Initiative #2: Create New SaaS Offerings for Recurring Revenue

Key to growth in 2023: Non-digital-native companies will be creating new Software as a Service (SaaS) offerings — to capture new recurring revenue.

We are seeing more and more CEOs striving to create new, software as a service (SaaS) offerings at their organizations, with digital transformation as the top driver. When deciding among processes to digitally enable, customers to reach, and technology in which to invest, digital innovation leaders are asking: “What new-to-the-company, value-added services might we enable as a result of our digital transformation choices?” 

Digital transformation is not just a necessity to enable current operations; it’s an opportunity to create, deliver and capture entirely new value. This is why we will be seeing many new SaaS offerings — and new recurring revenue initiatives — in 2023.

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HOW TO BUILD RECURRING REVENUE MODELS
Close-up, abstract view of architecture.

RECURRING REVENUE: THE OUTCOME OF SUCCESSFUL SAAS

Recurring revenue is perhaps the number one driver of company stability and valuation, and the number one desired outcome of SaaS. While the concept of recurring revenue is commonly associated with SaaS offerings, the methods to secure future customer purchases are more diverse. There are four common recurring revenue strategies:

01 / Long-term contracts, such as leases or insurance policies, take into account customers’ mostly cognitive trade-offs of commitment versus flexibility.

02 / Closed-loop systems establish cognitive and physical switching costs and sunk costs just high enough to retain customers’ business. Closed-loop systems are created through complimentary consumables (e.g. razor-razor blade), hardware plus software combinations (e.g. iPhone-App store), and exclusive partnerships or affiliations.

03 / Loyalty communities, such as those fostered by Nike or Disney, design for social, emotional, and cultural brand affiliations. While devoted fan bases are not obligated to repeatedly purchase, their customer retention rates can be equal to or greater than those of contracted or closed-loop arrangements.

04 / Subscriptions are the baseline SaaS archetype. Regardless of pricing model (per use, number of seats, feature tiers) or auto-renewal clauses, SaaS offerings must continually deliver value worthy of customers’ periodic payments.

All four of these strategies support a human-centered SaaS offering primed for recurring revenue. As such, all four will play into this key CEO initiative for 2023.

HUMAN-CENTERED DESIGN: THE PATHWAY TO SAAS SUCCESS

Considering a mix of the above recurring revenue strategies is important, but before deciding which revenue models will work best, the foundational first step is to create a differentiated product that people will love. 

That’s of course no small feat, but with human-centered design as your guide, you can absolutely accomplish the objective. The first step is to observe users’ shifting attitudes, emerging needs, trial behaviors and changing systems. Within these ever-evolving societal currents, you can find patterns of unmet need, and from there, opportunities to create unique (SaaS) products that elegantly addresses those needs.

Start by observing societal currents. What shifting attitudes, needs, behaviors and systems expose new SaaS opportunities?

— Dan Kraemer, IA Collaborative Co-Founder + Co-CEO

NEW SAAS FOR ALLSTATE: EXPANDING THE BUSINESS OF PROTECTION

A prototype display of the user interface for Allstate’s Identity Protection service. 

Say you’ve established yourself as a “home and auto” insurance company. You excel in your legacy offerings but are looking for new yet related areas for growth — in particular, software as a service (SaaS) and recurring revenue.

If you look for indications of significant unmet needs among your current customers and overlay the four recurring revenue strategies above, new and profitable SaaS opportunities will emerge.

The strategy: 

A new subscription-powered SaaS offering: Allstate Identity Protection.

  • This new digital product and protection service discovers and visualizes users’ “digital footprint”— all of their online accounts.
  • The service, which enables customers to see, protect, and take control of their digital lives, is iteratively designed based on user insights. 
  • The human-centered product platform employs a customer acquisition strategy that taps into all four recurring revenue archetypes.

The process: 

The first step to creating a beloved SaaS product is identifying unmet needs. that starts with observing societal currents – shifting attitudes, needs behaviors, and systems. 

