SaaS APIs – Retain Customers and Expand Engagement

Customer retention increases when they find reasons to continue using the software, and they do not have reasons to look at alternatives or substitutes. There is a good economic definition of these substitute goods on Wikipedia. In addition, easy to track retention metrics and churn models simplify the efforts to predict whether a customer will churn or stay. (There is a good blog post on churn measurements here).

Additionally, to expand engagement, every SaaS vendor needs to identify different user personas and their usage patterns. Based on usage or non-usage of the software, new methods of user engagement can be identified. These can either be:
•    departmental (new roles within a department),
•    geographical (users in other countries in a MNC),
•    hierarchical (increase usage in head office vs. branch offices, stores vs. warehouses etc.) or
•    cross-functional (new processes created during organizational transformation that lead to cross-functional teams)

Here are two use cases that indicate how user engagement can be expanded via judicious introduction of APIs for new personas.

Use Case - Feature addition to retain personas

A large Canadian firm is merging with another company in Singapore. The new company has different processes, departments and hierarchy and is undergoing a long term merger/transformation program. Clearly, the existing processes, business rules and personas supported by existing features will not suffice. APIs are the easy way to make sure that existing users and business logic of the Singapore firm are retained and later integrated with your overall solution (Corollary: This will also lead to increase in subscription users).

Use Case - Feature addition to support new personas

A company is transforming its supply chain, and wants to make sure that all vendors are on-boarded into their new SaaS procurement platform. Not only is this an opportunity to sell more subscription to vendor users, but by properly integrating with the existing (potentially siloed) solution, many more customer employees can be on-boarded onto this solution, again leading to sale of configuration services and subscription licenses.

Retention and expansion of engagement are two ways to increase revenues without a large cost of sales. If your product team is not focusing on that, but on chasing new revenues only, then your roadmap is tilted towards short term features. This will harm you in the long run, when the competition’s retention rates increase, and your burn rate causes you to reduce your feature release velocity.

SaaS Revenue APIs – Increase Sale Per Customer

So what happens once a customer registers for your SaaS services?

The next step is to monetize your APIs. As the business owner, you should consider the following:
  • Registration or setup charges for the customer (This is also to deter casual customers who are only experimenting with the business model)
  • Usage charges (~$.02 per 1000 API calls)
  • API category charges (~$.05 per 1000 API calls for bulk APIs, advanced APIs etc.)
  • Consulting or support charges (per hour or per incident is the common model)
Looking at these monetization options, it is evident that the largest opportunity to increase revenue per customer is from usage of your APIs. Incidentally, this is also the model followed by many large platforms or aggregators.

The following is a use case from the online travel industry, of how API consumption and revenue generation occurs. With the right APIs, it is easy to allow more customers to sign up, and offer them differentiated data per API, thus increasing API consumption.

Travel industry API monetization use case

An online ticketing website such as wants to pull data about flights to satisfy a user query. This data is provided by Global Distribution System (GDS) such as Sabre, Amadeus and Travelport, who aggregate the data from different airlines, platforms etc. The user query must return data to allow him to view options, select an option, complete a booking, make a payment and get details of the booking on email, SMS and the site. 
The diagram below shows the high-level communication, and the APIs in red indicate the monetization possibilities.

For API usage, key fields to retrieve data from GDS:
•    Location of passenger
•    Source and destination of travel
•    Date of travel
•    Number of passengers
Key data points to retrieve:
•    Fields input by user (source, destination, date)
•    Airport codes
•    Airline codes
•    Combination of flights that offer the travel option
•    Price per combination
•    Data validity

 Unless the API or set of API support these data fields, the end to end transaction may fail, leading to a lost opportunity for the GDS to monetize the use case. And similar to this ticket booking use case, monetization opportunities also exist for many online platforms.

SaaS Customer Acquisition and On-boarding API

Once you have a deal for a demo, trial or term subscription, you need to make sure that users are on-boarded very quickly. This has three benefits:
  1. It can be a “go-live” indicator to mark start of subscription term
  2. License usage can be tied directly to the number of users logging in
  3. If users are on-boarded in phases, early users can indicate access or usability issues. This feedback can, in turn, simplify on-boarding of users in latter phases.
Here are the key APIs (application programming interface) that your SaaS application must develop and expose for close integration with client’s existing applications.
[Note: Most, if not all, of these API will need to support CRUD operations]

APIs common to most SaaS or Cloud applications

In this case, the SaaS application will need to expose the following User related API or endpoints
  • User import API
  • Bulk user import API
  • User identity API
  • User profile API
  • User security API
 For business processes, the related set of APIs include:
  • Process Life-cycle
  • Process Access Control
  • Process Data Transfer
  • Process Assignment
And for Reporting and Analytics, the APIs include:
  • Standard views of data
  • Data import into Analytics tools
  • Data export to common reporting tools

The first released version (or V1) of any SaaS or Cloud based application, if designed correctly, will definitely include most of these APIs.
Are these API on your SaaS roadmap?

No Man Is an Island, neither is a SaaS Application

Almost five hundred years ago, John Donne said this quote about man’s nature. Well, in today’s hyper-connected world, the same is true of SaaS applications as well. This radically changes the nature of the application, the demands on the talent and even the organization structure.

However, the key SaaS strategic objectives have not changed, which include:
1.    Acquire paying customers
2.    Retain the customers
3.    Increase the sale per customer
4.    Reduce costs and optimize operations
The first two are usually shown as part of the customer acquisition funnel, as in the image below.

SaaS Application Customer Funnel

But how does this play out for SaaS applications? It actually impacts the SaaS strategy in multiple ways. Here is a look at how the integrations or API strategy can impact all 4 objectives.

As you can see, there is tremendous value in thinking through the entire API strategy and how it impacts your business strategy. To think of a SaaS application as just a set of business rules and user interfaces for a few users is a very puerile assessment of the true value of the product. And a large part of that value is captured via the strategic addition of APIs.
In future blog posts, I will share additional details of how the API strategy works for any SaaS application for any vertical.