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Salesforce Just Showed All Software Companies Why Services Matter

by Jeff Leventhal

The global (SaaS) market is expected to break $50 billion in product spending by 2024, up from $12bn this year.  But where is that growth coming from? In part, from service offerings.  While the focus of SaaS has historically been on the first S (software), we are about to see a shift where the connection between software services and revenue growth comes more into play.

Take, for example, Salesforce (nasdaq: CRM). In a recent discussion in Fortune, Salesforce spoke about their projected revenue goals of 20 billion– which in large part will hinge on the success of Ignite, a 2-3 month process intended to get potential customers thinking differently about how digital revolution might spark new revenue streams.  “We are not just selling cloud technology, we are selling a vision, and we are selling the value of that vision,” explains Keith Block, Salesforce’s chief operating officer. The evangelism effort has been one of Block’s pet projects since the former Oracle executive joined three years ago as Benioff’s deputy. “This is an absolute imperative for every company of every shape and size,” he adds.

Ignite and Salesforce’s team of ‘crack consultants’ are said to be key to the  cloud company’s growth goals.  For example, as also reported, after Tyco finished its Ignite engagement, for example, it bought Salesforce subscriptions for more than 30,000 employees—up substantially from its previous commitment of 7,500. In the second quarter of 2016, the latest period for which this sort of data was available, Salesforce counted more than 1,000 customers with contracts worth more than $1 million annually. A year earlier, it had only 800.

It’s not just Salesforce. The market shift to the cloud has triggered an increased demand in professional services.   40 billion in annual new professional services is being created to support software’s migration to cloud based solutions.  And not just for implementation,  either, which has become a much easier process with enterprise cloud applications.  Services are now critical to retention and customer success. “SaaS providers are finding that fewer customers require education on the benefits of SaaS versus on-premise solutions as more SMBs are used to working with SaaS,” the report concludes. “This has forced SaaS providers to shift their focus from customer education to nurturing and maintaining customer relationships to keep them and minimise loss to growing competition.”

Professional services is also essential to driving a positive customer experience, especially with so much on the line. 78 percent of consumers decide not to make a purchase because of a poor service experience (a percentage that keeps growing every year).  For every person who complains to a company about customer experience, there are 26 who do not complain to the business but instead warn friends and family.  Americans tell twice as many people when they have a negative customer experience than they tell when they have a positive customer experience.

So what does this mean for SaaS businesses? Every software company needs a strategy for services, especially as companies scale through maturity.  At the earliest days, as entrepreneurs are thinking about product market fit, what they also need to be thinking about is how they are going to continue to drive retention and adoption.   Services drives adoption of software and services drives retentions of software.  When SaaS companies are doing their 2017 planning this year, what will be different? They’ll need to be thinking more about their service offering as a driver of revenue, not a nice-to-have add on.  Just look at Salesforce.