Allstate observed shifting currents around asset protection, but not the typical assets of homes and cars. More and more people share their data online. Yet, with each phone number, credit card, or piece of personal information users share, they become more exposed to identity theft. While GDPR legislation has shifted power structures to better protect the consumer, the pathways to protection are still nuanced to many. Consumers now claim more awareness and choice about their online info, but must navigate the threat of exposure. 

Enter Allstate. As the conduit and marketplace that puts users in the driver’s seat of their own data, Allstate asks: “What might that first SaaS offering be? What product experiences and features might invite users to take control of their digital lives?” 

The best way to answer these questions is to conduct user research.

The insight:

Fear paralyzes; curiosity drives engagement.

In research, Allstate found most users to be so overwhelmed with the prospect of managing their digital identities that they were paralyzed. On top of that, most had no idea what online accounts they’d amassed over the years.

This research led Allstate to the creation of Allstate Identity Protection, a product designed to spark curiosity and drive engagement in the otherwise scary world of cyber threats and unknown vulnerabilities. A key feature within Allstate’s Identity Protection suite is the “Digital Footprint” – a patented visualization of each customer’s entire history of online accounts. The digital footprint turns users’ invisible set of online accounts into one manageable, interactive infographic. This feature became the focal point of a suite of features that includes credit, financial, identity, credit card and social media monitoring, and even stolen fund’s reimbursement. 

A user engaging with the Allstate Identity Protection digital product

The digital footprint turns users’ invisible set of online accounts into one manageable, interactive infographic.

The future: 

By starting with their customers’ most important unmet needs, Allstate had designed a product that people were embracing — in the notoriously low-engagement space of cyber security. Now, to acquire customers and retain them well into the future, Allstate will design a multi-dimensional strategy; one that taps all four recurring revenue archetypes.  

01 / Long-term contracts: Including Allstate Identity Protection as a coverage option within the Allstate Benefits business is an example of selling SaaS as part of a long-term contract.

02 / Loyal fan bases: For Allstate to monitor a person’s identity, that customer must relinquish access to their personal emails; bank accounts and dark web data. Cross-selling Allstate Identity Protection to current customers who trust Allstate with their data is an example of Allstate leveraging an already-loyal fan-base to gain new recurring SaaS revenue. 

03 / Closed-loop systems: Offering Allstate Identify Protection as an additional benefit when purchasing a Best Buy extended warranty is an example of Allstate gaining new SaaS customers by joining a partner’s hardware + service closed-loop system

04 / Subscriptions: Offering “essentials” vs “premier” memberships, and individual vs family memberships are examples of tiered/feature-based and seat-based SaaS subscriptions.

The Takeaway

Digital transformation is driving new SaaS offerings. Ask yourself: “What new-to-the-company, value-added services might we enable as a result of our digital transformation choices?” 

Examine changing societal currents to identify unmet customer needs that will inspire the design of a differentiated SaaS product that people love.

Consider four recurring revenue archetypes; strategies to acquire new customers, and retain them well into the future.

HOW TO BUILD RECURRING REVENUE MODELS

At this stage, you’re here in the innovation process:

Four Decisions of Growth for Generate New Recurring Revenue

To form new, valuable recurring revenue models:

01 / Identify + prioritize users’ most important unmet needs.
Document changing customer needs and expectations at the intersection of your organization’s deep passions, unique potential, and top economic driver. This will expose opportunities for new offerings. 

02 / Consider four archetypal recurring revenue strategies.
Once your team has aligned on a product that will uniquely deliver upon customers’ needs, consider how you might employ a mix of strategies to capture recurring value.

The result will be a human-centered offering that not only generates new diversified recurring revenue, but also strengthens the company’s core and overall competitive position.

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INITIATIVE 03: SURPASS LEADING COMPANIES WITH IN-MARKET INNOVATION