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Cloud Business and Cost ModelsEvilázaro AlvesChief Business Development OfficerMicrosoft Regional DirectorMicrosoft Azure [email protected] | @evilazaro
Market Environment &Cloud Computing
What is Cloud Computing?
Delivered on Demand
Broad Network Access
Shared Pool of Resources
MeteredService
Supports Elastic Demand
Source: National Institute of Standards and Technology
Cloud Computi
ng Patterns
UsageCom
pu
te
Average
Inactivity
Period
On and OffOn & off workloads (e.g. batch job)Wasted capacity at idle
Unpredictable BurstingUnexpected demand peakPerformance deterioration at spike C
om
pu
te
Average Usage
Growing FastGrowing fastComplex lead time for deployment Average Usage
Com
pu
te
Predictable BurstingKnown/seasonal demand peaksWasted capacity at troughs
Com
pu
te
A nice incremental cost improvement for most scenarios…
A peerless solution for a few
Cloud ServicesPrivate
(On-Premise)
Storage
Servers
Networking
O/S
Databases
Virtualization
Data
Applications
Integration
You
man
ag
e
Dedicated(Managed Hosting)
Storage
Servers
Networking
O/S
Databases
Virtualization
Data
Applications
Integration
Man
ag
ed
by v
en
dor
You
m
an
ag
e
Infrastructure(as a Service)
Man
ag
ed
by v
en
dor
You
man
ag
e
Storage
Servers
Networking
O/S
Databases
Virtualization
Applications
Integration
Data
Platform (as a service)
Man
ag
ed
by v
en
dor
Storage
Servers
Networking
O/S
Databases
Virtualization
Applications
Integration
DataISV
’s
Un
iqu
e
Valu
e
Remaining competitiveStaying focusedReducing costsManaging datacentersSecurity, privacy & continuityEmbracing globalizationImproving free cash flowBoosting capital value
Top of Mind Issues for ISVs
ISVs Must Think Differently for the Cloud
Financial MetricsChurn RateCash flow and cost of saleCustomer Lifetime ValueCommitted Monthly Revenue
Sales & MarketingLicensingCustomer Acquisition and Cost of SaleTry before Buy – Click, Try, BuySales CycleReferral Programs
Distribution & SupportDelivery rhythmChannel DynamicsService Level AgreementsSupportBilling
A Different Economic Calculus
Large upfront fees replaced by smaller ongoing payments collected and recognized over time
Cost of sale has to be managed very carefully
Ongoing cost associated with application delivery
Upfront investments in R & D, sales, marketing and support with no immediate payback
Capital markets that assume exponential customer adds and reduced acquisition cost at the margin
New Financial Drivers
Source: Bessemer Venture Partners: 10 Rules Of Cloud Computing And SaaS
CMRR
C-PIPE
CAC
Cash Flow
Churn Rate
CLTV
Source: David Skok, Matrix Partners
The impact of churn
Assumptions• 5-year model• $10k bookings in month 1• $2k monthly growth
5-year impact• At 2.5% churn, $(64,000)• At 5% churn, $(90,000)
Source: David Skok, Matrix Partners
Negative churn
Assumptions• 5-year model• $10k bookings in month 1• $2k monthly growth• Expansion revenue of 2.5% to current customer base
Managing churn
Increase stickiness
Track and react to customer engagement
Contact your customers
Put top sales talent on cancellations
Consider longer-term contracts
Track and react to churn
New Marketing Methods
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Goal Marketing Tactic
Performance Indicator
Traditional Sales Process: Sales Led, Sales Driven
New Sales Process
Steps in Sales Process How is this Done? Steps in Sales Process
How is this Done?
Cloud Sales Process: Customer Led, Support Driven
Support REALLY matters
On-premises softwareCustomers USE it because they PAID for it
Cloud servicesCustomers PAY for it because they USE it
Pricing, Cost Modelingand Use Cases
Business Value For ISVsHelping ISVs Throughout The Application Development Lifecycle
Develop
Innovate quickly…on an open and comprehensive platformUse what you knowCut development timeMost comprehensive
Sell
Grow your business…no matter where you are starting fromUncover new revenue Application marketplace to grow salesPartner support eco-system
Scale Reliably
Scale Reliably…with fully managed hardware and softwareScale to demandReduce costsRely on world class security, continuity, privacy
How ISVs can offer Microsoft AzureCustomer Buys App and Microsoft Azure from Partner and Partner buys Microsoft Azure From Microsoft
Customer ISV
CustomerISV
Customer Buys App From Partner And Customer Buys Microsoft Azure From Microsoft
Pay as You Go
Enterprise Agreement
Open LicensingResell Azure and maintain directcustomer relationships
Microsoft Azure Purchasing OptionsThree Different Ways To Purchase Microsoft Azure
http://azure.microsoft.com/en-us/pricing/purchase-options/
Ways To License Your App In The CloudMultiple Methods For Monetizing Cloud Offerings
FreemiumFree basic levelPremium upgrades
Ad-Based RevenueRevenue from advertisers not users
Related Services ChargedFree App Use with charge on related services/or virtual goods
Free
Per UnitPer MeterPricing per unit of measure – such as storage (per MB)
Per TransactionDiscrete transaction units that can be easily measured and tracked
Per User/DeviceCustomers pay for each user/device using the product or service
Monthly SubscriptionCustomers pay an amount per monthly
Revenue ShareA share of revenues generated via the service provided
License FeeA large upfront payment for the license
Payment
Have you also thought about…
Using Azure IaaS to support easy trial of existing ‘click-wrap’ softwareDynamics CRM as a unified customer and app instrumentation platformAzure as a low cost data distribution & storage platformAugmenting existing apps with cloud based instrumentation and analytics
