From on-premise to SaaS
SaaS simply stands for “Software as a Service.” Facebook is a consumer network product, not technically SaaS, but there’s no other product that provides as many services as Facebook does. What really makes Facebook so successful is how it drives usage within its services. SaaS companies need to take note because usage is important for SaaS survival now more than ever.
Here’s why: back in the day, business software was sold on-premise. It had to be physically installed onto a company’s computers and network. Software vendors would sell a big company a license, and the company would pay someone like Accenture or CSC to customize, deploy, and maintain that software. Vendors didn’t really care about how much people were actually using the software. They just wanted to sell more licenses.
In 1999, Salesforce co-founder Marc Benioff introduced a new model:
“Rather than selling multimillion-dollar CD-ROM software packages that took six to eighteen months for companies to install and required hefty investments in hardware and networking, we would sell Software-as-a-Service through a model known as cloud computing. Companies could pay per-user, per-month fees for the services they used, and those services would be delivered to them immediately via the Internet, in the cloud.“
Subscription-based software was delivered through a web browser rather than a company’s internal data center. It gave software developers instant, 24/7 access to their customers. Suddenly, it wasn’t a CIO or systems integrator responsible for making users happy. It was the software vendor.
This new cloud delivery model meant that SaaS software had to constantly prove value to individual users. SaaS companies pay high upfront fees to acquire customers (CAC) in the hopes that customers will continue to subscribe and pay for that software each month. It was an 180-degree turn from selling on-premise installations to enterprise customers. Now companies didn’t have to convince someone to buy something. They had to convince them to keep using it.
Facebook is the new model for SaaS
Now take Facebook. Facebook provides a service continually over the cloud. Because Facebook monetizes based on ads, its primary goal is to make sure people keep using it. Rather than selling a big contract to a CIO, Facebook sells its service by the millisecond to over 1.28 billion people at a time.
The only thing thatFacebook cares about is driving usage and engagement:
“Our top priority is to build useful and engaging products that enable people to connect and share through mobile devices and personal computers.” – From the overview section of Facebook’s SEC filing
The more of your attention Facebook has, the more money they can make surfacing advertisements to you. To Facebook, attention is valuable because more attention means more opportunity for growth and expansion. This is a lesson that “bottoms-up” SaaS companies like Dropbox and Slack have taken to heart. The more time end-users spend inside the products, the more these companies can add accounts and upsell their customers.
Facebook needs user’s attention in order to grow and have a future, so they look for ways to expand usage in every direction. There are three simple ways that Facebook increases usage and growth of their product—and every SaaS company would benefit from approaching the usage and growth of their products similarly:
- Facebook measures usage so they can optimize for it in the existing product
- Facebook builds new products to drive more usage
- Facebook integrates with other apps so that even when people aren’t using Facebook, they’re still using Facebook
Let’s talk in depth about each of the ways in which Facebook grows usage. Then we’ll show you how the same techniques Facebook uses apply to SaaS at large.
Measure usage to optimize within the existing product
You can’t get people to use your product more if you don’t understand how they already use it. Facebook is an example of a company that focuses obsessively on how they can increase usage.
The key is to identify what people are doing and want to do with the product. Facebook can’t just focus on MAUs and DAUs because those don’t explain what people really do when they use the product. Facebook hones in on the quality of usage—what people are trying to accomplish and whether they can accomplish it.
Facebook’s famous 7 friends in 10 days metric is a great example of this. Early on, Facebook discovered that users who made 7 friends in 10 days were much more likely to stick around. Once they had set this target, they could throw everything they had at helping new users get to the 7 friends mark.
Even today, Facebook’s constantly prompting you to add new friends because that’s where the value of the network is.
As soon as you create a Facebook account, a prompt to add friends shows up at the top of your News Feed: