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Summer 2011 | Ping Li and Vas Natarajan | ping@accel.com | vas@accel.com Quietly, behind the explosive consumer internet and digital media transformation in the last decade, enterprise software has enjoyed its own renaissance. Following a period of rapid innovation in cloud computing, open-source stacks, programming languages and mobile devices, software vendors emerged with a new wave of lightweight, feature-effective products along with more nimble, consumer-focused sales and monetization models. Such a renaissance has greatly benefited todays consumer-worker, who has shed the shackles of traditional enterprise software that was painful to implement and often even more painful to procure. While we take this shift to cloud/open-source/new programming technologies as a truism for most entrepreneurs, sorting through and fully understanding the subsequent business model shifts can be the difference between mediocre and strong productmarket fit. As such, the goal for this paper is less about discussing the underlying software technology trends (which are clearly fundamental) and more about how enterprise software has fundamentally changed to a sales-less distribution and freemium monetization model, mirroring the strides made in consumer based applications and services. This transformation has been an important trend for Accel with several relevant investments to date. The consumer-worker is on the front lines of procurement, putting the developers focus on application functionality and ease of use. Intersecting these rising consumer-workers is critical today for enterprise software to successfully gain adoption .
Consumer-workers have taken to the web for recommendations and to search for new products that enable them to succeed in todays dynamic workplace. Though the traditional enterprise sales model inside and outside sales forces mixed with a bevy of channel and integration partnerships still exists for the more complex, stack-heavy application packages, the web should be the primary channel for newer tools vendors. The internet, today, is the storefront of the software world. Online discovery for enterprise software is not a new concept, but it has accelerated in recent years given the tailwinds of the social web. In the early 2000s, software portals like Softonic and Download.com quickly became destinations for workers seeking simple download-to-try toolsets and formed a key catalyst for starting the open source movement. By the middle of the decade, search engines like Google and more relevant ad-targeting helped improve discovery. But the future of discovery as weve seen with traditional consumer product categories lies in social networking, with product relevancy hinging on recommendations from friends and colleagues from both inside and outside the organization. As the social and professional graphs of Facebook and LinkedIn, respectively, begin to curate consumer and business tastes, it will be vital for future tools vendors to have a deep understanding of social platforms. In doing so, new entrants can penetrate enterprises with a land and expand strategy finding an initial foothold worker in an organization and employing virality and strong network effects to continue to sell seats.
INBOUND MARKETING
In the past, marketing in software start-ups has been primarily a supporting role to the outbound direct sales effort. Today, marketing is front and center in converting users into customers and driving inbound sales. In many cases, software start-ups today dont have a single sales guy (maybe an inside sales team at most). A natural addendum to user-driven product discovery is provider-driven marketing: How, and through what channels, do providers profitably acquire customers? As described in our section on discovery, luckily todays consumer-worker employs many of the same techniques as everyday web-users: search and social. Having a strong, consumer-friendly social, web-presence is key, as it becomes the lead generator of sales. Creating inviting landing pages (and minimizing bounce rates), and low friction points throughout the sale process (your audience is similarly enjoying one-touch payments on Amazon and iTunes) are key to visitor conversion. Having a strong community to help promote your product helps with viral customer acquisition, and in some cases can help alleviate pressures around customer-ticketing and support. Such a strategy closely emulates what made many early open-source software packages successful from an adoption perspective, with growth fueled by a community of viral marketers and selfhealing adopters. Solarwinds, with its Thwack community, has successfully proven this model. In addition, AVG would target the IT expert in a household that would install the software on
Freemium, Pay for Value Features AND Scaling Consumption: SurveyMonkey SurveyMonkey, a lightweight question and answer platform Service is free up to a certain level (10 questions, 100 responses total), but offers tiered packages for added product scalability and enhanced functionality. Result: Strong virality (host sets up a survey and markets the service while soliciting responses). Pushes enterprises for paid-adoption by offering enhanced security and analytical features. Traditional Freeware / Free Trial: Solarwinds Solarwinds offers enterprise-class network infrastructure management software that is both downloadable and easy to use. Solarwinds directly targets IT professionals in the mid-market with affordably priced software that gets the job done. Easy-to-install and easy-to-evaluate, software is offered for free for a trial period. Certain software products are always free and essentially a lead-gen funnel for the paid products. Affordably priced software (ASP of $8,300) makes for minimal internal approvals, smaller, low-touch sales cycles Strong web community (Thwack) helps engage network professionals and source solutions for both product issues and general network functionality. As such, Solarwinds has been able to dramatically reduce customer support costs while helping to drive virality. Result: Model is highly effective for this market and product. IT professionals are attracted by the broad network, see strong value in the product through the trial period and price point allows both the buyer and seller to avoid C-level purchasing barriers. Low-Price, Lightweight: Atlassian Atlassian offers elegant, downloadable developer tools in a small, lightweight, downloadable package Simple product downloaded from the web with transparent pricing on the web Low purchase price point with no sales force, Atlassian takes a very consumer-like approach to enterprise software. No recurring services or maintenance streams no frills, no surprises approach Products built using open-source components, leveraging the virality of the open-source community Result: Low price-point starter licenses help organizations get their feet wet, but team-oriented features means products gain widespread adoption within the organization quickly. Company reached $60M in annual sales without hiring a single sales person.
CONCLUSION
Given the democratizing power of the cloud on discovery and distribution, the consumerization of enterprise software comes as no surprise. As such, software vendors looking to this lucrative market should understand existing success stories in determining product development, marketing and monetization. From Accels vantage point, the one tenet seemingly underscoring all three of these is simplicity. Not all enterprise software products fit this business model, and those that dont can still be successful but they too, can learn from the models discussed above. The salesless enterprise software model creates a strong barrier to entry against incumbent vendors who can never adapt to and embrace these cost-efficient models, given their legacy, heavyweight product, sales and marketing paradigms. The rising consumer-worker, todays sophisticated, web-enabled solution-seeker, demands the functionality and cost-effectiveness of their off-the-clock applications.
Ping Li is a partner at Accel Partners in Palo Alto and focuses primarily on software and digital media platforms.
Vas Natarajan is an associate at Accel Partners in Palo Alto and focuses on growth investments in software, internet and digital media companies.
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