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On a recent client engagement I was asked to provide a simple set of definitions for basic terms and concepts around Software-as-a-Service and Cloud Computing (which I often use inter-changeably). What was interesting is that there is a lot of buzz out there but I can see why people get confused because there isn’t a standard set of definitions.
So my Friday contribution to the SaaS industry I am publishing the Montclair Advisors’ SaaS Glossary of Terms. I would be interested in your feedback on the definitions and if I miss any key ones.
| Term | Definition |
| ACV | Annual Contract Value of a subscription software agreement. |
| API | Application Programming Interface. |
| ARR | Annual Recurring Revenue. |
| ASP | Application Service Provider. Typically associated with a hosted single tenant software solution. |
| CAC | Customer Acquisition Costs. A key -SaaS metric that measures sales effectiveness based on how long it takes to pay back Sales and Marketing investments. |
| Churn | A SaaS measure of customers who do not renew their annual or monthly subscription agreement. |
| Cloud Computing | A utility computing method that shares many types of computer resources through virtualization and delivers an elastic computing environment over the Internet. |
| CLTV | Customer Lifetime Value. A key SaaS metric that is used to measure customer value, usually over 3 to 5 years. |
| CMRR | Contracted Monthly Recurring Revenue. A key SaaS metric that is calculated for new customers, up-sells, cross-sells and removing churning customers. |
| CoLo | Co-Location facility. A term for leasing a third party’s physical data center infrastructure, which usually includes the building, power, Internet connectivity and security. |
| Cross-Sell | A key SaaS metric measuring new software functionality or modules added to an existing software subscription agreement. |
| Down-Sell | A key SaaS metric that measures when customers remove of functionality, users or capability that lowers the CMRR. |
| Freemium | A business model in which the SaaS or Cloud Computing provider offers basic features to users at no cost and charges a premium for supplemental or advanced features. |
| Hosted Software | Single tenant software that is delivered over the Internet from either the Software vendors own data center or through a third party hosting company. |
| IaaS | Infrastructure-as-a-Service refers to a combination of hosting, hardware, provisioning and basic services needed to run a SaaS or Cloud application that is delivered on a pay-as-you-go basis. |
| Mashup | It is a web application that combines data or functionality from two or more external sources to create a new service. The term implies easy, fast integration, frequently using open APIs and data sources to produce results that were not the original reason for producing the raw source data. |
| MRE | Monthly Recurring Expenses. |
| MRR | Monthly Recurring Revenues. |
| MSP | Managed Services Provider. Usually a hosting or CoLo provider who provides a higher level of application management services (App management, monitoring, reporting, billing and call center support). |
| Multi-tenancy | Refers to a software architecture where a single instance of the software runs on a server, serving multiple client organizations (tenants). Multi-tenancy is contrasted with a multi-instance architecture where separate software instances (or hardware systems) are set up for different client organizations. |
| On-Demand | Is often used as an interchangeable term along with SaaS. |
| On-Premise | Traditional method of installing and customizing software on the customer’s own computers that reside inside of their own data center. |
| Platform-as-a-Service (PaaS) | Platform-as-a-Service solutions are development platforms for which the development tool itself is hosted in the Cloud and accessed through a browser. With PaaS, developers can build web applications without installing any tools and then they can deploy their applications and services (reporting, integration, security) without any specialized systems administration skills. |
| Private Cloud | Employs Cloud Computing principles within a customer’s own internal networks. The term implies that the same virtualization and highly flexible and scalable methods used in huge Internet-based enterprise datacenters. |
| Public Cloud | Cloud Computing conducted using the public Internet outside of any enterprise firewall. |
| Renewal | Agreeing to extend an existing software subscription agreement beyond the initial term. |
| SLA | Service Level Agreement. The contractual terms of service associated with SaaS provider’s offerings. |
| SOA | Service Oriented Architecture. |
| SaaS | Software-as-a-Service refers to multi-tenant software delivered over the Internet and customers consume the product as a subscription service that is delivered on a pay-as-you-go basis. |
| Subscription | SaaS licensing method where customers rent their software from the provider usually over a 1-3 year period. |
| TCV | Total Contract Value. Total value of a transaction as measured over the term of the agreement. |
| Up-Sell | A key SaaS metric measuring additional software functionality, users, or capacity that is sold onto an existing software subscription agreement. |
| Virtualization | The creation of a virtual (rather than actual) version of an operating system, a server, a storage device or other network resources. |
I had an interesting briefing with Bill Soward, CEO and Greg Schneider VP of Marketing at Adaptive Planning the other day, which I wanted to share. In the spirit of full disclosure, I will let you know that I worked with Bill years ago at Edify but I have been very impressed with what he has done at Adaptive Planning.
