RENAISSANCE OF BUSINESS SOFTWARE: A SALES-LESS ERA

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 .

PRODUCTIZING FEATURES VS. SHIPPING PLATFORMS

Regardless of distribution model, success always starts with the product. Building a product for the consumer-worker is distinctly different from prior generations of enterprise software. These are users who are accustomed to interacting daily with simple and elegant mobile and web applications and services that offer strong functionality and high user experience quality think Facebook and iPhone, or even Angry Birds. Todays enterprise software should be similarly easy and elegant, with a strong focus on simplicity and zero day value proposition. Many of the most effective business software companies productize lightweight, easily consumable features in rapid succession, instead of slowly shipping complex, heavyweight platforms. The bells and whistles of yesterdays massive on-premises ERP software (which needed large direct sales teams to sell around the product) have given way to todays cloud-based, nimble application with core -feature functionality. In essence, the lowest-commondenominator capabilities will appeal quickly to a large set of users. And with cloud-centric delivery (download-to-install or software-as-a-service), enterprise software developers can build more viral hooks into their product and iterate more quickly with a series of sometimes-trivial product features that ultimately evolve into a platform over time. Patches and upgrades are pushed quickly via the web, helping developers respond to customer needs in real time and eliminating the need for long service contracts. Development, likewise, should become much more cost effective, as your initial set of customers also becomes your test group to ensure tight product/ market alignment.

RISE OF THE CONSUMER-WORKER

As enterprises grapple with rapid technology changes and increasingly competitive markets, the winners will be determined by who can adapt quicker and drive higher productivity throughout their organization and IT infrastructure. Workers can no longer afford to wait for IT/CIOs to run arduous RFP and IT procurement processes. Instead, they must now behave like consumers in adopting technology self-empowered, valuedriven, do-it-yourself and social. Its the rise of the consumerworker. Employees once forced to deal with on-premise enterprise software packages can now search for and access a large menu of choices online, encouraging greater specificity and solutions shopping. A newly democratized fabric of software adoption has emerged, leveraging sales to the consumer-worker first and then attracting the attention of higher-level IT procurers. Much of this trend can be traced back to the roots of open-source software (inherently driven by viral, community-centric grassroots adoption), which demonstrated the power of the individual developer. This democratizing trend has empowered end-users across entire enterprises, averting traditionally C-level questions around deployment and circumventing IT policies.

DEMOCRATIZATION OF SOFTWARE DISCOVERY

Software discovery has become mainstream, and gone are the days of costly industry trade shows and expensive analyst reports. Page 1

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.

other PCs in the family.

MONETIZATION: MULTIPLE AVENUES

The sales and marketing democratization of enterprise software opens multiple new avenues for monetization. There clearly is no one-size-fits-all solution and companies need to consider customer, product and industry. But through a grassroots sales process, software vendors can hopefully find comfort in avoiding the lengthy, drawn-out contracting process that often hampers enterprise sales forces. Monetization schemes, likewise, have simplified in terms of both price and structure but should complement a companys product and the natural evolution of customers engagement with it. Either way, by targeting consumer-workers, most solutions providers must reconcile lower price points with a higher velocity, highervolume sales agenda. We look now as the strategies behind a few of todays top enterprise application businesses to understand best practices for monetization (often combining multiple approaches within a single company). There are more approaches not laid out below and surely many more will be invented in years to come: Freemium, Pay for Scaling Consumption: Dropbox Dropbox, a cloud backup and syncing tool, allows 2GB of storage up front to any user, a natural product-market fit for SMBs and enterprises (worker collaboration) Achieves network effects by not only going free, but also by offering additional storage for each additional user someone refers to the service Conversion through consumption (similar to contemporary media models): Dropbox users convert from free to paid once they reach their storage limit Result: Freemium acts to support viral growth, with referrals helping to augment existing network effects. A very natural conversion point for free users (storage limit), perfectly complimenting the way users interact with the product. Freemium, Pay for Value Features (Or Forcing Managements Hand): Yammer Yammer, an enterprise short-form messaging service that helps employees collaborate. Service is free for users, but if the enterprise wants to claim the network for administrative and monitoring purposes, they pay a monthly fee Result: Perhaps one of the best examples of grassroots adoption leading to broader enterprise sales. Forcing managements hand, though perhaps interpreted negatively, in fact is a broader phenomenon that many of these successful businesses have experienced: how do you drive enough adoption to get C-level attention, support and ultimately, buy-in? Page 2

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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