Aug 042010

How many times have you seen software marketing pursuing “feature comparisons” – either as a method to breakdown version options or as a comparison against competitive brands?  Does “thousands” or “millions” of times sound more accurate? Can you navigate feature list comparisons?

If we were really honest. I’d bet most of us would admit when faced with feature lists we simply resort to numbers. Product  A has X number, the alternatives have X minus. But then, who makes up the list? And who says which implementation of a feature is “better” or even real? The marketer making the table is the one making the rules of course. If I make a feature comparison table, you can bet my product or service will have “more” checks in the boxes against the list I make.

So, what really counts?

I was reminded of this discussion (which we at Scio engage in as a matter of course when we start considering development of a new product for a client) by two recent blog posts by SaaS and product marketing gurus, Peter Cohen and George Colony.  Peter’s post, “Too many choices aren’t necessarily a good thing” points out that most customers, when faced with a lot of choices simply freeze and don’t buy. We see this all the time. Entrepreneurs entering the field of SaaS for the first time are often overwhelmed by the number of choices they are faced with. In response, they either drop the idea of developing a product “for now” or simply make a few gut level choices and charge on hoping for the best.  Most put the idea on hold.  Considering the risk, if they can’t parse the choices or get someone to help them, maybe it’s for the best.

George’s short post, “Apple Versus Nokia: The Primacy of Design” contrasts the returns on the Apple approach to product options to Nokia. Nokia has 86 models of cell phones available. Apple has two. Nokia sold 111 million phones in Q2 for a net profit of $286 million (3%). Apple sold 8.75 million cell phones for a net profit of $1.1 billion (21%).  Which business would you rather own? Better yet, which business would you rather run on a daily basis?

Of course, there are many sides to the question of buyer choice. Maybe buyers do want the “cool factor” as some say of Apple products. On the other hand, if Apple had an additional 84 models – would it actually sell more phones at the same margin? The answer is – most likely no. The cost of development and manufacturing alone dictates that in a market with limitations (not everyone wants a phone, needs a new phone or can afford one with service) that significantly more models will inevitably result in a higher margin and lower profit, even on higher sales.

There is also another factor, perhaps more interesting for the SaaS market. To a large extent, Apple is selling to end users. They have only one carrier, AT&T. There are a limited number of calling plans available for the iPhone. Buyers don’t have a lot of choices to make beyond, “Do I want an iPhone?” Nokia, on the other hand, is actually selling to carriers. Carriers differentiate on the combinations of brands, models  and plans they offer. For end users, this makes their choice even more complicated. You want phone X because of features Y and Z? That is only available under plan B with carrier C in your area. In the end, most users end up making the choice simple by asking “how much can I afford and still get decent service?”

Considering this paradigm in the context of a SaaS product – I would point out:

  • SaaS is by and large a “business-to-business” (B2B) market where purchase is funded by a business client but endusers ultimately determine value and client retention.
  • The more options a pricing plan has the less likely it is the client can make a logical choice for their users. Faced with a wide range of options, most will simply pick the highest or lowest price depending on their immediate budget and perceived value. That choice may or may not work well for their users, which one way or the other will play out in adoption.
  • Feature lists do not equate to usage. Experienced SaaS vendors with feature monitoring and metrics can tell which features are in use by which roles, by size of client, by time of the day, month, year and a lot of other factors. Vendors of premise-based, licensed software rarely, or never, have access to that kind of data.

Understanding these key differences in marketing, pricing and determining features for a SaaS product are critical. Starting out, a SaaS product is much better off focusing on a narrow set of features (the 80% of value is driven by 20% of features – the Pareto principal) with customer development leading the way to a product that meets real needs.

The simple facts are:

  • Having a strong understanding of the core value your service can deliver to its customer is not the same as knowing what endusers need to utilize it.
  • Most often core value is supported by process and decisions within the client operation – incorporating and integrating them in the application is key to retention. If you don’t – eventually client workarounds become solutions or existing solutions become barriers to adoption.
  • Monitoring, embedded user feedback and client interaction can (and should) be built into the “application suite” from a user point of view and part of the product management/feature development process pre- and post-release. Progressing from the core product to a form that quickly and continuously delivers value to endusers does not need to be an act of black magic in SaaS.  The tools and methods are available, accepted and expected by users and clients in today’s market.
  • Building from the “visionary core value” to delivering a service driven by user and client “pull” puts the vendor in a very unique and competitive position. The client’s perceived value increases beyond cost and if they understand the product development process, becomes a key factor in retention.

But all this brings up one question –

What is “Core Value” for users and clients?

To answer this question, I suggest borrowing from the Theory of Constraints and ask, “What limitations will the service remove for clients or endusers?”

  • Will it remove questions caused by the lack of quality data or understanding?
  • Will it remove costs that prohibited action?
  • Will it remove long processes, strict controls, rules, workarounds, or assumptions that limited users or client capability?
  • And finally – What value will removal of the limitation unleash for clients?

Notice that cost and value are not the same. A simple accounting of costs does not account for lost opportunity or gained speed, quality or competitiveness.  It is also important to consider that in many cases, the client cannot see what they are currently doing as a limitation. It is simply what they do to achieve a goal. Gaining adoption requires creating the vision of what would be different in the end while still accomplishing the goal.

Figuring this equation out and developing the vision isn’t light work. But it does put a different light on marketing, the features required and the pricing of the service. It is equally important for new services and existing offerings. It is an on-going activity – it doesn’t end on day one of the new product release or after the latest “version” is in front of users.

So, it might seem that “Keep It Simple, Stupid” (KISS) applies, but in truth, there is nothing stupid about understanding and acting on core value in SaaS. Clearly understanding what a client sees and can realize as value is the key to developing, marketing, pricing, sales, adoption, retention and success in SaaS.

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