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Softletter's SaaS University comes to new locations in 2012 More information here

SaaS University SaaS University Overview SaaS University, Austin, TX, Feb. 28-29 Why Attend a Softletter SaaS University Conference Who Should Attend SaaS University Sponsorship and Exhibit Opportunities Past Venues Subscribe to SaaS U Journal SaaS University Journal SaaS Crossword Puzzles

View Journal Online Tell a Friend April, Vol 4, No 2 Featured Events | Videocasts/Webinars | Publications |Subscribe to Softletter

COMING IN APRIL, THE 2012 SOFTLETTER SAAS REPORT

The latest edition of the industry's most comprehensive drill down into Software as a Service from the provider's view will be released this April. Purchase the 2011 edition and receive a free upgrade to the 2012 edition (and save $200 since the price of the 2012 edition rises to $799 when it's released). New analyses include discounting, freemium programs, trial access, and much more. More information on the Softletter SaaS Report Here

Subscribe to Back Issues Don't see back issues of SaaS U Journal? Please subscribe to the Softletter site to obtain access to back issues. Subscribing to the Softletter site is free! Recent back issues include: What SaaS Providers Can Learn from Telecom Billing Selected Key Excerpts from Softletter's 2011 SaaS Survey, Part II of II Selected Key Excerpts from Softletter's 2011 SaaS Survey, Part I of II Collecting VAT on SaaS: What Rules Apply? Selected Key Highlights from the Softletter SaaS Pricing, Billing, and Discounting Survey, Part II of II Selected Key Highlights from the Softletter SaaS Pricing, Billing, and Discounting Survey, Part I of II Multi-Tenancy and the Ghost of Objects Past October, 2010, Government Contracts and the Cloud: The Data Security Challenges Sept., 2010, The Most and Least Effective Indirect Marketing Lead Generation Programs for Software as a Service Companies Summer 2010, Why Do Customers Buy SaaS? Based on Softletter Research. June, 2010, CUSTOMIZATION

Innovative CIOs and Leading-Edge Companies to Speak at Cloud Analytics Summit on April 25

Executives from Google, Deloitte, Splunk, Zynga and Others to Discuss Business Intelligence (BI), Big Data and Data Integration Strategies for Success in the Cloud - Register Now for Complimentary Passes
SoftLetter is pleased to be supporting the Cloud Analytics Summit which will provide an executive forum for corporate decision-makers to learn about the latest Cloud-based business intelligence (BI) and analytics solutions and strategies that can help them harness their 'Big Data' sources and integrate their systems and applications into a more productive enterprise-wide resource to achieve their corporate objectives. The Cloud Analytics Summit will take place on Wednesday, April 25, at the Computer History Museum in Mountain View, CA, and will be hosted by Jeff Kaplan, the Managing Director of THINKstrategies and founder of the Cloud Computing Showplace. The following corporate executives are among the first to agree to speak at the Cloud Analytics Summit: Jane Griffin, Americas Leader of Deloitte Consulting LLP's Analytics Practice Ju-kay Kwek, Product Manager of Google's Big Data Initiative Ken Rudin, VP Analytics & Platform Technologies, Zynga Doug Harr, CIO, Splunk David Roth, CEO/Co-Founder, AppFirst Lonnie Wills, CEO/Co-Founder, CloudTrigger Joseph Szmadzinski, CEO, IT Management Resources Chor-Ching Fan, Senior Director of Analytics Product Management, LogiXML Russell Hertzberg, VP SaaS and ISV Solutions, SoftServe Chuck DeVita, Founder, Growth Process Group

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IN in SaaS: DRAWING A LINE IN THE SAND May 2010, SILLY AGILITY, THE MYTH OF THE SAAS AGILE PRODUCT MANAGER April 2010, SELECTED HIGHLIGHTS FROM SOFTLETTER'S 2010 SaaS SURVEY, PART II OF II March 2010, SELECTED HIGHLIGHTS FROM SOFTLETTER'S 2010 SaaS Survey, PART I OF II Subscribe Now

Qualified CIOs and other executive decision-makers from mid-size and large-scale enterprises may take advantage of a limited number of complimentary passes to the Summit. Register now to see if you qualify for this limited offer. Other friends of SoftLetter can save 10% on the current Early Bird registration rates when they register for this event at http://www.amiando.com/cas.html by using special discount code SU12.
The Cloud Analytics Summit is a part of the 2012 Cloud Innovators Summit executive forum series aimed at helping corporate decision-makers better understand how they can leverage the latest Cloud innovations to satisfy their business requirements and achieve their business objectives. Contact Marc Sternberg if you'd like more information about sponsorship opportunities associated with these events. Stay tuned for more details regarding our upcoming conferences via Twitter @CloudSummits.

