The Next Generation of SaaS Toby Scammell
As I’ve spoken with investors over the years, a common theme in the software-as-a-service sector is the use of “engagement” to measure the value of software.
On the surface, this makes sense -if users put time and effort into software, that must mean it’s valuable to them, right?
If your business model relies on advertising impressions to make money, time spent and actions taken are still good indicators of value.
But for a growing number of software companies that don’t monetize impressions, user engagement is on its way out as the dominant value metric.
As automation goes mainstream, users will increasingly expect software to operate invisibility. The SaaS world needs to take note and start building for this reality now.
We all know that automation has gone mainstream, but sometimes we forget how long things have been trending this way. Just a few decades ago, most businesses in America tabulated their financials manuallythey literally had to close their physical books.
Today, most big businesses and millions of small ones use accounting software to do the work automatically.
As people experience automation in more and more daily contexts -- from paying the gas bill to ordering a taco -- “do it for me� has quickly become the expectation, not the exception.
In fact, if you founded a SaaS startup today on the value of user engagement, I’d bet you’d be staring at the daunting prospect of a major product pivot away from engagement and toward automation right as soon as you try to raise your Series A.
To understand what needs to change in B2B SaaS, it’s helpful to think of its evolutionary arc in three distinct phases.
Currently, we’re in Phase One. Today, most SaaS platforms are essentially frameworks that help users do jobs themselves.
As we head into Phase Two, users will input some general rules and the software will handle a bunch of tasks automatically.
Eventually, in Phase Three, users will just switch on their SaaS product and the system will figure out what to do without any additional guidance.
Some companies are already moving to Phase Two.
Shopify, for example, describes its Kit Application as a virtual employee that you “hire” to automate small business marketing. In addition, Intercom announced a product called Operator with a marketing email that said the bot “takes care of simple tasks so you can focus on things only a human can do.”
These are very public declarations that the software’s value is based on automation, not engagement.
For the rest of the SaaS industry to make the leap, here’s a few things that need to happen‌.
We need a new product philosophy.
When user engagement is your north star, you build software designed to captivate users. The unintended side effect is that users become enslaved to technology instead of liberated by it.
Product teams need to get deeper than problems, solutions, features, and benefits and move toward “jobs theory�.
What else can the software do to save time? You can add tremendous value by automating specific actions.
Data should come first. If Phase One requires users to input data manually, Phase Two puts the onus for data collection on the software itself.
One of the biggest challenges when building automated software is collecting and curating data before the user ever logs on.
Software alone won’t be sufficient -- it will need to bring its own data to the table.
This will presume that data is considered at the beginning of any development process, not just added as an afterthought. That will require rethinking the interactions between different functional teams that build software.
User engagement is measured by time spent and actions taken -- relics of advertising business models. Automation flips these metrics upside down and completely changes how SaaS should be evaluated.
Instead of engagement metrics, SaaS companies should start measuring true value-delivery metrics such as “time saved” and “jobs done”.
Phase Two SaaS should track metrics like “helpful ratio”, “time to wow”, and other measurements of utility over usage.
Founders and investors should start talking about how they can incorporate next-generation metrics into their reporting right now. Even if engagement metrics are needed for specific reasons, they shouldn’t be considered the only measures of product value.
Every SaaS company should start measuring jobs done and time saved for their users, and build a way to monetize those results. And investors should expect startups to build automation and value delivery into their product roadmaps.
The next-generation SaaS movement is happening and won’t be stopped by inertia. The transition will benefit everyone, and software companies that catch the vision will reap the rewards.