The Future of B2B SaaS: Enterprise Mobility
After taking over our personal lives, mobile products have now made their way into the workplace and mark the future of B2B SaaS. Find out what’s driving that momentum and what challenges lie ahead.
We recently published a report on the 2015 State of B2B Mobile Growth Metrics which was largely data driven. But often, data doesn’t tell the full story, which is why we collaborated with Adam Marchick of Kahuna on the report to add in the entrepreneur’s perspective. To tie it all together, I sat down with our friend Kevin Spain of Emergence Capital who gives an outside investor’s view on current market momentum, obstacles mobile B2B companies need to overcome and the many distinctions between mobile business apps and web-based products.
Listen to the full recording below to hear us speak with Kevin about why mobile is sparking the next revolution in tech.
This Week’s Guest
— Kevin Spain, General Partner at Emergence Capital
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- The shift to mobile is similar to the shift to cloud platforms. When businesses like Salesforce pioneered the cloud, the appeal for buyers and vendors alike was flexibility and ease of use. Mobile offers the same opportunity and opens up entirely new categories of applications. As a result, we’re seeing a lot of opportunity in mobilizing or adding mobile adjuncts to existing cloud products.
- Mobile addresses the needs of an enormous market. Kevin points out that 80% of the global workforce don’t sit at desks. Mobile apps allow software companies to expand into industries like construction, manufacturing, and healthcare and deliver software solutions to users who have not traditionally relied on technology to do their jobs.
- For mobile there is an incredible premium you have to place on focus and simplicity. Of course, going mobile isn’t easy. OpenView’s mobile growth metrics report found that cheap and quick mobile development runs the risk of being ineffective, and Kevin’s experiences haven’t been any different. Product focus and simplicity have always been table stakes in enterprise SaaS, but they’re even more important in mobile.
- The days of being web-only are quickly moving behind us. While “mobile” is a blanket term to describe a wide range of product strategies (supplementary to a web-based product, native mobile, etc.), one truism is universal: we’re reaching the point where SaaS companies can no longer afford not to have a mobile presence.
- Monetization varies by application. Most companies with mobile applications are taking similar approaches to web-based software (per user/per month, etc.), but some are beginning to experiment with in-app purchases. Monetization will evolve as more companies experiment with pricing strategies and platforms like the App Store and Google Play allow for more sophisticated billing.
- There is a need for new mobile-specific metrics. Mobile-focused B2B SaaS companies rely on the same key metrics as traditional web-based SaaS businesses, but there needs to be a higher bar around engagement. The reason is simple: users have their devices (and, thus, B2B mobile applications) with them at all times. If you lack mindshare with those users, your app be forgotten and your business will fall behind.
Arsham: Welcome to the OpenView Venture Partners Labcast. My name is Arsham Mehmarzadeh. Today we’re joined by our friend Kevin Spain, who’s a general partner in Emergence Capital, based in San Mateo. Kevin’s one of the bigger proponents of native mobile business apps and the notion of enterprise mobility, which also happens to be one of my personal favorite topics.
First off, Kevin, thanks for joining us today.
Kevin: Absolutely. It’s great to be here, Arsham.
Arsham: Absolutely. Mobile business apps is a really exciting and active area as of late. We have companies like Acompli, which Microsoft recently acquired, to Expensify, to Base CRM, to FieldLens, and to Handshake, which you guys are an investor in. To start, I want to get your take on what’s going on with mobile business apps and why SaaS companies are starting to put so much attention towards building fully functional native apps, even often as their first product.
Kevin: Sure. Well, I would start off by saying when we got started at Emergence 10 years ago, we really believed that the cloud — we didn’t really call it “the cloud” back then, but what we now call the cloud — was going to be the next big technology platform in business. We’ve had our entire strategy on the idea that the cloud was going to be so transformational that you could build a great portfolio of companies solely on that emerging trend.
We’re now feeling like we are on the verge of the next big trend, the next big technology platform in business, and that is mobile. In many ways, we think that the impact that mobile will have on the business world has the potential to be greater, frankly, than even the cloud has been to date. I think there are sort of a couple of reasons for this.
