Patrick Campbell - The State of the Subscription Economy

1. Brought to you by The State of the Subscription Economy DECEMBER 2017

2. Brought to you by Today’s all about rethinking our strategy.

3. Brought to you by We’re in the subscription economy’s adolescence.

4. Brought to you by We’re ill prepared for the speed of the market. This has dire consequences for your business. HOW RECURRING REVENUE IS CHANGING

5. Brought to you by Who in the world are you?

6. Churn tribution Financial Unit Price Survey Willingness to In-App Usage Drastically reduce churnRETAINTM Actionable, accurate insights to make you smarter about your business SUBSCRIPTION METRICS Proprietary pricing software for monetization MONETIZE

7. We’ve seen inside more software companies than anyone else on the planet.

8. Brought to you by We’re ill prepared for the speed of the market. This has dire consequences for your business. HOW RECURRING REVENUE IS CHANGING

9. Brought to you by Consumers are getting hammered.

10. Competition is rampant.

11. CONSUMERS ARE GETTING HAMMERED Number of Competitors in First Year in Business Companies started more than a year ago had far fewer competitors in their space than companies started today. AVERAGE#OFCOMPETITORSINTHEIR1STYEAR AGE OF COMPANY 2017 SOFTWARE MARKET SURVEY Brought to you by 0 8 16 10 YEARS OLD 5 YEARS OLD 3 YEARS OLD 1 YEAR OLD 14.9 7.4 3.1 2.3 N = 1432 software founders and executives

12. Sales & Marketing channels are leveling off.

13. MARKETING CHANNELS ARE PLENTIFUL Number of Sales & Marketing Channels Utilized Sales & Marketing channel utilization has expanded rapidly, giving the rise of more opportunities to acquire customers from numerous different places. AVERAGE#OFCHANNELSUTILIZED YEARS AGO SOURCE: 2017 MARKETING STUDY Brought to you by 0 5 10 15 15 YEARS OLD 10 YEARS OLD 5 YEARS OLD 3 YEARS OLD 1 YEAR OLD TODAY 13.89 13.22 12.43 8.31 4.72 2.31 N = 1168 software founders and executives N 1168

14. CAC is Steadily Increasing Over Time

15. UNIT ECONOMICS AREN’T WHAT THEY USED TO BE Customer acquisition cost has increased signiﬁcantly Customer acquisition cost has increased signiﬁcantly over the years due to market saturation of marketing vying for consumer attention. BLENDEDCACRELATIVETOFOURYEARSAGO SOURCE: 2017 CAC STUDY Brought to you by -18% 0% 18% 35% 53% 70% 5 YEARS AGO 4 YEARS AGO 3 YEARS AGO 2 YEARS AGO 1 YEARS AGO Today B2B B2C WHEN MEASUREMENT WAS TAKEN N 743 N = 743 companies

16. Switching costs have decreased dramatically.

17. CONSUMERS ARE GETTING HAMMERED Time Taken to Fully Onboard Product in an Organization Over time, implementation time has gone down substantially, providing a leading indicator of how easy switching between products is becoming. AVERAGE#OFHOURSTOIMPLEMENTSOFTWARE YEARS AGO SOURCE: 2017 SAAS STUDY Brought to you by 0 10 20 30 40 50 60 10 YEARS AGO 5 YEARS AGO 1 YEAR AGO 6.8 46.4 56.7 N = 894 software companies N 894

18. Brought to you by The Market is dropping out beneath us.

19. The relative value of features is declining.

20. THE MARKET IS DROPPING OUT BENEATH US Consumer Willingness to Pay has Declined Over Time Software willingness to pay has declined signiﬁcantly over the past few years due to increased options and higher demands. WTPAS%OFWTP4YEARSAGO SOURCE: 2017 CONSUMER WILLINGNESS TO PAY STUDY Brought to you by 0% 30% 60% 90% 120% 5 YEARS AGO 4 YEARS AGO 3 YEARS AGO 2 YEARS AGO 1 YEAR AGO TODAY Core Features Single Sign On Integrations Analytics WHEN MEASUREMENT WAS TAKEN N = Varies by line, but minimum of 10,000 customer respondents per line N 921k

21. Consumers are so ungrateful.

22. THE MARKET IS DROPPING OUT BENEATH US Despite Amazing Advances, NPS is Actually Down Overall Average NPS scores are actually falling pretty dramatically over the past ﬁve years, indicating either we’re just getting worse at our jobs or consumers re expecting more AVERAGENPSSCORE YEARS AGO SOURCE: 2017 SAAS STUDY Brought to you by 0 7 13 20 27 33 40 5 YEARS AGO 3 YEARS AGO 1 YEAR AGO 10.2 19.5 33.8 N = 1,784 software companies N 1,784

