ENKI Blog Monetizing SaaS Customer Behavior Based On Infrastructure Costs

I was speaking this morning to Victoria Pointer of MeetTheBoss about monetizing customer behavior for SaaS services, and we got into an interesting discussion about connecting that monetization to costing, which is something I know a bit about for cloud hosting. The issue that came up was monetizing SaaS services for end-user convenience and efficiency based upon the behavior of those end-users.Clearly, most SaaS services will claim that they are all about increasing end-user efficiency and convenience (otherwise, why would they expect to displace legacy applications?) However the creators of any SaaS application will come to a point where they have to choose between providing the most useful service to their clients versus providing profit to their investors. At the intersection of these choices is the cost of their development and infrastructure. Setting aside development costs for the sake of this blog, and also setting aside software efficiency and other cost factors which are better covered in the Controlling Cloud Costs whitepaper I wrote and which you can download at the upper right of this page, the interesting question comes up as to what the best approach is to monetizing end-user behaviors that cost the SaaS provider a lot of money in infrastructure charges.One case study is a service I'm intimately familiar with, which is NetSuite. Both from my time working there and now my time as a customer, I see that NetSuite has chosen to restrict the cost-incurring behaviors of clients so that they don't impact the overall business by hogging resources on shared servers. NetSuite will limit the run time of user-submitted customizations, slow the processing of mass record updates, and delay report generation until off-hours. This is a reasonable approach, considering that critical portions of their infrastructure are not easily scalable to adapt to changing loads. It guarantees a minimum service level for all clients and avoids breaches of SLA. It also saves NetSuite a lot of money because it doesn't have to build out its infrastructure to handle unpredictable peak loads.However, is this also a monetization opportunity? I think so. If a SaaS provider offers convenience and efficiency, then why not offer to charge clients based on their resource usage, rather than limiting that usage? They'd get their reports, mailings, CAD drawing refreshes, project plan recomputations, etc. much more quickly, and that would increase satisfaction as well. This is not much different than electrical time-of-use billing where you pay more if you insist on drying your clothes in the middle of the day: you're paying for convenience. And the provider gets a new revenue stream that can be used to build out the extra infrastructure to satisfy this demand, plus a profit. Customers are used to tiered services (ask anyone who uses Comcast!) and if the offer is sufficiently compelling, they'll pay for it. What you have to watch out for is not slowing or dumbing down your base level of service so that it gives you a bad name or opens a door for a competitor.So, to make monetization with respect to infrastructure usage work, you have a few tasks ahead of you:Determine what user behaviors eat up a lot of infrastructure resourcesDetermine if those behaviors can be monetized (how much will someone pay to speed them up or get more comprehensive service?)Determine how to adjust the design of your software to allow variable allocation of resources to clients based on their billing planDetermine how you will meter or bill for the extra resource usage, or if you will simply allow more usage for a fixed additional price. Analyze the resource costing and determine the pricing for the new tier.Plan how to communicate and sell the new tier of service so that it looks desirable without alienating your current client base.Look for ways to automatically upsell by measuring user behavior and suggesting the appropriate elevated tier of service that will appeal to them.Make the changes to the software design to support the new service tierResolve any systems issues so that your platform (be it cloud or your own datacenter) can allocate new resources on demand. With respect to cloud (which because of its scalability and pay-per-use is ideal for this approach) make sure your provider can allocate the resources when you need them and how the mechanism for doing so will work. (This is another entire blog article or more on its own, of course!)