Post on 22-Aug-2020
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©2015 Gainsight. All Rights Reserved.
Digging Economic Moats for Your XaaS Business
J.B. Wood President and CEO
©2015 Gainsight. All Rights Reserved. 2
Global Footprint
65+ Countries | 500 Memberships | 300 Tech Companies
Our mission is to increase revenue and profit performance of technology companies by optimizing service businesses.
Thought Leadership Research-Intensive Model
115 Deep dive audits
1150 Benchmark analyses
7K Analyst inquiries
In the last 4 years… In the last year…
80% are Fortune 100 Tech Firms
Amazon “Tech” Category Best Sellers
130K Benchmark data points
515K Survey data points
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"I skate to where the puck is going to be, not where it has been.” - Wayne Gretzky
©2015 Gainsight. All Rights Reserved.
2009
2011
2013
“We Have a Problem…”
“A New Purchasing
Model Is Coming”
“Industry Transformation”
4 Coming This Month!
A Journey… “Profitable XaaS”
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Tech & Service 50 Index vs. Cloud 40 Index
5
TSIA TS50
TSIA Cloud 40
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Revenue Multiplier (market cap/revenue)
6
Average: Q4 2015 5.6
1.4 1.7 1.7 1.8 1.8
2.1 2.6
5.1 5.5 5.5 5.6 5.7
6.1 7.5
7.9 8.1 8.2
8.6 10.4
14.1
0.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0 16.0
Lifelock
IntraLinks
Jive Software
RealPage
Athena Health
LogMeIn
Veeva Systems
Ultimate Software
ServiceNow
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However, The Mountains Are Eroding…
7
0
5
10
15
20
25
LivePe
rson
Marin So2
ware
EGAIN
Brightcove
Num
erex
RackSpace
Carbon
ite
Jive So2w
are
Bazaarvoice
IntraLinks
Lifelock
inCo
ntact
Channe
ladviso
r
Barracud
a Networks
BoKom
line Techno
logies
RealPage
RingCe
ntral
Bene
fiNocus
Cornerston
e Ond
emand
Marketo
Veeva System
s
LogM
eIn
Textura
Demandw
are
Athe
na Health
Med
idata
SalesForce
Fleetm
aUcs Group
Sps C
ommerce
Red Ha
t
Cven
t
Qualys
NetSuite
UlUmate So2w
are
Splunk
Proo
fpoint
Guidew
ire So2
ware
ServiceN
ow
Workday
Current Last Year
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GaaP Profitability Problem Not Going Away At Scale
8
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The Slowdown Fish
9
PROFIT
LOSS
YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5 YEAR 6+
Time
COST REVENUE
Profits
Losses
Growth Slowdown
costs
revenue
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The Slowdown Fish
10
PROFIT
LOSS
YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5 YEAR 6+
Time
COST REVENUE
Losses
Growth Slowdown
New Investor Messaging
“Hyper-Growth”
“Growth +
Profits”
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Why aren’t we already there?
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Economic Moats – What Drives Sustained Tech Profitability?
12
6. Virality/Low Cost of Sales
4. Network Effect
3. Economies of Scale
Economic Moat
5. Diverse Revenue Streams
2. Unique Capabilities
1. High Switching Costs
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Economic Moat - Traditional Tech Alignment
13
Virality/Low Cost of Sales
Network Effect
Economies of Scale
Medium
Medium
Low
Economic Moat Traditional Tech
High
High
High
Diverse Revenue Streams
Unique Capabilities
High Switching Costs
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Economic Moat XaaS 1.0 – All Same or Worse
14
Virality/Low Cost of Sales
Network Effect
Economies of Scale
Medium
Medium
Low
Economic Moat Traditional Tech
High
High
High
Diverse Revenue Streams
Unique Capabilities
High Switching Costs
XaaS 1.0
Medium
Low
Low
Low
Medium
Medium
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The Cost of Sales Problem
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Sales and Marketing as a Percentage of Revenue
16
50%
40%
Workday Licensed Software
Rackspace Google
30%
20%
10%
0%
52%
60%
40% 38% 29%
14% 13% Saas
Companies Salesforce
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XaaS Revenue Waterfall
17
115%
$115m
100%
$100m
End of Year Revenue:
Total $’s End of Year
Starting ARR: Total $’s Available
to Renew at Beginning of Year
90%
$90m
Retention Dollars
Upsell Dollars
Cross Sell
Dollars
Customer Churn Dollars
Downsell Dollars
Retention Rate = 90% Expansion Rate = 25%
Churn = 7% $3m Downsell = 3%
$7m Upsell = 10%
$10m Xsell = 15%
$15m
YoY Growth Rate = 15%
Source: TSIA SRG Cloud Benchmark Study
©2015 Gainsight. All Rights Reserved. 18
Effectiveness
Efficiency
Data Quality
Stickiness
Quantity
Who
Land New Customer
LAND ADOPT
