For many years now, these service providers have been shifting toward the Managed Services Provider (MSP) model to incorporate more services into the mix that generate Monthly Recurring Revenue (MRR). What is MRR? It’s all of your reoccurring revenue normalized in a monthly amount so you don’t have to worry about one-off sales and can better track your gains for growth. Many have also gone as far as to refer to MRR as “the holy grail” of the IT industry. But how can you generate more MRR to scale and achieve Software as a Service (SaaS) success?
Some IT service providers will remember back when Microsoft first introduced its Business Productivity Online Suite (BPOS) — a suite designed to assist small business IT as they set forth trying to break into the cloud computing field.
The introduction of these Microsoft solutions that were available from the internet had many Microsoft partners and pundits scratching their heads. How could Microsoft cannibalize its own software business like this? What were they thinking?
No, they were every bit as smart as usual.
Microsoft had realized that BPOS could be a “sell-it-once, get paid forever” phenomenon. Its ultimate gestation to become Office 365 is testament to just how right they were.
Office 365, like any SaaS offering, has a cost trajectory that lags significantly behind its revenue. Microsoft can make new investments in infrastructure to deliver the service when it sees fit, but there is a highly indirect proportion between the small investments and the resulting increase in revenue with a SaaS solution. Best of all, once it’s sold it will continue renewing as long as the quality of the service remains high. That means that there will be no more cost of sales or direct costs of personnel — just hockey-stick gains in revenue and profits.
You don’t need to write the next great application suite to put yourself into the SaaS business. You simply have to find an application or application suite that ideally fits your clients’ needs. It may be a vertically oriented operations, Enterprise Resource Planning (ERP) application, professional services automation platform or any other application providers are willing to enter into a proactive, cooperative marketing program.
What you will need to do is make sure that you are highly circumspect in your vetting of the software provider. How will clients obtain support? How will quality of service be assured? You’ll need to take an approach of high skepticism and assure yourself that the application is efficient and effective, providing a superior user experience.
The answer is really in your own hands. The provider will certainly charge you a license fee for use of the software. If they provide the underlying data platform, such as Microsoft SQL Server, they’ll charge a margin for that. If they actually run the software on their own public cloud infrastructure, they’ll enjoy more of the available MRR.
As a member of Microsoft’s Cloud Solution Provider (CSP) program you can move the server platform profit closer to your column. Plus, it gives you the capability to completely own end-to-end customer engagement by directly provisioning, billing and supporting Microsoft cloud services for you customers. Having a direct relationship will also provide a competitive advantage by offering value-added solutions and services. In the long run, it will lead to a more inclusive and flexible way of integrating your own technologies with Office 365.
Adding a Services Provider License Agreement (SPLA) also enables you to charge the customer for the use of Microsoft SQL Server and any other Microsoft products that may be required to properly support your software. Ultimately, you will be able to offer your clients a complete package that you, and only you, will invoice them for on a monthly basis.