I’m a member of the school of though that says that SaaS brings true value to a small business. As such it troubles me when I see people selling based primarily on price – it does them, and the industry, a disservice. I’ve posted about this previously, begging vendors to articulate the value of their apps.

So every time I see something that looks like a WalMart approach to marketing, it makes me freeze. Recently I received an email from someone wanting to tell me about a productivity bundle being launched to 100000 users. Alright I thought, this sounds interesting. I visited the site and was welcomed by the following:

cheapaz

Yup – Evernote, Remember the Milk, TimeBridge, MindMeister, RescueTime and Shoeboxed were joining in some crazy scheme to try and sell a few more licenses. Nothing about added value, no special integrations and no obvious cohesion between the apps.

I’ve gone on record as saying that co-marketing initiatives like The Small Business Web, that don’t give users the ability to actually purchase the apps are sub optimal. I still hold that opinion – central points of billing are very persuasive. But at least The Small Business Web is squarely articulating the value of SaaS apps.

It works like this – SaaS tends to have a lower margin than on-premise apps. Anything you do to undermine that value further is toxic to your business’ viability and the industry as a whole. Bargain deals like those in the offer above are the worst of the worst…

Ben Kepes

Ben Kepes is a technology evangelist, an investor, a commentator and a business adviser. Ben covers the convergence of technology, mobile, ubiquity and agility, all enabled by the Cloud. His areas of interest extend to enterprise software, software integration, financial/accounting software, platforms and infrastructure as well as articulating technology simply for everyday users.

9 Comments
  • Maybe we should think about it as two types of online software, SaaS and Freemium.

    When you give your product away for free (granted, with a few less features), it becomes really hard to get someone to pay. The percentage of paid customers is typically in the single digits. The book Predictable Irrational has some neat examples of how $0 is way different from $0.01 in the mind of the consumer.

    So, these bundle deals are about introducing more people to SaaS. They may have been on the fence about buying one of those products and then the bundle pushes them over the edge. I think it is great for the industry.

    I also think this is really profitable for these companies. If the typical conversion rate is around 5% and the typical retention rate is around 40%, the second year revenues will be way higher once you get those credit cards in the system.

  • Oh, and I would have bought this the first time I saw it except that I already pay for Evernote, RTM, and RescueTime. The others don’t interest me much.

  • It is interesting seeing the increasing use of reseller channels that don’t add any value in the SaaS world. I believe there is a tremendous value-add channel play to be had in SaaS, but if requires the channel to actually do work (since there isn’t up-front margin or much fat at all in the licence pricing). There are some really scary bottom feeders out there hitting companies like ours up, and asking to take 40% or more to “market us to clients”. I guess if you’re freemium and you were only going to see a 2% conversion anyway, then no big deal, but if you’re not, you should avoid these sorts of distributor/box-shifting channels like the plague and go with real partners who make their money on top of the SaaS subscription fees with professional services…

  • You’re right it destroys value – however it depends on how they present it to the market.

    For example if they only offered this deal to people that were users of their free service (and they checked using several of the services) then it would make sense encouraging that user base to upgrade.

    It’s clearly not a situation where you want to present it to everyone.

  • Ben,

    I helped create appsumo and liked hearing your thoughts.

    I was talking with my gf 2 days and wondered whether we are really adding value and helping these companies. As well, does being a part of the bundle hurt the brand of companies involved.

    Overall, after doing a few deals, what we’ve found is:

    a) Companies like participating in the bundles since they can use it to convert their free users. (ie. conversion on that 95% of FREEmium users)
    b) Some companies that aren’t as well known get a chance to be discovered
    c) People like it:) A bit blown away that users buy it and then tell their friends.
    d) Many companies have been doing cross-promotions for years. Most of the companies we work with are referrals from their friends.
    e) It’s a very limited time special so it doesn’t create the Bed-Bath & Beyond issue where I only go there when I have my 20% coupon.

    It’s free for companies and working with us helps them make get paid plus get a great LTV of users they haven’t converted before.

    Let me know what you think.
    http://twitter.com/NoahKagan

    Ps. One of our next deals on http://appsumo.com is with companies that all work together.

    • Thanks for your reply Noah. I take your points but still think this approach is sub-optimal for vendors…

      • Thanks Ben.

        How is this sub-optimal for them?

        There is no cost, total profit, new customers, doesn’t hurt brand & new marketing channel.

        What am I missing?
        Noah

        • It brings them a handful of customers at the cost of brand image. It’s like Louis Vuitton saying that hocking a couple of bags off at Best Buys doesn’t hurt the brand…

          • I shop at Old Navy but I get what you mean.

            Louis Vuitton has a cost of product and does give away freebies / promotions to get their bags in front celebrities and certain audiences.

            I think we can just disagree to agree here:)

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