23. We’re building the wrong product.

24. -50% -40% -30% -20% -10% 0% 10% 20% 30% 40% 50% -0.5 -0.4 -0.3 -0.2 -0.1 0 0.1 0.2 0.3 0.4 0.5 Revenue Drivers 2017 SOFTWARE MARKET SURVEY Brought to you by THE MARKET IS DROPPING OUT BENEATH US Measuring consumer sentiment to what we’re building DEVIATIONFROMMEDIANWTP RELATIVE PREFERENCE MAGNITUDE

25. -50% -40% -30% -20% -10% 0% 10% 20% 30% 40% 50% -0.5 -0.4 -0.3 -0.2 -0.1 0 0.1 0.2 0.3 0.4 0.5 Revenue Drivers 2017 SOFTWARE MARKET SURVEY Brought to you by WE’RE BUILDING THE WRONG PRODUCT Calculating the expected impact of product on growth DEVIATIONFROMMEDIANWTP RELATIVE PREFERENCE MAGNITUDE Differentiable Features High Value/High WTP

26. -50% -40% -30% -20% -10% 0% 10% 20% 30% 40% 50% -0.5 -0.4 -0.3 -0.2 -0.1 0 0.1 0.2 0.3 0.4 0.5 Revenue Drivers 2017 SOFTWARE MARKET SURVEY Brought to you by WE’RE BUILDING THE WRONG PRODUCT Calculating the expected impact of product on growth DEVIATIONFROMMEDIANWTP RELATIVE PREFERENCE MAGNITUDE Differentiable Features High Value/High WTP Add-Ons Low Value/High WTP

27. -50% -40% -30% -20% -10% 0% 10% 20% 30% 40% 50% -0.5 -0.4 -0.3 -0.2 -0.1 0 0.1 0.2 0.3 0.4 0.5 Revenue Drivers 2017 SOFTWARE MARKET SURVEY Brought to you by WE’RE BUILDING THE WRONG PRODUCT Calculating the expected impact of product on growth DEVIATIONFROMMEDIANWTP RELATIVE PREFERENCE MAGNITUDE Differentiable Features High Value/High WTP Add-Ons Low Value/High WTP Core Features High Value/Low WTP

28. -50% -40% -30% -20% -10% 0% 10% 20% 30% 40% 50% -0.5 -0.4 -0.3 -0.2 -0.1 0 0.1 0.2 0.3 0.4 0.5 Revenue Drivers 2017 SOFTWARE MARKET SURVEY Brought to you by WE’RE BUILDING THE WRONG PRODUCT Calculating the expected impact of product on growth DEVIATIONFROMMEDIANWTP RELATIVE PREFERENCE MAGNITUDE Differentiable Features High Value/High WTP Add-Ons Low Value/High WTP Core Features High Value/Low WTP Trash Land Low Value/Low WTP

29. -50% -40% -30% -20% -10% 0% 10% 20% 30% 40% 50% -0.5 -0.4 -0.3 -0.2 -0.1 0 0.1 0.2 0.3 0.4 0.5 Revenue Drivers 2017 SOFTWARE MARKET SURVEY - N = 5K+ INPUTS FROM 1282 DIRECTOR, VP, OR C-LEVEL PRODUCT LEADERS Brought to you by WE’RE BUILDING THE WRONG PRODUCT What we think we're building DEVIATIONFROMMEDIANWTP RELATIVE PREFERENCE MAGNITUDE

30. -50% -40% -30% -20% -10% 0% 10% 20% 30% 40% 50% -0.5 -0.4 -0.3 -0.2 -0.1 0 0.1 0.2 0.3 0.4 0.5 Revenue Drivers 2017 SOFTWARE MARKET SURVEY - N = COMPOSITE DATA FROM 1.2M CUSTOMER INPUTS Brought to you by WE’RE BUILDING THE WRONG PRODUCT What we're actually building DEVIATIONFROMMEDIANWTP RELATIVE PREFERENCE MAGNITUDE

31. Brought to you by We make matters so much worse

32. Our playbook is to acquire, acquire, acquire.

33. WE MAKE MATTER SO MUCH WORSE Which Pillar is the Most Important in Your Business Founders and software executives overwhelmingly put their support behind acquisition based growth instead of caring about monetization or retention. %OFTOTALRESPONDENTS PILLAR OF THE BUSINESS 2017 SOFTWARE MARKET SURVEY Brought to you by 0% 50% 100% MORE LOGOS MORE $ PER CUSTOMER KEEP CUSTOMER LONGER 21.1% 7.58% 71.32% N = 1578 software founders and executives N 1578