First, as you mentioned, you’re seeing a lot of opportunity in mobilizing or adding mobile adjuncts to existing cloud products. After all, what you’re seeing in business is that increasingly users are expecting that if they, for example, are using a CRM product on the web, they want to be able to access that product or portions of that product on their mobile device as well. We’re seeing a lot of activity on that front, which is sort of companies that have a great cloud offering starting to think about or building great mobile adjuncts or mobile versions of their offering because that’s what their customers expect.
But in many ways, what I think is more exciting about the opportunity that mobile opens up, it’s sort of entirely new categories of applications. What can we now do in terms of apps that we couldn’t do before mobile became so pervasive in business? There’s a really interesting stat that I like to share that I think really reinforces the opportunity here. That stat is there are three billion people globally who work, who have jobs, and only about 20% of them actually sit at their desks to do their jobs.
The other 80% are mobile in some way. They’re in industries like construction or retail or healthcare or manufacturing, where they’re not typically sitting at a desk to do work and they don’t have a laptop or a desktop computer. For the first time, that 80% of the global work force now has a piece of technology with them at all times in the form of a smartphone or a tablet where business applications can be deployed.
This is the other big category, and in many ways the bigger category of opportunity that we see in the mobile world, in business, and that is building mobile applications to address the 80% of the global workforce that has never had great technology to do their jobs.
Arsham: Yeah, yeah, and that statistic is certainly astounding, but what about the 20% that isn’t as mobile and is still behind their computers for most of the day? Will these types of workers eventually move over to mobile as a replacement to their computers in the workplace?
Kevin: Well, I would say it depends. There are certain applications where you could imagine mobile sort of taking over or mobile presenting an opportunity for an entrepreneur to disrupt an existing web-based player. I would say, in many cases, what we’re finding is that desk workers need a bit of a blend between mobile and web when it comes to an application.
A great example of this, frankly, is Slack. We had Stewart Butterfield at a mobile event that we held recently and he was actually talking about this phenomenon. He said, “Look, most of Slack’s users today are desk-bound workers and they have an expectation around a great web-based or desktop-based experience for Slack.” After all, you don’t necessarily want to context switch between, let’s say, your browser where you’re doing some work and your mobile device just to use a different application. Having it all in one pane of glass when you’re sitting there at your desk is really valuable.
But he also said, “Look, there’s an amazing need when you’re away from your desk to still be able to access Slack.” So having that great mobile adjunct to Slack is a key enabler for them and a key add-on for them. I think you’re going to see some applications where mobile-first or mobile-only makes a lot of sense for desk workers, but I think you’re also going to see many, many cases where a great desktop experience and a great mobile experience are critical for success.
Arsham: That’s spot on. Through the companies that we’ve seen recently and analyzed in our report, the most successful ones in terms of growth and revenue figures today are actually the ones that are optimizing for both mobile and web, which of course isn’t cheap.
Then going back to the 80% of mobile workers that aren’t sitting behind desks, whether it’s in construction, healthcare, retail or even real estate, what verticals do you think are particularly ripe and ready for a transition where they start using smartphones for the critical aspects of their job?
Kevin: Sure. Interestingly, what we believe is that the biggest opportunities when it comes to mobile-first business applications for that 80% of the workforce that doesn’t sit at desks, it’s actually in those industries that historically have been the most under penetrated in terms of technology. So the way that we often think about this is technology spend as a percentage of revenue. If you look at an industry, how much do they spend on technology as a percentage of total industry revenue?
Industries like construction, industries like manufacturing, these are industries that a lot of folks would consider to be old line, fairly static in terms of how they think about the use of technology. In many cases, I think investors are right about this but the flip side is when we look at where mobile is starting to make a really interesting impact, it’s actually in some of these old line industries first.
A great example of this would be in construction. There’s a company called “PlanGrid”, and I know you guys are also investors in FieldLens. These are companies that actually service those workers in the field working on multi-million dollar construction projects, enabling them to communicate and collaborate more effectively with drawings and so forth. That was something you just couldn’t do before you had ubiquitous connectivity and before you had tablets and smartphones in the hands of so many workers out in the field, out in construction job sites. Both of those companies, as you know, are doing extremely well.
In the case of manufacturing, there’s a really interesting company actually based up in Montreal called “Poka” and Poka is actually bringing mobile technology into the factory and giving factory floor workers the ability to collaborate and communicate, let’s say, when there’s a problem with a machine on the shop floor. Before every worker walked into the factory with a smartphone in their pocket, providing a collaboration mechanism like that just wasn’t possible.
