I was recently re-reading an older research report from IDC entitled "As Cloud Applications Mature, So Do Monetization Models: An Operational Assessment". The report by Amy Konary does a really nice job of explaining all the implications of monetizing SaaS or cloud applications and is as true today as the day it was written. It also details the policies and technologies that software vendors will need to have in place in order to support effective and flexible monetization models for their services.
What particularly caught my attention was Amy's discussion on the phases of SaaS licensing model sophistication. Amy describes the phases as:
- The Wildfire Phase - characterized by the desire to "land and expand", most software vendors at this phase are focused on quickly ramping up the business to grab marketshare. As such, they typically license their products/services on a per-user, per-month basis - keeping it simple to accelerate signing up as many paying subscription customers as possible to drive monthly recurring revenue. The hope is that the offering grows like wildfire within each customer and market segment. In this phase, the SaaS business model is intentionally vanilla in an effort to lower barriers of entry so people can easily adopt with little perceived risk or downside.
- Maturity Phase - while the wildfire phase increased monthly recurring revenue, management and the company want more. It is time to diversify the service catalog and introduce new pricing models to start monetizing value in ways other than per-user/per-month fees. During the maturity phase, the SaaS provider starts to think more about ways in which its business model should evolve, including the licensing strategy. The primary components of the licensing strategy includ: legal agreement, monetization model and operational support.
Amy contends, however, that once a SaaS company reaches maturity, it is likely that elements of all three of these technologies will be needed to support operations.
Amy points out that there's a need to automate, control and measure each of these and provides specific guidance and recommendations for the SaaS provider to follow.
The key takeaway for me was the phases of growth and how software licensing, entitlement management and other supporting technologies and operational considerations need to mirror the growth strategy of the business. As the company seeks additional avenues for growth, this alignment becomes an essential enabler.
Forward looking companies are thinking about this evolution and future requirement even as they are moving through the wildfire phase. Failing to do so could result in the inability to enter the maturity phase and continue to support the desired growth of the company.