associations
End-Customer’s •Independent Consulting Firms
Trusted Advisors •Complementary Software Vendors
•Insurance companies and Government Payors

Revenue & Collection Benchmarks against similar-sized
Network Effect
Hospitals (per-bed)

Medicare, Medicaid, and Commercial Payer clearinghouse,
Ecosystem Channel partners
(visibility into their customers’ usage of system)

Subscriptions (per-transaction, % collected), Ecosystem,
Revenue Streams
Network Effect Data, Services, Products


SaaS Case Study #4 - Restaurant Menu Management

SaaS Product Managed Care Menu Management (ancillary market)

End-Customer Small Assisted Living Facilities

End-Customer’s •Food Distributors
Trusted Advisors •Industry Association
•Assisted Living Management Companies

Aggregate menu item usage data to help negotiate better deals
Network Effect
for end-clients (through channel partners where applicable)

Directly monetized relationship with Food Distributor
Ecosystem (channel) to salvage unproﬁtable existing relationship w/o
getting in front of partner or negatively affecting end-client

Subscriptions (Annual per-location), Ecosystem (Distributor
Revenue Streams
visibility), Network Effect Data, Services, Products


SaaS Case Study #5 - Mail Center Management

SaaS Product Mail Center Management & Package Tracking

End-Customer Large Corporate & Fortune 500 mailrooms

•Mailing Industry Associations
End-Customer’s •Shipping Carrier Auditors
Trusted Advisors •Industry Consultants
•Complementary Software and Hardware Vendors
Most Mail Center managers are in a position to justify their
existence so benchmarks against other Mail Centers helped
Network Effect
prove operational efﬁciency, Complementary vendors and
industry associations found data useful, too
shipment tracking, spend management & procurement, carrier
Ecosystem
audits

Subscriptions (per-transaction), Ancillary (carrier audits),
Revenue Streams
Ecosystem, Network Effect


SaaS Case Study #6 - Treasury Management

SaaS Product Treasury & Cash Management

End-Customer Large Corporate & Fortune 500 mailrooms

•Industry Associations
End-Customer’s •Anti-Money Laundering Groups
Trusted Advisors •Banks
•Consultants
Aggregation of transactional details across industries, locales,
Network Effect etc. Benchmarks on interest, ﬂoat, sweeps, etc. against similar
industries
Anonymous Aggregated (A/A) data used by Anti-Money
Laundering groups to “teach” their software patterns, Banks
Ecosystem
and Consultants leverage A/A of their clients & others in the
system to judge performance and offer guidance, upsell, etc.
Subscriptions (per user, per-transaction), Ancillary (ﬂoat,
Revenue Streams brokerage/forex commissions), Ecosystem, Network Effect
Data


SaaS Case Study #7 - Bank Spend Management

SaaS Product Bank Spend Management

End-Customer Local and Regional Banks & Credit Unions
•Industry associations
End-Customer’s •Local & Regional Printing Companies
Trusted Advisors •Complementary Software Vendors
•Office Supply vendors
Aggregate orders across bank branches allows vendors to
aggregate order history and current inventory for customers,
Network Effect
customers get group purchasing power through aggregation
under one SaaS vendor in addition to core product value
Office Supply vendors gain visibility into the buying behavior of
specific target market, complementary software vendors gain
Ecosystem
visiblity into transaction history of customers for inclusion in
their product
Subscriptions (per branch, vendor visibility), Ancillary,
Revenue Streams
Ecosystem (vendor commissions, API), Network Effect


Appendix B:
Seven SaaS Revenue Streams Worksheet


http://sixteenventures.com
Seven Revenue
Streams Worksheet

Consumers Original Other Stand-Alone
Producers Producers Consumers

Subscriptions

Ecosystem

Network Effect

Ancillary

Products

Services

Advertising
Copyright© 2010 Sixteen Ventures. All Rights Reserved

Monetizing Multi-Tenancy in SaaS by Sixteen Ventures. Presented at SaaS University in Dallas January 2010

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