I actually think it’s going to be in many of these old line industries that historically have been laggards when it comes to technology where you’re going to see mobile be the sharp point of the arrow that actually gets them up the curve, in many ways, for the first time when it comes to using technology more broadly.
Arsham: In these old line industries, will it be challenging to market and distribute these products to both the users who might have a need for these applications but probably not a say in the buying process, and then also the managers who likely haven’t had much experience in the past signing their companies up for mobile products?
Kevin: Well, I think at the end of the day if a company says to its workers, “Look, this is the application we’re using to do our jobs here. Go to the App Store, download it, log in,” I think you’re going to find that most employees are going to get on board with that. Look, there’s a long history of that even in the desktop world. When you’re told to use a certain application, that’s sort of what you do.
I think when it comes to actually getting companies to pay for these applications, interestingly, we’ve seen that there have not been many issues if you are delivering something to a company that actually delivers real value. I think some people are scared. I think some investors have historically been scared about investing in these areas where technology has not had a big budget, but what we’re finding is that many of the use cases and many of the mobile products that are being brought into these industries are so compelling that businesses are willing to actually pay for these apps.
So I think that’s been a bit of a surprise to folks, but it just speaks to the idea that really for the first time, you have the ability to change the game with technology in many of these industries.
Arsham: Okay, so if companies are willing to purchase these more efficient applications and users will readily come on board, what, then, are the difficulties associated with building and selling these newer technologies? Basically, what’s harder about building a successful mobile-focused company versus a successful web-focused company?
Kevin: Yeah. Well, the first thing I would say is that you have to start with a great product. I think that’s always true. Certainly in the web world it’s been proven to be true. But a great product in mobile requires that much more effort and that much more thought.
The fundamental reason for this is that you just have less real estate to work with. So there is that incredible premium that you have to place on focus and simplicity when it comes to a mobile business application that I think is important in the web world and in the desktop world, but maybe not quite as important. What we see is that the best mobile business appliczation companies, the ones that have the greatest adoption and the ones that have the highest level of user satisfaction, they obsess over this idea of focus and simplicity when it comes to their app. So I think that that’s something that is a little bit different than the desktop world.
The other thing that I would say that is frankly not different yet, but has the potential to be different, is how these applications get in the hands of users. Mostly what we’re finding in terms of distribution today is that mobile-first business app companies are still using classic SaaS go to market strategies. They’re using inside sales. They’re using online marketing, all the tools that the likes of Salesforce and Box and others have used for many years.
I think, though, there’s a potential for that to change and there’s a potential for the App Stores to become greater sources of customers for mobile business application developers. That has not been true today, I think in part because in the case of most business users, they’re not going to the App Store first to look for a solution to their business problem. They’re still starting with Google, so the search for an offering that solves a business problem is still mostly starting on the desktop, but I think as time goes on and we see more great examples of mobile business applications emerge, users are going to become accustomed to going to to the App Store and going to Google Play. Then you’re going to find a whole new set of strategies that mobile business app companies will have to use to acquire customers.
Arsham: Yeah, it’ll be interesting to see what they come up with. Then you saw on a recent mobile SaaS metrics report that we made a distinction between the four mobile product strategies: the first being companies with a primary web focus, yet still offering a native app, the second being those that have an equal focus between mobile and web, the third being those with a primary mobile focus, and then the last group being companies that exclusively offer their product as a mobile application.
How does a company decide which strategy is right for them and what are the different considerations they need to make?
Kevin: Well, what I would say is you have to think about your end user. What is the problem that you are helping to solve for your end user? That often is sort of the key guide for you in terms of how you think about whether you should be mobile-only, mobile-first, maybe a blend between mobile and web. If you’re working with or thinking about targeting a user that is almost exclusively on their feet all the time or out in the field all the time, a mobile-first or a mobile-only strategy is probably the way to go.
That’s what we typically advise companies to think about. It’s sort of what do your users want to do, where are they living during their workday and so does mobile or web make the most sense? I think, as I was saying earlier, if you’re targeting a desktop user and your customer is mostly sitting in front of their laptop all day, you need to have something that’s a blend of both.
