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May 05, 2014

Three Popular Large Enterprise SaaS Beliefs Debunked

By TMCnet Special Guest
David Zilberman, Comcast Ventures, Venture Partner

With $267 billion in annual enterprise software in transition because of SaaS (News - Alert), many popular beliefs (folklore) have emerged about succeeding at SaaS in Large Enterprises (defined as greater than $4 billion in annual revenue; Fortune 500).  So before delving into the keys for success at SaaS in Large Enterprise, it’s important to step back and take a closer look at common misconceptions. Let’s debunk some popular beliefs.

  • Land and Expand: While great in theory, rarely smooth sailing.  The simple premise of ‘Land and Expand’ is that once a large enterprise customer is sold, a small ARR contract, securing additional business from the same customer, should be “easy.”  Except for few exceptions, success with one business unit only marginally helps with other business units.  Business unit owners within an enterprise are collegial and supportive of one another, but don’t typically acquiesce business and technology diligence.  Job security, CYA (look-up the definition independently), and simply doing what’s right for a business unit leader would suggest conducting their own diligence to ensure their use case doesn’t break the solution in question.
  • Usage Based Pricing:  Not always a preferred business arrangement for large enterprise customers.  Drawbacks often highlighted include the ability to capitalize software expense because ownership is never technically transferred (although accounting rules are under review by GAAP) and annual fluctuations in resources and concurrency makes budgeting and forecasting very difficult.  As a result, large enterprises often push for unlimited enterprise wide licenses which could be very costly for SaaS vendors if they underestimate usage.
  • Cloud Hosting:  adhering to PCI (News - Alert), HIPAA, SOX, and general corporate information security policies give large enterprise CISOs pause when storing sensitive data in the cloud.  Tremendous industry progress has been made around cloud security, but breaches continue to occur from nefarious entities and fully entrusting the cloud, is a long ways away for large enterprises.  Large enterprises regularly require on premises or hybrid cloud solutions where highly sensitive data will not traverse the firewall.  Internationally, many countries (i.e., Germany, Australia) forbid domestic data to be stored in clouds outside of their geographic boarders.

In our experience, achieving success at a large enterprise SaaS requires adhering to known best practices around Infrastructure and Sales.  Infrastructure best practices are based on deploying applications on Carrier Grade infrastructure and relying on Hybrid Cloud architecture to gradually transition large enterprises to public clouds.  In the Sales domain, factors include Inside vs. Outbound Sales, Achievable Commission,  Sales Cycle Forecasting, Multi-year Contract Management, Customer Success, and Adjusting Margin Assumptions. So while these popular beliefs are frequently circulated, they frequently don’t hold water. 

David joined Comcast (News - Alert) Ventures in 2006, and is responsible for identifying, executing and managing new investments while supporting existing portfolio companies. Prior to joining Comcast Ventures, David was a business development manager at Flarion Technologies, where he played a pivotal role in the company’s fundraising activities and ultimate acquisition by Qualcomm (News - Alert). He was also a communications and media investment banking analyst and asset management associate at Lehman Brothers.

Edited by Stefania Viscusi
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