CONFERENCES Thank you for making Austin a great success!

Can Kachingle Save Freemium?

SaaS University 2012: Boston, October 2012

by the Softletter Staff

Beginning in 2009/10, freemium in SaaS became a hot marketing topic in SaaS. Since the markets rebound beginning in the 2004/5 timeframe, a sizeable number of SaaS firms have offered free online versions of their product (and by free we mean a product that provides at least a baseline level of functionality at no cost with no restrictions or crippling functions (such as watermarking images or preventing files from being printed). In the 2012 Softletter SaaS Report, which will be released next month, 27% of the participating firms stated they offered a freemium version of their product, with another 11% stating it was under consideration. The Problem with Freemium Despite the excitement (and in too many cases, hype) surrounding freemium, this pricing and marketing approach to SaaS has inherent problems. First, and most important, is that not all markets are a good match to the freemium model. With very few exceptions, products that feature a freemium option can be classified as commoditized or broadly horizontal. Examples include such systems as DropBox (file transfer and sharing), Carbonite (Internet-based backup), AnyMeeting (free webinars and screen sharing), etc. While not a SaaS product, SpiceWorks (a successful desktop network design tool that uses embedded advertising to generate revenue and which we suspect has a SaaS future) is also an example to keep watch on. By contrast, firms targeting their products at most vertical markets and/or that address critical company and enterprise needs dont normally use a freemium approach. Markets such as ERP, accounting and finances, asset management and tracking, compliance regulation,and health care management are in the main devoid of freemium options. The second problem is that of psychology. The freemium model induces two subconscious barriers to purchase. The first is the Ill lower my expectations to keep my free deal. This syndrome leads the freemium subscriber to accept product limitations and develop workarounds in order to maintain their free deal. The related syndrome is the "freemium generates contempt" effect. As a subscriber lowers their expectations of a system, they often become more interested in alternate, paid systems if their needs begin to outstrip the capabilities of their freemium system, even if the paid version of the freemium product possesses the features/capabilities the subscriber believes they need. The psychological hurdle of paying for something youve received for free is sometimes too high for a freemium subscriber to jump.

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The third problem is conversion to sales, a problem that has plagued the freemium model since its inception and ties directly back to problem two. In the 2012 Softletter SaaS Report, 72% of companies offering a freemium option reported conversion rates of 10% to under 1%, with the mean clustering around 1% to 3%. Many companies offering freemium products have found themselves being suffocated under the pressure of growing subscriber bases that while generating increasing infrastructure and operations costs arent conterminously generating revenue. Often, companies offering freemium programs will kick start their product launches by promotions that market into well established mailing lists and contact databases and enjoy early high conversion to sales rates (typical conversion rates range from 10% to as high as 50%+).However, once these initial resources are exhausted, conversion sales quickly fall back to the 1% to 3% median (and its quite possible to see far lower conversion percentages if your freemium program isnt bolstered by a vigorous and ongoing marketing campaign to encourage purchase of a paid version of your product). Problems with freemium conversion rates have lead many early proponents to back away from the concept. For example, 37signals, provider of Basecamp, a low-end project management system whose founder Jason Fried was an early advocate of freemium, "technically" provides a free version of its product but finding any mention of it on the website is very difficult. Other companies that dropped or deprecated their freemium plans include CrazyEgg (website heat maps), Viddler (video hosting) Pluggio (Twitter browser plug in), and Instapaper (web page saving app for iOS). An interesting side note is that SaaS freemium conversion to sales rates track the historical conversion figures seen over the last 30+ years for desktop "freeware" and "shareware" products. A critical difference is that desktop companies do not have to support the complex and expensive product delivery infrastructure that's inherent in SaaS. With the above in mind, we found the recent introduction of the Kachingle Premium system (www.kachingle.com and www.kachinglepremium.com) very timely as it promises to help companies address many of the issues plaguing freemium. Kachingle Premium is aimed at SaaS companies with freemium programs. The system is a SaaS product network that enables participants to create virtual bundles of both on demand and on premise applications for marketing and promotional purposes. In its initial release, Kachingle works as follows: The system provides up to 20 different on demand and on premise applications that a subscriber can access or license by subscribing to Kachingle for $5 per month. The products provided by SaaS vendors for Kachingle bundling are not freemium offerings (assuming they offer one and this is not a Kachingle requirement) but paid versions of their product, usually a first level offering. Kachingle vendor members must implement an API into their product that allows Kachingle to communicate with the vendors system. Once someone subscribes to Kachingle, they can, if theyre a freemium subscriber, immediately access a paid or "premium" version of their SaaS product. If theyre not a current subscriber, after theyve gone through the vendors sign up process, they are provided access to their paid account. The definition of a paid or premium product is defined by the SaaS vendor. While the most popular model is additional features, extra storage, increased bandwidth, extra accounts, additional projects or users and so forth are also used as criteria. Encouragement to subscribe to Kachingle is designed to be generated by the network's vendors, who are expected to advertise Kachingle into their freemium subscriber bases and up sell them to a paid product version.

