On-Demand is a Mindset, Not a Feature Set

I’ve spent many years in both the traditional enterprise software market and in the On-Demand / Software as a Service market. One of the important differences between the two is the way people think about products and the way products are designed.

In the traditional enterprise software market, when people think about products they focus on the features of that product. There are two main reasons for this:

a) Competitive reasons. In the enterprise software market, there aren’t that many ways to compete. You can compete on price, but almost no software vendors like competing on price. You can compete on user satisfaction, but that’s pretty difficult. First, part of user satisfaction is based on usability, and since that’s highly subjective, it’s hard to prove to a prospect that you have superior usability unless the prospect does an extended proof of concept. Another element of user satisfaction is reliability and performance, but that is often much more directly linked to the abilities of the prospect’s IT staff than it is to the product itself.

A third way to compete is by having a superior feature set. Your marketing team can create an “us versus them” feature comparison that aims to prove that you have deeper, richer, and more sophisticated features that can do more powerful things than your competition. This has been the most effective way to compete, so traditional enterprise vendors tend to focus on features.

b) The business model promotes it. For many vendors (such as Microsoft with their Office suite) the only way to get additional revenue out of existing customers is to add new features and have the customer buy the upgrade. I have been a Quicken user for a decade, and each year I get a marketing brochure from them touting the new features in their latest version. They keep adding new features to try to get additional revenue from me, even though the version from 2000 still meets all of my needs. The only reason I’m not still using that version is that they no longer support it, so I had to upgrade.

Other vendors (such as SAP and Oracle) sell maintenance contracts to their customers. But, even for those vendors that provide maintenance contracts, the only way to get new revenue beyond the maintenance stream is to again add new features to the product, bundle them together, and then sell the bundle as a new add-on module.

The On-Demand approach is very different. It’s much less about focusing on a particular feature set, and much more about focusing on a mindset. It’s a mindset that is service oriented rather than product oriented, and it has simplicity, the end-user experience, and end-user value as the critical focus areas.

It’s not that On-Demand vendors somehow magically manage to attract employees who are genetically predisposed to focus on these things. Rather, just as the traditional software vendor’s focus on a feature set is driven by the traditional software business model, the On-Demand vendor’s mindset (which, as I mentioned above, is focused on simplicity, end-user experience, and end-user value) is driven by the On-Demand business model.

Since the On-Demand vendor uses a pay-as-you-go, subscription-based business model, there’s a direct link between these focus areas and the vendor’s revenue. If you find the product hard to use or if you’re not getting any value out of the solution, you’ll stop using it, and the vendor’s revenue dries up. Also, since you don’t need to make a large up-front financial commitment to the solution, if you find it difficult to set up, you won’t finish the set up process, so again the vendor won’t get any revenue. With the traditional enterprise software license model, the vendor gets paid up front, regardless of whether you use the product or even finish deploying it. (That’s why there’s so much shelfware with traditional software, and almost none with the on-demand model.)

The on-demand mindset is a refreshing change from the typical feature-set focus. Cramming more and more features into a product so you can sell new versions results in feature bloat and products that are difficult to use. Instead, focus on providing the customer real value. If customers are receiving the value they need, they will keep using the service.

posted by Ken Rudin at 11:47 am

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Lincoln Murphy

Posted on 24th January, 2007

Ken,

Thank you for publishing this article. I have forwarded the link to a number of people who I felt didn’t quite “get” the SaaS or On-Demand model. I’ve already received feedback indicating your article helped them wrap their brain around the concept.

I would very much like to speak with you about LucidEra and your experience in the On-Demand / SaaS industry. We are currently working to bring an On-Demand product to market in the Corporate Mail Center Management space; a space very much focused on traditional delivery methods and pricing models.

If you would be interested in spending a couple of minutes chatting with me, please contact me off line.

Thanks,

Lincoln Murphy
Global Mail Technology, Inc.
lincoln dot murphy at globalmailtech dot com