In fact, I think the days of being web-only are very quickly moving behind us. I think even if your desktop user is in front of their computer most of the day, the expectation they have is there is going to be a great mobile adjunct or add-on to that product so during that time when they’re not at their desk, they can still keep tabs on what’s happening. I don’t see a case where web-only is going to work for much longer, but I think you have to think about who your user is, where they’re living most of the time, what problem you’re solving for them, to decide whether you’re web-first or you’re mobile-first.
Arsham: Sure, and we’re definitely seeing a number of traditionally web-only companies start to build out their mobile apps, but there’s, of course, a difference between having a mobile presence and then having a functional, enjoyable and useful mobile application. We have all these different companies that are spending less than six months and very little money on app development just so they can put something out in the market. But what’s the value in quickly releasing a mostly ineffective app and then iterating on it, versus other companies that are spending 12+ months and a significant amount, if not most of their money, on building a great product?
Kevin: Well, I am a big believer in the idea that product and user experience matters tremendously in the business world. There are an increasing number of examples of this being true, whether you’re talking about mobile or you’re talking about web-based offerings. My opinion is that you never want to take a shortcut. The cost of putting a bad product in front of a customer in terms of how they perceive you, the impact it makes on how they see you and the value you can add to them is so high that you need to get products in users’ hands that are exceptional.
If it takes you a little longer to do that, I think that’s a smart move. The product doesn’t need to be perfect, so that’s not what I’m saying. But I do think that you need to ensure that there’s a simple, functional, fast product that you’re putting into users’ hands when it comes to mobile.
Arsham: How would you rate those in terms of what to focus on first?
Kevin: Well, I think simple and functional. Again, real estate is at such a premium on a mobile device, you have to focus on delivering value quickly to a user when they get into the app. It needs to actually work; it needs to be functional, but it needs to be incredibly simple and to the point. We’ve all seen mobile applications that are just too complicated. You can’t actually figure out how to use them and get value out of them and most business users don’t have the patience for that, so I think that’s where you have to begin.
Again, this is very hard work. The best mobile-first business app companies we see, they agonize over simplicity and what functionality they’re actually going to put in that application. So I think that’s where you always have to begin.
The unfortunate thing is whether you’re talking about mobile app or you’re talking about a web-based app, you may not get a second chance to make a great impression on a user. Optimizing for that great first experience, I think, is critical.
Arsham: I’m in total agreement there. In the same light, we actually found that it’s more expensive to develop mobile apps than it is web products. Why do you think that is?
Kevin: Well, I think there are a couple reasons. First of all, you’re dealing with more platforms than you are on the web. So just by default, instead of having one platform, you have two or in some cases three, you’re going to need to spent more resources and more time getting those products built out.
The second thing I would say is that, just like in the early days of the web, there’s a bit of a shortage of mobile developers. This was true back when the Internet was taking off. There weren’t a lot of people who knew HTML and so those developers actually were able to command incredibly high prices for their time and services.
I think that problem is going to become somewhat alleviated over time as more and more people gain experience building great native mobile applications. But the thing that I don’t see changing any time soon is the need to develop for and beyond multiple platforms. So I think it will always be more expensive from an engineering point of view to have a mobile strategy versus a web strategy.
Arsham: Yeah, that reminds me of a conversation I had with Adam Marchick of Kahuna, who you personally know, and he mentioned a good point that businesses have in-house web talent that they’ve been building up over the last 10 or so years but are just starting to think about mobile talent. Then, as a result, have to outsource and hire expensive consultants to ramp up, which of course just becomes way pricier.
Kevin: Absolutely. Yeah, if you don’t have the talent internally, you have to find it somewhere. Again, it’s very analogous to the early days of the web when the external web development firms were making a killing because there was such a shortage of talent when it came to web development, so we’re seeing the same thing happen again in mobile.
Arsham: Yeah, definitely. Do companies that go mobile-first or mobile-only need to think differently about monetization?
Kevin: Well, I think in some cases yes and in some cases no. What we are seeing today in the mobile business app world is that most companies are actually pursuing a strategy or a monetization that is very similar to web-based applications. It’s sort of a per user, per month recurring revenue subscription.