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A widget on the vendor's website informs Kachingle subscribers of new products and opportunities in the system. Placement of the widget on the site is under the vendors control. Future versions of Kachingle will support creating different sized and vertically oriented bundles (small business, prosumer, etc.) with different price points. Underlying this ability will be a point system applied to applications in the network, enabling subscribers to mix and match applications by their point value, or swap in new products in place of ones little used. A further advantage of the system is its network effect. Kachingle, in its initial phase, estimates it will opens up a potential initial subscriber base of 195M; this number is derived by combining all the Kachingle vendor subscriber bases and also incorporates an algorithmic reduction of the number that accounts for duplicate subscribers amongst the various vendors. The funds accrued by Kachingle are disbursed as follows: 15% of the $5 is split evenly between Kachingle and PayPal, which supplies the systems underlying micropayment-to-the-penny capability. There are no other transaction costs associated with the system. An additional 8.5% ($.42) is assigned to the vendor who generated the initial Kachingle subscription. The rest of the $3.83 is disbursed among the bundle members based on daily application usage over 30 days (this is monitored by the Kachingle API). Payment is made via direct transfer to the vendors merchant account on a monthly basis; payments are first sent thirty days after a subscriber opens a Kachingle account. The Kachingle system also allows vendors to track which applications in the system are generating the most incremental revenue and, if the user permits it, which Kachingle subscribers. What are the Advantages of the Kachingle Approach to Freemium? The first advantage offered by the model is that it offers SaaS companies the opportunity to move freemium subscribers out the "no revenue ghetto" by offering them the ability to access paid or premium versions of SaaS products at very attractive prices. This should, in theory, help ameliorate the psychological barriers to purchasing a paid product created by freemium products. The second is that Kachingle opens up new markets and segments via its network effect to system members via the promotional programs each vendor sends to its respective subscriber and prospect bases. When a freemium or interested subscriber visits Kachingle, they can immediately browse through the product catalog and learn more. A third is that Kachingle provides its network members with a great deal of information on complementary markets and subscriber profiles interested in the Kachingle provider's products and services. Social media is built in and subscribers can post to their various "social graphs" on their application usage and favorites. What are the Potential Drawbacks to Kachingle? The first question (and its one we cant answer yet as the system is too new) is will the inevitable cannibalization of at least one of a vendor's paid subscription levels be offset by the number of new subscribers and revenue generated from Kachingle subscriptions? Kachingle has created a spreadsheet you can download and use to model your revenue assumptions but no hard case studies exist that you can study. To obtain a copy, E-mail Kachingle at kpbizdev@kachingle.com to obtain the latest version. Another question that remains to be answered is how difficult will it be to move "first level" paid subscribers to higher, even more profitable subscription levels? Will the same mental hurdles that plague the freemium model also extend to your Kachingle subscriber base? Or will the fact that the revenue hurdle has been

In Search of Stupidity: Over 20 Years of High-Tech Marketing Disasters, 2nd Edition

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crossed make your up sells easier (assuming you have more than one level of subscription or offer optional modules or features the subscriber can take advantage of). Again, it's too early to know. Well be keeping a close eye on Kachingle as the system is rolled out and gains traction. More details on the program at www.kachinglepremium.com.

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