Descriptive Analytics
Predictive Analytics
Outcome Analytics
Consumption Analytics Platform
Cost-Effective Selling
Channels
Data-driven and CGT-driven
Lead Gen
X-Sell Sellers
Renewal Sellers
Upsell Sellers
Large Upsell Sellers
EXPAND RENEW
Outcome Engineering
Customer Success Team
Customer Service Teams
Customer Growth Teams
TSIA LAER Model – The Key to Reducing Cost of Sales
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Economic Moats XaaS 2.0
19
Virality/Low Cost of Sales
Network Effect
Economies of Scale
Medium
Medium
Low
Economic Moat Traditional Tech
High
High
High
Diverse Revenue Streams
Unique Capabilities
High Switching Costs
XaaS 1.0
Medium
Low
Low
Low
Medium
Medium
XaaS 2.0
Medium
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The Revenue Diversification Problem
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The Three Profiles of Xaas
21
Future Value Aggregator
Unit of Consumption by Customers (users, pageviews, clicks, etc.) Confident in Pricing/ Revenue Model
Revenues Growing Faster Than Expenses
Profitability Horizon
Mid-Term Wedge
Current Profit Maximizer
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FVA Profit Horizon
22
PROFIT
LOSS
YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5 YEAR 6+
Time
Future Value Aggregator
COST REVENUE
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The Three Profiles of Xaas
23
Rapid Growth (usually triple-digit)
Future Value Aggregator
Unit of Consumption by Customers (users, pageviews, clicks, etc.) Confident in Pricing/ Revenue Model
Revenues Growing Faster Than Expenses
Profitability Horizon
Not yet
No
5+ years
Mid-Term Wedge
Current Profit Maximizer
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MTW Profit Horizon
24
PROFIT
LOSS
YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5 YEAR 6+
Time
Mid-Term Wedge
COST REVENUE
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The Three Profiles of Xaas
25
Future Value Aggregator
Mid-Term Wedge
Current Profit Maximizer
Growth (high double-digit+)
Unit of Consumption by Customers (users, pageviews, clicks, etc.) Confident in Pricing/ Revenue Model
Revenues Growing Faster Than Expenses
Profitability Horizon
Yes
Yes, maybe barely
3 to 5 years
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CPM Profit Horizon
26
PROFIT
LOSS
YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5 YEAR 6+
Time
Current Profit Maximizer
COST REVENUE
©2015 Gainsight. All Rights Reserved.
The Three Profiles of Xaas
27
Future Value Aggregator
Mid-Term Wedge
Current Profit Maximizer
Growth, could be slowing
Unit of Consumption by Customers (users, pageviews, clicks, etc.) Confident in Pricing/ Revenue Model
Revenues Growing Faster Than Expenses
Profitability Horizon
Yes, usually multiple
Yes
Current to 3 years
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Friction Extremes
28
Easy Acquisition Easy Adoption
Maximize Margin
EASY PROFITABLE
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The Friction Curve
29
FUTURE VALUE AGGREGATOR
MID-TERM WEDGE
CURRENT PROFIT
MAXIMIZER
Harder Purchase Decision
Easier Purchase Decision
Higher Profits Per Customer
Lower Profits Per Customer
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Iron Triangle
Portfolio & Pricing
Customer Engagement Model Financial Keys
Key XaaS profits decisions live in these three areas
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The 3x3 of XaaS
31
Portfolio And Pricing
Customer Engagement
Model
Financial Keys
FUTURE VALUE
AGGREGATOR
MID-TERM WEDGE
CURRENT PROFIT
MAXIMIZER
• Revenue mix • Margin and profit targets • Sales and marketing • Key performance metrics
• New customer landing strategy • Adoption framework • Customer expansion model • Renewal responsibility
• Technology offer definition • Value-added service offer definition • Offer(s) pricing model
Harder Purchase Decision
Easier Purchase Decision
Higher Profits Per Customer
Lower Profits Per Customer
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XaaS Revenue Streams
32
TOTALS
Revenue Streams
Technology Subscription
Premium Annuity Account Services
Professional Services
Transaction Revenues
Aggregate Business Model
% of Company Revenue
COGS%
GM%
S&M%
R&D%
G&A%
OI%
©2015 Gainsight. All Rights Reserved. Low Average High
Gross Margin Profiles (TRIMMED RANGE)
33
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
0% SOFTWARE PRODUCT
GROSS MARGIN
SUBSCRIPTION GROSS MARGIN
ANNUITY SERVICES
GROSS MARGIN
PROJECT SERVICES
GROSS MARGIN
TRANSACTION SERVICES
GROSS MARGIN
©2015 Gainsight. All Rights Reserved.