34. Pricing is an afterthought.

35. WE FOCUS ON THE WRONG FUNDAMENTALS How much time per year do you spend on your pricing %OFTOTALRESPONDENTS HOURS PER YEAR 2016 SOFTWARE MARKET SURVEY 0% 50% 100% 10 hours or less 11 - 50 hours 51 - 100 hours 101+ hours 3.28%5.21% 19.2% 72.31% N = 1432 software founders and executives N 1432 Founders and software executives overwhelmingly indicated that their organizations are spending very little time on their pricing each year. Brought to you by

36. N = 1432 software founders and executives WE FOCUS ON THE WRONG FUNDAMENTALS How much time per year do you spend on your pricing Founders and software executives overwhelmingly indicated that their organizations are spending very little time on their pricing each year. %OFTOTALRESPONDENTS HOURS PER YEAR 2016 SOFTWARE MARKET SURVEY 0% 50% 100% 10 hours or less 11 - 50 hours 51 - 100 hours 101+ hours 6.74%8.32% 49.82% 35.12% 3.28%5.21% 19.2% 72.31% Pricing Custodian Supplies N 1432 N = 1432 software founders and executives Brought to you by

37. Runaway sales is ruining our jobs.

38. MONETIZATION BENCHMARKS Discounting Impact on Renewal Willingess to Pay When we discount over 30%, we’re setting ourselves up for failure when it comes time for renewal. WILLINGNESSTOPAYATRENEWALAS%OFORIGINALCONTRACT N 941 Q3 = 75TH PERCENTILE Q3 = 50TH PERCENTILE (MEDIAN) Q4 = 25TH PERCENTILE SOURCE: 2017 SAAS UNIT ECONOMIC STUDY N 50.6k % DISCOUNT GIVEN ON INITIAL CONTRACT N = 50.6k Customers of B2B and B2C Products Brought to you by

39. Acquisition is now table stakes.

40. WE FOCUS ON THE WRONG FUNDAMENTALS Impact of Improving Each Pillar of Your Business Monetization and retention based growth far outpaces acquisition based growth. This impact is getting greater over time. %IMPACTONREVENUE SOURCE: 2016 STUDY ON COMPANY UNIT ECONOMICS Brought to you by 0% 5% 10% 15% 20% ACQUISITION MONETIZATION RETENTION 3.32% 2008 - 2012 2013 - 2016 N 734 N = Data from 734 software companies PILLAR OF THE BUSINESS

41. WE FOCUS ON THE WRONG FUNDAMENTALS Impact of Improving Each Pillar of Your Business Monetization and retention based growth far outpaces acquisition based growth. This impact is getting greater over time. %IMPACTONREVENUE SOURCE: 2016 STUDY ON COMPANY UNIT ECONOMICS Brought to you by 0% 5% 10% 15% 20% ACQUISITION MONETIZATION RETENTION 2.35% 3.32% 2008 - 2012 2013 - 2016 N 734 N = Data from 734 software companies PILLAR OF THE BUSINESS

42. WE FOCUS ON THE WRONG FUNDAMENTALS Impact of Improving Each Pillar of Your Business Monetization and retention based growth far outpaces acquisition based growth. This impact is getting greater over time. %IMPACTONREVENUE SOURCE: 2016 STUDY ON COMPANY UNIT ECONOMICS Brought to you by 0% 5% 10% 15% 20% ACQUISITION MONETIZATION RETENTION 2.35% 6.71% 12.7% 3.32% 2008 - 2012 2013 - 2016 N 734 N = Data from 734 software companies PILLAR OF THE BUSINESS

43. WE FOCUS ON THE WRONG FUNDAMENTALS Impact of Improving Each Pillar of Your Business Monetization and retention based growth far outpaces acquisition based growth. This impact is getting greater over time. %IMPACTONREVENUE SOURCE: 2016 STUDY ON COMPANY UNIT ECONOMICS Brought to you by 0% 5% 10% 15% 20% ACQUISITION MONETIZATION RETENTION 9.32% 15.89% 2.35% 6.71% 12.7% 3.32% 2008 - 2012 2013 - 2016 N 734 N = Data from 734 software companies PILLAR OF THE BUSINESS

44. Brought to you by There are clear winners and losers in this environment.

45. CLEAR WINNERS AND LOSERS Comparing Growth Strategies of Companies Acquisition based growth companies grow at a smaller rate than those with a balanced growth approach (growth from all three pillars of growth). YOYGROWTHRATE SOURCE: 2016 STUDY ON GROWTH Brought to you by 0% 25% 50% 75% 100% 2012 2013 2014 2015 50.81%49.81%47.91%48.91% 25.71%27.1% 31.09% 34.67% Primarily Acquisition Growth Balanced Growth N 512 N = Minimum of 512 companies per segment pulled from the middle 2/3 of companies in terms of growth rate. This, along with a dampening model was used to control for outlier spikes in growth rate.

