Today I’m going to ramble about Metrics, Monitoring, SaaS (Software-as-a-Service) and the Subscription Business Model. Topics I’ve been reading and discussing about for the last few weeks. The topic that calls for special attention is the Subscription Business Model. This model has been affecting our industry drastically, specially if we look around from a consumer perspective the idea of subscription services is almost ubiquitous. Netflix, Spotify, Salesforce, GitHub, Amazon, Google, these companies cover quite a few of the areas of SaaS for different industries. And this is just on the Software side of things. There are tons of companies selling subscription boxes, flying tickets and bikes.
I’m reading the book Subscribed by Tien Tzuo and also have been using The Art of Monitoring¹ by James Turnbull as a reference for some Metrics work I’ve been doing. If you come from an On-Premise only team/project/product, the mindset needs to changed a bit. The shift to cloud architecture is fairly technical but developing a solution that is following a Subscription Model, priorities change and some aspects become more important than others. Metrics and Monitoring are two examples of that. They have a bigger importance because you can reflect them directly to your billing. Understanding how your users are using your platform, means you can make decisions based on their experience, which eventually will lead into a larger customer retention. Which in the Subscription Business model translates to more revenue.
SaaS products are only viable in present times due to huge technology advancements in the recent years. With the increased bandwidth and platform costs decreased, it became more viable for subscription based models to arise. Mainly because lower platform costs and higher bandwidth allows companies to create SaaS solutions. Higher bandwidth allows consumers to access these SaaS solutions. Lower platform costs means cheaper scalability and companies can create software that would handle higher loads. Add that to the advent of cloud computing and a shift from in-house hardware to service providers and you have SaaS companies managing corporate software.
In this model, companies are no longer selling you a product directly. They rather charge you monthly on your credit card for a service you use where you have access to a virtually unlimited amount of that product. This means that companies no longer have to create a new product to keep you as a paying customer. What they need to do, instead, is to keep you engaged with their platform so you continuously pay their subscription fees every month. This reflects into a huge change in mindset. Product is no longer the key point of a company,² rather how customer is consuming your platform is now the main focus. In this “product first model”, energy is often spent on creating a one-time sale product. All your revenue is tied to how well your sales are going. This also means that your sales teams becomes your main bottle-neck for revenue increase. On the other hand, companies that adopt a Subscription Model, are more focused on the interaction with the solution. Revenue is tied to customer usage of the application rather than sales quantity. This narrative fits when we look at companies that are focused on customer interacting with their platform are more prone to enriching the user’s experience. Google, Facebook, Netflix and Spotify are good examples of that. They are leading in topics such as resilience, which is all in favor of giving you the best experience by providing virtually no down time and fast recover from failures. But this also means they are keeping you more time on their platform. They do this because it gives them more money. It’s not virtuous or altruistic. It’s simply part of their business model.
With this in mind, we can infer that part of the objective of the SaaS development team is to keep the user engaged with the application. In order to do that we must provide a good user experience. And for that we need to understand how the user is using our platform. This is where Monitoring and Metrics take place. Monitoring technical and functional aspects of your application is paramount to understanding how your users are using your software. Metrics on technical aspects like infrastructure costs can help you find bottlenecks and eventually cut these costs. Usage metrics can hint what features are being used and what features are being ignored by your users. What processes take longer to execute? What process are failing due to user errors? Answers to these questions are on-spot feedbacks to improve the user experience. Monitoring also plays as a substitute for Health-checks and some level of systems tests by systematically providing logs with system your status. It’s a proactive approach on Monitoring systems. Ultimately your Metrics can translate technical aspects of your system into business value. As put by James Turnbull in his book, by properly putting your Monitoring together it “provides data that measures quality or service and provides data that helps IT justify budgets, costs, or new projects”. It’s easier to see IT as pure cost when you’re in the dark. As cited on the Subscribed book “Companies tend to manage what they can measure”.
Now, not only the development aspect of a company differs in a Subscription Model. Tzuo puts in his books that there are a lot of aspects that require change within a company. Marketing, Sales and Finance are relatively different from Product based companies to Subscription based companies.
The Four Ps of Marketing is a concept I was not aware before going into this topics. is a concept within what is called “Marketing Mix” (which apparently can go up to 7 Ps but no time for that) where all these “Ps” (Product, Price, Promotion and Place) are things that are controller by your company. They are the key factors you use to promote your brand. However, as stated by the author of the book, once you stop looking at products and actually focus on services, the remaining three “Ps” cannot be tackled the same way. So price is no longer calculated the same way, because your customer is not acquiring a product, rather it is only consuming it, possibly for a limited time. Promotion also changes, its likely that you no longer have bundles and the approach for offering discounts is also directly affected. So his point with this “Marketing Mix” disruption is that the concepts of marketing we have today need to be changed. The same applies for sales, where, as stated before, your no longer acquiring assets but starting a relationship with your customer. Actually making the sale is not only a completely different approach, but its also not as relevant as it was since revenue comes from keeping the customer longer. A companies finance also needs to be re-worked to fit a subscription model. How you value a one-time revenue is a lot different from a recurring values. A fifteen dollars purchase is different from a new subscription with fifteen dollars each month. Also new customers it reflects on future revenue also, so measuring increasing revenue changes. Also new processes such as mid-month subscription cancellation that can result in credits or refunds.
Lastly, one of the major points in this book is that it in order to actually grasp the whole subscription model, it requires sort of a cultural change. We are seeing this kind of change around us, but its more culturally within the company. The major critique he makes towards product is that companies are more shaped like assembly lines. To deliver products faster and sell it as much as you can. Where in subscription companies is about continuous success and keep delivering value in your service to slowly but steadily increase your revenue. And making this change is hard. Changing a companies process is difficult but to change its culture is even more so.
The major point about Subscription model is to favor access over ownership. You would still have access to books, music, movies, news and any media or content you’d like. But slowly stop owning it. It all feels like more than a business change but a social change on how we are interacting with things around us.
As a final point to this ramble, I’d like to say that I had little to no idea of these topics before reading the book and going for some deliberated research. I’m not very good when it comes to learning things outside the realm of Computer Science and I usually feel bad about it. But whenever I do so, it is so rewarding. I’m not entirely outside of the safety zone of Computer Science, but intersecting with some Business topics is nice for a change. These are things that, even though are not directly part of my job, they help me to understand the whole. And, ultimately, make better decisions.
¹ Not really my cover-to-cover book. It’s quite massive and it has huge parts on setting up Monitoring Frameworks going through tedious config files. It has is moments on the theory part.
² By product I really mean an assembly line kind of product. Even from a Software perspective, in this case, a product is a Software that is built, packaged and delivered a complete product to the customer for a specific price. No recurring revenue (not counting support). No subscribed users. Usually On-Premise. You know. The typical software product.
References and other links
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