Bundle Growth Chart
34
ATTRIBUTE
Portfolio Components
Core Offer
Tech Support
Module A
Tech Support
Outcome Services
FVA STAGE NEAR-TERM WEDGE STAGE
CURRENT PROFIT STAGE
Core Tech Subscription
Adjacent Modules
Attached Services
Operational Services
Adoption Services
Information Services
Outcome Services
Basic Basic
Consulting
Tech Support
Basic
Diverse Complete Simple
1 5 10 TOTAL NUMBER OF OFFER BUNDLES
Core Offer
Module A
Implementation
Premium
Data Supplement
Core Offer
Module B
Implementation
Managed Services
Premium
Data Supplement
Advanced Analytics
Pay for Performance
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FVA Revenue Streams
35
TOTALS
Revenue Streams
Technology Subscription
Premium Annuity Account Services
Professional Services
Transaction Revenues
Aggregate Business Model
% of Company Revenue 90% 10% 100%
COGS% 40% 40% 40% GM% 60% 60% 60%
S&M% 60% 15% 56% R&D% 20% 20% 20% G&A% 15% 15% 15%
OI% -35% 10% -30.5%
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Competitor A’s Price
Competitor B’s Price
Core Subscription Prices and Margins Get Squeezed!
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Expanding the Portfolio of Offers
37
ATTRIBUTE
Portfolio Components
Core Offer
Tech Support
Module A
Tech Support
Outcome Services
FVA STAGE NEAR-TERM WEDGE STAGE
CURRENT PROFIT STAGE
Core Tech Subscription
Adjacent Modules
Attached Services
Operational Services
Adoption Services
Information Services
Outcome Services
Basic Basic
Consulting
Tech Support
Basic
Diverse Complete Simple
1 5 10 TOTAL NUMBER OF OFFER BUNDLES
Core Offer
Module A
Implementation
Premium
Data Supplement
Core Offer
Module B
Implementation
Managed Services
Premium
Data Supplement
Advanced Analytics
Pay for Performance
©2015 Gainsight. All Rights Reserved.
MTW Revenue Streams
38
Revenue Streams
Technology Subscription
Premium Annuity Account Services
Professional Services
Transaction Revenues
Aggregate Business Model
% of Company Revenue 70% 20% 10% 100%
COGS% 35% 35% 65% 38% GM% 65% 65% 35% 62%
S&M% 45% 12% 8% 35% R&D% 18% 10% 5% 15% G&A% 12% 12% 12% 12%
OI% -10% 31% 10% 0%
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Strategic Diversification
39
ATTRIBUTE
Portfolio Components
Core Offer
Tech Support
Module A
Tech Support
Outcome Services
FVA STAGE NEAR-TERM WEDGE STAGE
CURRENT PROFIT STAGE
Core Tech Subscription
Adjacent Modules
Attached Services
Operational Services
Adoption Services
Information Services
Outcome Services
Basic Basic
Consulting
Tech Support
Basic
Diverse Complete Simple
1 5 10 TOTAL NUMBER OF OFFER BUNDLES
Core Offer
Module A
Implementation
Premium
Data Supplement
Core Offer
Module B
Implementation
Managed Services
Premium
Data Supplement
Advanced Analytics
Pay for Performance
©2015 Gainsight. All Rights Reserved.
CPM Revenue Streams
40
TOTALS
Revenue Streams
Technology Subscription
Premium Annuity Account Services
Professional Services
Transaction Revenues
Aggregate Business Model
% of Company Revenue 55% 20% 15% 10% 100%
COGS% 25% 25% 60% 10% 29% GM% 75% 75% 40% 90% 71%
S&M% 42% 10% 5% 5% 26% R&D% 20% 10% 5% 8% 15%
G&A% 10% 10% 10% 10% 10%
OI% 3% 45% 20% 67% 20%
©2015 Gainsight. All Rights Reserved.
The Profitable Economic Moats of XaaS 2.0
41
Virality/Low Cost of Sales
Network Effect
Economies of Scale
Medium
Medium
Low
Economic Moat Traditional Tech
High
High
High
Diverse Revenue Streams
Unique Capabilities
High Switching Costs
XaaS 1.0
Medium
Low
Low
Low
Medium
Medium
XaaS 2.0
Medium
High
High
Medium
High
High
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Customer Success Will Play A Central Role in Profitable XaaS 2.0
• Drive down sales costs • Optimize waterfall economic performance • Diversify revenue streams
A Lot More Than Just Adoption and NPS!
©2015 Gainsight. All Rights Reserved.
Digging Economic Moats for Your XaaS Business
THANKS!
J.B. Wood President and CEO