The original purpose of the meeting was to finalize a SaaS business profile but what I thought was even more interesting was their company’s approach to building a SaaS sales pipeline, especially in these tough economic times. I have heard many executives talk about reducing the barriers to sales but Adaptive Planning is really going to the extreme in terms of test drives and transparency for their prospects.
Having run sales, I can tell you that sales reps always have a lot of excuses why prospects aren’t buying and I know there are plenty of excuses to be had these days. What I think we can all learn from Adaptive Planning is that by addressing these potential sales objectives earlier in the sales process, you can build in more predictability and ultimately more sales into your SaaS sales process. Here’s what they have done…
The New Improved Test Drive
30 day trials are no longer new and innovative, they are table stakes for SaaS firms trying to sell their software. Adaptive Planning is no different. They offer a 30 day trial but they also offer…
- A Hosted Express version, which is easy to set up and start to use. This is managed and maintained by Adaptive Planning and is free to use. Most of their prospects have opted for this approach to their trial.
OR
- Download the software for FREE, forever. You can go to SourceForge and download the source code and the Adaptive Planning Express product. To date they have had more than 79,000 downloads. Many of whom will become future paying customers. So if someone says I am not sure that your software will do what the marketing literature claims, just tell them to download it and use it.
Over-Educating Their Prospects
Bill and Greg agree that it is important to provide their prospects with as much information as possible and allow them to select what they need as part of their sales education process. This is also part of the company’s approach to relationship transparency, more about this in a minute. So part education building blocks consist of;
- A Resource center which is a collection of information like collateral, white papers, archived webinars and case studies. Most companies provide this type of information library.
- Pre-recorded video demo where the prospect can get a guided tour of the software, which isn’t really breaking in new ground but can be helpful for busy executives.
- Live Webinar demo, where prospects can interact with Adaptive Planningt team, again this is nothing new.
- On-line Training, which allows you to go into more depth around the product, which I think is a great idea. Because you always have the deeply technical buyers who need deep domain information.
- On-line Price List, this isn’t new for some of the newer SMB SaaS applications like 37Signals or FreshBooks but I think for this type of application this is quite a different approach.
- Online Community is another great idea. Using social networking to build a strong community around not only your products but also your company. Adaptive is using the Jive Software platform to provide chat threads, videos, blogs, polls and best practice advice. They even offer private collaboration spaces where customers can share best practice ideas privately.
By combining all of these building blocks, it gives the prospective buyer almost every way to learn about and evaluate Adaptive Planning’s software.
WYSIWYG Transparency
Bill spoke about having a transparent relationship with their prospect and ultimately their customer. They feel that their open information approach provides a prospect with virutally every way to experience and learn about their products, support, pricing and company. This is a powerful differentator when buying software but more importantly when a prospect is shopping for a vendor relationship. The reality is that today’s software buyer is more sophisticated but also realizes that their relationship with a software firm is typically lasts between 5-7 years and that they really do want to ‘try before they buy’. For Adaptive Planning their transparent approach is paying off.
Lowering Customer Acquisition Costs and Building a SaaS Pipeline
A term you hear a lot about in the SaaS world is CAC or Customer Acquisition Costs. This is basically the cost of finding, qualifying and signing up new customers. In the enterprise software world, where you were getting large up-front payments, you could sell with a team of sales professionals. In the SaaS world, where you are getting paid over time, it is imperative to sell using as close to a self-service sales model as possible and I believe this is what Adaptive Planning is doing. What I like is that they are not just cutting costs, they are putting everything out there in a transparent, logical way for their prospects to make their own decisions and self-qualify. There are still people at Adaptive Planning who will sell you software but only when you are ready to buy, which saves everyone time and money.
So far their approach appears to be working because they have more than 400 customers and continue to do well even in this recessionary environment.
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