Amazon Kindle – The New Bathrobe?

Last week, as I jammed another vanilla copy of USA today in my backpack to head toward SFO and a 6 hour flight home, I yearned for the sports section of the Boston Globe so I could read all the ugly analysis of why the Red Sox were sucking recently.  And then it hit me – why in the world hasn’t Amazon capitalized on the hotel market?  I’ve spent somewhere between 150-200 nights a year in hotels of varying classes in the past 3 years and besides the standards (bed, towels, tiny shampoo bottles) there are a couple of other items in almost every hotel:

• A silly copy of USA today every morning.  Does anyone actually subscribe to this newspaper or have they just cornered the Hotel market?
• A bathrobe, hanging in the closet, with a sign that says something like: “Feel free to keep this robe…and we will charge you some ridiculous fee to your credit card on file.”

Hotel’s have lots of travelers and with lots of payment information and lots of free time – seems like a captive audience.  So, if I’m Amazon, I go to all the major hotel chains, and cut them a deep deep discount  that looks something like this:

1. Bulk orders of tens of thousands of kindles (one for each room) pre-loaded with the top 25 bestsellers and every major newspaper in the country – all at some deep discount – say $50/unit.
2. The hotel can now cancel their subscriptions to USA today (even though I’m sure that’s discounted as well) and likely break even within a year
3. The hotel puts a tag on each Kindle telling the hotel guest that the device is theirs to keep, and the hotel will just charge a discounted rate (maybe 10%) off the retail price to their room.  (bonus if they can bring them a new device to their room if they choose to purchase)

Winner: Amazon – They get their device in the hands of the target audience – travelers (especially of the business variety) without having to go into retail stores.  Now when the holidays come around, they can make an informed decision or maybe they get hooked right then and there and get 5 more people excited on the plane ride home.

Winner: Hotel – Better service to their guests, likely saving money (and the earth) on disposable newspapers no one reads, and some additional revenue from the sale of devices.

Winner: Guests – Can now access their local newspapers and/or books, try new technology, and walk away with a device at a discount if they choose to.

Looks like there are a couple of smaller hotels trying this out, but if I’m running Amazon biz dev, I’m sitting with Bill Marriott talking bathrobes and bulk orders.

Is SaaS Broken? Fixing the Rising Costs of SaaS Sales

There have been a couple of articles recently bemoaning the increasing COGS of SaaS solutions and questioning if this is the downfall of SaaS. Evangelos Simoudis of Trident Capital warns against rising sales costs and a move to field sales and Jeff Kaplan of ThinkIT Services, warns against VC’s getting cold feet.

So, is the SaaS model too good to be true?  Sort of!  

Software as a service is a phenomenal business model, but it’s not foolproof.  Luckily, it’s not rocket science either.  Why are COGS increasing?  For the same reason they increase in traditional ISV’s – there’s an imbalance between Sales & Marketing – that MUST be corrected.  Look at the breakdown:

 Traditional ISV’s: Marketing buys targeted lists and generates leads through targeted campaigns (trade shows, Direct mail, etc.)  Sales is broken into two segments: 1) inside sales: low cost “churn & burn” team dedicated to qualifying out the targeted list and passing the “qualified leads” to the outside team.  2) Expensive outside team dedicated to closing business.  

Successful ISV sales & marketing teams are well oiled machines.  They know ahead of time when they need to open the funnel and they know when the quality of the leads are going down.  Each step of the pipeline is measured and monitored and has an OWNER that is accountable to a number. 

Early SaaS Players: Simple apps with simple concepts that can be adopted at low costs by early adopters – i.e. Constant Contact or Vertical Response.  The concept of e-mail marketing (as an example) is pretty simple and the apps are very simple and very powerful, so getting up and running is easy.  Customers can see value within hours of “trying” – a sales team is not nearly as important as good customer support.  Marketing’s job is to drive as many targeted eyeballs at the lowest cost possible.  Easy and fun Saas model that makes VC’s silly happy. 

New SaaS Players:  Here, the apps are getting more expensive and more complex.  There is a need for a “solution sales expert” to help explain the value proposition – and here is where the model breaks down.  Marketing drives leads via SEM with “targeted keywords.”  Inside sales is inundated with huge quantities of “targeted” leads that are not really targeted and not really qualified.  The sales teams struggle to qualify the leads because the old rules don’t apply anymore.  Everyone can afford a free trial and most people can afford the monthly rate (at least for a little while), so no one gets qualified out.  Everyone is a potential customer!  With no focus for sales or marketing, conversion rates plummet and companies have to start discounting deeply to drive sales.  

The move to an outside sales team is not going to solve this.  SaaS solutions can be sold very well with a high quality inside sales team, but they have to be ruthless about qualification.  And marketing has to be held accountable for lead quality – i.e. just because they clicked on your generic keywords does not make them a good lead! 

The Solution:  Two trends that will lower COGS for SaaS players and bring profitability to new SaaS players: 

1)      Enterprise sales: High quality marketing & inside sales teams re-learning how to qualify leads in a SaaS world.  Expect more content before registration to whet your appetite and a more onerous process once you’ve decided to “try”.  (i.e. lengthy signup forms, credit card before “free trial”, phone call activation, etc.)  SaaS vendors have to become ruthless qualifiers to figure out who to spend time with to raise conversion %. 

2)      Small & Medium businesses: Expect consolidation of marketing platforms.  It’s just too expensive to try and reach a fragmented audience via SEM, so we will see an emergence of app marketplaces (i.e. what we’re building at Intuit).  The SaaS offerings themselves will need to be drop dead easy to get up and running, but if the vendor can dramatically cut marketing costs, they can focus on conversion and customer support.