The Rise of Consumer SaaS

In the past six months, consumer subscription services have exploded across the web.

Until September of last year, the tried and true revenue model for consumer Internet services was on-line advertising. The model - page views, unqiues, and CPMs - is well understood and sites looked to use direct sales and ad-networks (read Google) to monetize traffic and impressions.

The cooling of the on-line ad market, flight to quality for advertisers (ESPN, etc), and the realization that ad revenue may not scale forced many consumer services to consider charging their users for access to functionality and value.

While SaaS is a well-defined success story in the enterprise space, it was considered a virtual truth that on-line users would not pay for on-line services. Why? - free substitutes, ad-funded business models, and a general end-user belief the web should be free, etc.

Today, "freemium" is on the rise and there are great teams across the valley working to monetize via micro-payments and subscriptions.

LogMeIn's IPO provides insight into the power of direct-to-consumer subscription services, as have traditional success stories such as anti-virus (SYMC, MFE).

However, there are many good examples of the consumer SaaS trend

• Vimeo
• Dropbox
• Flickr
• Wordpress
• Widgetbox
  

These teams are working on using price, features, and value to tier users into free and paid product buckets. Furthermore, good work is being done in optimizing user registration, user conversion, affiliate models, A/B testing product and purchase pages, tracking churn, etc.

I expect to see more services looking to move to charging users and to significant innovation in optimizing subscription revenue.

Here at Widgetbox, we use a AAA model to manage the business:

• Acquisition - driving new registered users
• Activity - driving activity, conversions, and value per user
• Ads - monetizing "free usage"

The model and focus on transactions is allowing for tremendous progress in understanding our users, while using the ultimate test - will they pay you for the service - to gauge our value and utility.