Typically, those companies are not billing for users through the App Store or through Google Play, in most cases, because it’s really hard to do that well. I think that will change as time goes on, but the reality is if you want to bill a company for X number of users and you want to help them manage those users and dial their subscription up and down as they see fit as they maybe add or remove employees, doing that the old fashioned way, which is not through the App Store and not through Google Play, is, today at least, the best way to go. So in many ways we’re seeing most mobile-first business app companies use that traditional SaaS monetization model, so it sort of happens out of band — not in the App Store, not in Google Play.
That said, there are some exceptions that we’re starting to see too, I would say particularly when it comes to applications or business apps that are targeting small and mid-size companies. A great example of this would be Invoice2go, which delivers a great mobile app for small businesses to help them manage — as the name implies — invoices and interactions with their customers. The way that Invoice2go primarily monetizes its customers is through in-app purchases, annual subscriptions that they actually deliver via an in-app purchase, and they’re doing really well with that strategy.
That’s a case where you don’t need to manage a complicated subscription environment, you don’t see that we have lots of employees on the application. It’s usually one user and so doing that through the App Store actually is something that you can make work. I think we’re going to continue to see a blend for awhile and the day may come when Apple and Google and maybe even Microsoft provide the ability for mobile business app companies to actually bill in a more sophisticated way through those platforms, but we’re not quite there yet.
Arsham: Yeah, excited to see how that pans out. Kevin, one last thing I wanted to touch on was the idea that new metrics should be used in evaluating mobile SaaS companies — one, from an entrepreneur’s perspective, okay, we’re setting goals and were measuring ourselves against our peers, then also from an investor’s perspective. Do you think there’s a need for new metrics to consider other than the traditional SaaS metrics that have been ongoing and used for several years now and is there anything that you’re currently using?
Kevin: Yeah, it’s a great question. I think in many ways we’re looking at a lot of the same metrics. Certainly on the MRR side of the house in terms of how the business is growing revenue, we look at a lot of the same things. We care about net-new MRR. We care about churn rates. We care about upsell rates. A lot of the classic SaaS metrics definitely apply there.
I think frankly, though, where we have a bit of a higher bar is around engagement. I think engagement, when it comes to web-based business applications, has started to become a bigger and bigger thing. You started to see companies like Gainsight and others begin to give web-based business application companies more and more insight into how users are actually using their products because there’s a recognition that if users aren’t actually in the product regularly, that they have a greater likelihood of churning.
I think in mobile the same is true but, frankly, we feel that there should be a higher bar around engagement with a mobile product. That’s simply because the device is with the user all the time. We know that the most compelling mobile products in the consumer world have very high engagement rates. So if you don’t have a lot of mindshare with your customer on mobile in the same way that you have a lot of mindshare or the consumer companies have a lot of mindshare in mobile, we think that you’re going to fall behind.
This sort of comes back to needing to have a compelling, easy to use, value-added product. If you don’t do that in such a way that you drive really high engagement on mobile, we think that you’re leaving a lot of opportunity on the table and a competitor is likely to show up that figures out how to do that. We measure a lot of the same things around engagement in terms of daily usage and monthly usage on a per account basis, but we think that what you need to deliver there in terms of degree of engagement probably needs to be higher on mobile than it is on web.
Arsham: Is that something that management teams have acknowledged?
Kevin: I think it depends. I think in some cases yes, and in other cases they’re not necessarily quite there yet. I think a lot of it has to do with the fact that engagement metrics are starting to be better understood and engagement benchmarks are starting to become better understood in the desktop world, but those same benchmarks aren’t quite there yet when it comes to mobile business apps. I think it’s simply because there just aren’t as many companies out there in the mobile business app world yet, so we don’t know what excellence really looks like.
I think over time we’re going to figure out where those benchmarks are and you’ll have more and more management teams making the compare between those benchmarks and where they are and that is then likely to drive more action. But at least as of today, I would say the world is sort of split. You definitely have companies that are focused on it and you have companies that probably are spending less time thinking about it.
Arsham: And then hopefully our recent report will help build some momentum around the need for using focused metrics.
Arsham: Great. Thank you so much for joining us today, Kevin. We really enjoyed having you.
Kevin: Absolutely, Arsham. Thanks for having me.
Arsham: And for everyone else joining us today, if you’re interested in diving a little deeper on this topic, feel free to check out our latest report on the 2015 State of Business to Business Mobile Growth Metrics.
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