Facebook and Google both published quarterly results in the last week. I highlighted 3 lessons for startups from these numbers in my LinkedIn column:
Recurring Revenue Model - These platforms are vital
I will be facilitating a group of Scottish SaaS companies on Tuesday. Our topic is customer acquisition. The two Internet giants are the main platforms for acquiring SME customers. The advertising reach and scale they provide is vital to the SaaS revenue model. The low cost also supports the economics of SaaS for SMEs.
The shift to mobile seems linked to growth in cost per click. This number is falling for Google and rising for Facebook. The Facebook numbers are now high enough to cause real concern. As this post on the bubble shows. But mobile is a more engaged platform. So it may be that cost per acquisition is not rising at the same rate. CPA is the essential number for SaaS Unit Economics.
Emerging Markets - Opportunity and Threat
Facebook also provides useful geographic analysis of its numbers. This chart shows ARPU across for main regions. The split is by where the user action leading to revenue takes place. In other words it is a good proxy for the cost of advertising to customers in each region. You can see it is much more expensive to get to users in North America.
SMEs are a Global SaaS Opportunity
Which brings me to global ambition. SMEs are the dominant business form everywhere. The balance is more skewed in emerging markets. This is a great opportunity for SaaS growth. Providing customers in Asia and Africa with services at an affordable cost. Revenues and lifetime value will also be low. So pay careful attention to user economics.
The opportunity is not mobile first. It is mobile only. But this can also be a source of competition. Mobile first is not news for startups in these regions. The simplicity of solutions in Africa defines great user experience design. The scale of markets in Asia offers competitors real market muscle.
Innovation and Product Development are not Optional
Sitting in Scotland, global ambition is essential for real growth. Success will depend on lesson 3. Innovating and investing in great products are not optional strategies. Bringing your SME customer base with you will not be simple. Your SaaS product needs to keep delivering real business benefits. It must maintain a superb user experience.
Join PAR Equity and hear about Investor Ready
I invest and I offer small business consulting. I am looking for SaaS companies that offer SME customers a great, innovative, mobile product. I will be talking about this more on Wednesday this week. I will be at an Investor Ready workshop at Rookieoven in Govan. The main attraction will be Paul Munn from PAR Equity. Paul will be talking about the things Scotland’s best Angel syndicate looks for. You can register to attend through this page.
If you are trying to build or grow a startup you can pop along to my office hours session, also in Govan. I will be around every Monday between 9.00 and 12.00. You can book a slot here or just come along. If you can’t get to Glasgow, subscribe below for regular updates.
Kenny Fraser is the Director of Sunstone Communication and a personal investor in startups.