The distinction between a user and
a customer is a curious one.
I just finished reading a paper that distinguishes these two. And, the distinction is central to the article’s key points, which
are mostly about the “Reality of Freemium in SaaS.” I am always a bit
leery of anyone who claims to have access to “the reality” about
anything. I might have suggested a phrase in the title that went more
like “our perspective on…” or “key success factors in…” or even “some
case studies in…” or my favorite, “I had some free time so I wrote
about…”
This is more of an overview paper and some specific case
studies (positive and negative) would help its argument.
But I digress. So, back to the original point. The author’s point is quite simply that
“Customers pay to access the system [whereas] users use the system for
free.” One gets the sense that users are positioned here as
freeloaders. “Users” are too cheap to pay up, and that the “Customers”
have to bear the burden of the cost.
Here’s more: “Customers could be individuals or companies. The
individual customer will both pay the bill and be the only one that
accesses the vendor’s system under that account. On the other hand, a
company might have 1000s of employees using the system under one
account with only one payer. Users could also be individuals or
companies, with 1 or 1000s of users, but since there is no payer, they
are not customers.”
One also gets the feeling that the Sixteen Ventures folks are
frustrated with SaaS vendors who aren’t making enough money fast
enough. I can understand that. I lived it myself. But the distinctions
here are a bit misleading. We not only have the stated distinction
between customers and users, but now we have payers and employees. And
if an employee is a user on a system where there is no payer, then that employee is not a customer. At least that’s how I read their point.
This employee is a source of cost rather than revenue.
Earlier in the paper, the author points out that there are other
reasons to have non-paying users. They might be a source of future
leads, or user feedback, etc. But I would like to stop for just a
minute here and consider the distinction between a customer and a user.
I get what the author is saying. The point is that SaaS companies need
to figure out how to get paid. A shorthand way of saying this is that
Freemium is a tactic, not a strategy. If they don’t figure that out,
they will soon go out of business. Or perhaps become a self-funded
charity. This is a fair point and it has been out in the open for
almost a decade now. The answers are still unfolding. How do SaaS
companies make money? And from the stockholder standpoint, how do
investment funds make money if their SaaS companies don’t make money?
But the distinction between user and customer here is problematic.
A great product must meet the needs of the entire user base, whether or
not they are customers, employees, payers or users. In addition, there
are many different kinds of SaaS products and SaaS business models. We
can consider the models for individual productivity tools such as
DropBox or Mozy or Vimeo. These kinds of products each have their own
SaaS value propositions and the revenue model needs to be designed as
integral parts of the product itself. But then you have collaboration
products, like Salesforce for CRM, or Innotas for PPM. Or even some newer concepts like Qlubb and LendingKarma. These are products that are designed to support many different classes of users in an integrated application.
For my part, I don’t see much value in the distinction between customers and users. What that distinction does for me is to create the
potential for a fragmented product vision. What I would like to see,
rather, is a revenue strategy that is integrally built into the
product, and that the product is designed to meet the needs of all
users, whether they are customers, employees or payers (not to mention
guests and casual users).
But here’s the real point: if you don’t offer some form of
try-it-buy-it, your competitors will, and that fact will cause you
pain.
It’s a worthwhile read for SaaS entrepreneurs who are still
struggling with their revenue strategy. Check out the recommended
reading at the end for other good articles. Find it here.
(Image source: tutor2u.net)
