IP Applications Billing and Payments blog

One of the challenges we faced as we set about bringing our SaaS billing product to market was how to explain our application's wide range of capability to potential customers.  It sounds simple but it's not.  We've already found that companies who've built their own billing solution are far more interested in our solution than those who haven't tried it yet.  The latter think billing's easy, the former have enough experience to know better.

After talking to a range of software companies and reflecting on the billing and subscriber management business we already do, we concluded that every client has different needs.  Our application is an integrated billing system.  At the start of the exercise, our application was like a restaurant with one prix-fixe menu.  Even if all you want is the salad course, the fish course and desert, we'll still bring you the beef tartare, the duck breast and the cheese.  Of course, our application is flexible enough that you don't have to take or pay for all of its functions, but they'll be there every time you look at it, whether you're using them or not.

We figured that to make it more attractive we'd have to make the presentation simpler so we set about clustering the application components into logical groups.  The prix-fixe analogy still works but now we have three separate menus - the short one, the medium one and the complete one that includes flights of wine.

There are three questions to aim you at the right menu:

1) Do you need Enterprise billing or Consumer billing?  "Enterprise" means we produce one complex invoice covering a collection of end user.  "Consumer" means one simple invoice per end user.

2) Are you going to operate with or without Session Control?  "With Session Control" means that unpaid bills automatically suspend service.  "Without Session Control" means that unpaid bills have to be handled manually outside the application.  Each is appropriate for some categories of client.

3) Are you marketing through a channel or direct?  Channels are structured ecosystems that are complex to bill and administer.  However, many software companies find they can make more money that way.

We're pretty confident that as the SaaS business matures, most vendors will follow Time-Warner's lead and host their customer and user records with a billing service and use its application and its business logic to manage their SaaS business.  I'm using Time-Warner for this example because over the last five years they've worked with us to implement a top-notch subscription and billing management application that we own and that they run a sizeable chunk of their internet business on.  There isn't a lot they don't know about subscription marketing and delivery. 

So, if SaaS delivery is part of your product plans, spend the time pondering the three questions and figuring out your whole go-to-market problem.  Read everything you can find and talk to lots of people who've already done it before you set your developers to work. 

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Back in January, we concluded that we raise our game with some sophisticated management software for our business.  The application we wanted is a common one these days but to protect the innocent, I'm not going to talk about it specifically.  The application isn't the point of the story - the story is about how two well regarded SaaS companies found themselves in a mess when they tried to work as partners. 

To digress for a moment, it was fascinating to watch ourselves go through the buying process.  For our staff, who've delivered hosted applications for years, setting up and running any web application is pretty much a brain-stem exercise.  Perhaps because we know what's involved we chose a SaaS product hosted by someone else for our internal operations. 

Anyway, back to the story.  After we chose a month-to-month plan for a SaaS product we learned that the chosen vendor had struck a partnership with another SaaS supplier we already did business with.  It was an easy choice to just add the new subscription for the new product to our existing account.  So far, so good.

Then things went a bit pear-shaped.  Our decision gave us a ringside seat to the headaches just waiting for SaaS companies working together as channel partners.  While regular on-premise software marketing partnerships are pretty well understood, SaaS isn't so simple. 

From a purely mechanical standpoint, any billing and provisioning problems that the SaaS product owner (effectively at the top of the food chain) doesn't solve will be inflicted on every partner and reseller all the way to the end of the line.  At each step along the channel, the billing and subscriber management process is challenged by an avalanche of details about users, prices, plans, commissions, rebates, revenue sharing agreements, refunds and incentive plans. 

The overall concept of "a single solution from a single vendor" is pretty attractive to technology customers.  So, SaaS vendors have to find ways of working together with each other, with on-premise suppliers and with integration partners.  However, because they're selling a subscription and not software in a box, the whole process of accounting for and administering the sales relationship has to change.  Figuring out the billing and the partner shares in a single up-front license fee deal can be complex.  Most finance and accounting groups don't really mind because big dollar amounts justify the effort.  Doing it over and over every month with small-dollar subscription revenues is another matter.

So how did our "two SaaS products from one vendor" plan work out?  I'd love to say it ended well, but really, it didn't.  The billing and provisioning problems were so severe that after months of trying we finally gave up.  We now have two separate subscriptions with the two suppliers. All is well again, at least until next time.

So what's the lesson from all this?  Even though both partners are successful direct-to-consumer SaaS vendors, when one became the channel partner selling the other's product, the arithmetic was "one plus one equals zero".  The problem for us as a customer was purely with their billing and provisioning process - both products are great. 

Simply put, channel marketing for SaaS companies is really difficult.  The administrative burden increases exponentially with success.

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