This is the first in a series of articles about Monetizing SaaS (News - Alert).
With worldwide software-as-a-service (SaaS) revenue forecast to reach $14.5 billion this year, there is no doubt that the cloud phenomenon is reaching a critical mass. Just take a look at the latest industry news and it’s impossible to miss headlines about the latest SaaS companies that are taking their product public. Investment firms are pouring millions of dollars into this growing segment because of the promise it holds, yet only the strong will survive.
According to Gartner (News - Alert), this year’s SaaS revenues are a 17.9 percent increase from 2011 revenue of $12.3 billion. In fact, SaaS-based delivery is predicted to experience healthy growth through 2015, when worldwide revenue is projected to reach $22.1 billion, according to Sharon Mertz, research director at Gartner.
“After more than a decade of use, adoption of SaaS continues to grow and evolve regionally within the enterprise application markets,” says Mertz. “Increasing familiarity with the SaaS model, continued oversight on IT budgets, the growth of platform as a service (PaaS) developer communities and interest in cloud computing are now driving adoption forward.”
However, as early adopters of SaaS have realized, it is not easy to find the right catalog segmentation, feature bundling and pricing models. In fact, the number one question SaaS vendors ask once they are in the cloud is: “How do we optimize?”
A balanced cloud business model focuses on two components: minimizing CAC (the cost of acquiring a customer) and maximizing LTV (the lifetime value of a customer), according to Michelle Nerlinger, director of product marketing for SafeNet’s (News - Alert) software rights management (SRM) division. In fact, she says the right licensing and entitlement management system fuels the entire SaaS optimization process.
Source (News - Alert) – David Skok, Matrix Partners
“A complete software monetization solution – featuring both licensing and entitlement management components – is critical both in the launch and optimization phases of any cloud service,” Nerlinger explains.
Software monetization means the adoption of any variety of measures a software company takes in order to increase the profitability of their intellectual property, according to SafeNet, which offers software monetization services for small and medium-sized businesses (SMBs) up to large enterprises.
Delivering software as a service can open up new markets for software companies and help sell into existing ones, Nerlinger explains. But in order to maximize the value vendors derive from their software offering, their strategy needs to take into consideration each aspect of software monetization – packaging, control, management and monitoring.
According to Nerlinger, there are three core challenges that software publishers have with regard to software monetization in the cloud:
1. Service agreement compliance tracking and enforcement;
2. Flexible packaging abilities; and
3. The ability to easily track and report on product and feature usage.
Stay tuned for part two of this series tomorrow!
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Edited by Rich Steeves