46. We’re lazy with customer research

47. WE FOCUS ON THE WRONG FUNDAMENTALS Customer Development Conversations Per Month SaaS founders and executives indicated that their companies are primarily only talking to less than 10 customers in a cust dev capacity per month. %OFTOTALRESPONDENTS # OF CUSTOMER DEVELOPMENT CONVERSATION PER MONTH 2016 SOFTWARE MARKET SURVEY Brought to you by 0% 50% 100% 10 or less 11 to 25 26 to 50 51+ 3.9% 10.1% 17.7% 68.3% N = 1647 software founders and executives N 1647

48. WE FOCUS ON THE WRONG FUNDAMENTALS Experiments and Tests Per Month SaaS founders and executives indicated that their companies are overwhelmingly running less than 10 experiments per month. %OFTOTALRESPONDENTS # OF EXPERIMENTS OR TESTS PER MONTH 2016 SOFTWARE MARKET SURVEY Brought to you by 0% 50% 100% 0 1 to 3 4 to 10 11+ 2.71% 12.1% 37.81% 47.8% N = 1647 software founders and executives N 1647

49. Brought to you by There are clear winners and losers in this environment, too.

50. CLEAR WINNERS AND LOSERS Comparing Cust Dev Strategies of Companies Acquisition based growth companies grow at a smaller rate than those with a balanced growth approach (growth from all three pillars of growth). YOYGROWTHRATE SOURCE: 2017 STUDY ON CUST DEV Brought to you by 0% 25% 50% 75% 100% 2012 2017 44.821% 31.72% Minimal Customer Development Aggressive Customer Development N 687 N = Minimum of 687 companies per segment pulled from the middle 2/3 of companies in terms of growth rate. This, along with a dampening model was used to control for outlier spikes in growth rate.

51. CLEAR WINNERS AND LOSERS Comparing Cust Dev Strategies of Companies Acquisition based growth companies grow at a smaller rate than those with a balanced growth approach (growth from all three pillars of growth). YOYGROWTHRATE SOURCE: 2017 STUDY ON CUST DEV Brought to you by 0% 25% 50% 75% 100% 2012 2017 59.08% 44.821% 17.43% 31.72% Minimal Customer Development Aggressive Customer Development N 687 N = Minimum of 687 companies per segment pulled from the middle 2/3 of companies in terms of growth rate. This, along with a dampening model was used to control for outlier spikes in growth rate.

52. This should be scary.

53. Brought to you by Buyers are the central tenet of your business POINT OF CONVERSION DRIVE CUSTOMERS OFFER PRODUCT A JUSTIFY PRICE A OFFER PRODUCT B JUSTIFY PRICE B OFFER PRODUCT C JUSTIFY PRICE C $ $$

54. Brought to you by We’re not focusing on the fundamentals.

55. Brought to you by That doesn’t work anymore.

56. Brought to you by How do we ﬁx this?

57. That’s what today’s all about. :)

58. That’s what today’s all about. :) #SAASFEST17 Brought to you by your friends at@PriceIntel 8:00 AM 9:00 AM 9:30 AM 10:00 AM 10:30 AM 11:00 AM 11:30 AM 12:00 PM REGISTRATION AND BREAKFAST WELCOME AND STATE OF SAAS PATRICK CAMPBELL MOWING YOUR PRODUCT LAWN: LETS CHAT OUTCOMES AND HOW TO DESIGN A PRODUCT TO MEET THEM NATE WALKINGSHAW ACQUISITION THE AGILE WAY - SCALING MARKETING FROM $5M TO $25M KATE MOORE KEY CONSIDERATIONS WHEN OPERATIONALIZING YOUR PRICING STRATEGY MONIKA SAHA BREAK INTENT DRIVEN AUTOMATION: WITH GREAT PERSONALIZATION COMES GREAT CONVERSATION GUILLAUME CABANE THE HOW AND WHY OF SUPPORT DRIVEN GROWTH SUNEET BHATT 12:30PM 1:15 PM 2:30 PM 3:00 PM 3:30 PM 4:00 PM 4:30 PM 5:00 PM 5:30 PM 7:00 PM LESSONS LEARNED FROM BUILDING 5 PRODUCTS IN A YEAR MARIE PROKOPETS & HITEN SHAH LUNCH DESIGNING A SAAS SALES MACHINE STELI EFTI COMMON SENSE SCALING ED BYRNE HOW TO KEEP CUSTOMERS FOR LIFE JONATHAN KIM BREAK SEGMENTING FOR SUCCESS KATIE ROGERS STOP IGNORING PAID MARKETING, STUPID DAVID HAUSER THE CASE FOR FREEMIUM PATRICK CAMPBELL THE WHISKEY PRIEST 150 PIER FOUR BLVD, BOSTON, MA 02210 SCHEDULE

59. Brought to you by Two big rules…

60. Brought to you by Pitching

61. Brought to you by Follow the golden rule

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