Thursday, December 28, 2006

Future of SaaS: don't forget the data!

My colleague Philippe Botteri has an interesting post in response to a speech given by Tony Zingale at the 13th Silicon Valley Annual VC/Entrepreneur luncheon organized by NVCA. In his post, Philippe lists several reasons driving the success of SaaS (software as a service), both from the customer perspective as well as the vendor perspective. I'm going to add one more point: Benchmarking.

One of the things that I think will grow in significance for the SaaS model is leveraging the valuable data sets vendors end up having, most notably for benchmarking purposes. For example, let's take SuccessFactors, a SaaS provider of Talent Management services. If you are not familiar with SuccessFactors, they help companies manage their talent, i.e., people. This includes succession planning, compensation planning, performance reviews, etc.. If they took all the data they have, they could provide some really interesting benchmarks. For example, average salaries for certain positions across industries or cities, increases in annual salaries, demographics associated with promotions, etc.. Leveraged correctly, this data could be sold back to customers or other 3rd parties as a premium service.

I'll admit monetizing this data is no easy task. There are two important issues here. 1) Figuring out how to use the data. 2) Who owns the data in the first place?

re #1: I've spoken with a few hundred SaaS companies and only an elite handful have figured out how to effectively monetize their data. On those occasions, the CEO could barely hide his / her enthusiasm. They knew they were sitting on something valuable and unique to SaaS. Unfortunately, most CEOs don't even think about this advantage, most likely because of privacy concerns. I hope this thinking will change.

re #2: Of course this is the hot button question: who owns the data in the first place? I would be very surprised if SuccessFactors hasn't thought about the data they have and how they could monetize it already, but obviously they have to be very sensitive to the fact that they deal with some very sensitive data. Companies are still quite uncomfortable with the idea of giving away their data to someone else in the first place -- even with the assurance that it will be highly secure -- and most large companies still request installations behind the firewall. A high-profile case of a guy like Salesforce.com selling their customers data (even aggregated, completely anonymous data) without full consent from their customers would certainly be a black eye to Software as a Service. But I hope this is something time and envelope-pushing CEOs will change.

As SaaS increasingly grows in user acceptance and companies gradually become more comfortable with having their data housed by someone else, I'll be looking out for the SaaS visionaries who will be pushing the envelope towards figuring how to leverage their customer data.

3 comments:

Aditya Narayan said...

I don't think this is happening. Any business visionary keeps customer interests first. Why would any one entertain a SaaS vendor who wants to sell customer data - directly or indirectly?

Sarah Tavel said...

Aditya,

Thank you for the comment, and it makes me realize I wasn't perfectly clear: I'm advocating that SaaS vendors can and should collect data and offer it as a premium service to their existing customers. In fact, many (visionary) SaaS companies,
public and private, are already collecting anonymous customer data and offering this data to their customers, usually in the form of benchmarks, to return value to their customers. Freshbooks is one example of a company doing this (check out Zoli Erdos's post on the subject), but there are many more. (For example, Taleo and SuccessFactors talk about doing this.)

It is worth noting that this is similar to what is already happening in the consumer market where we give up our data for free for some service.

Aditya said...

Hi Sarah - Thanks for clarifying. My comment was more from a large company's perspective.

For a company that has data privacy concerns like most large companies - the data leveraging proposal adds to an already existing data privacy concern with SaaS.