The document discusses opportunities for companies to improve their maintenance, customer support, and retention (MCR) functions for cloud services. It recommends that companies: 1) embrace new delivery channels like self-service tools and social media to reduce support costs; 2) proactively manage customer success through roles like customer success managers and renewal specialists; and 3) rethink professional services to optimize customer value and drive additional revenues through services. Improving these MCR functions is important for companies to increase recurring revenues and profits from their cloud offerings.

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Customer Experience for the Cloud
Driving Recurring Revenue via Maintenance, Customer Support & Retention
May 2014
Executive Summary

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Customer Experience for the Cloud
MCR Maintenance, Customer Support & Retention
As traditional software companies shift to subscription models and pure-play SaaS companies
continue to scale, Maintenance, Customer Support and Retention (MCR) functions are
essential to drive profitability within the subscription model. Effectively organizing and
operating these functions is critical to delivering against customer expectations & growing
recurring revenue.
1. Monetize Additional Offerings
2. Embrace New Delivery Channels
3. Proactively Manage Customer Success
4. Re-think Professional Services
Opportunities to Improve MCR for the Cloud
A laser focus on MCR is needed to drive recurring revenue and grow profitability

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Cloud services economics are highly attractive but require significantly
more effort post initial sale than traditional models
Traditional Software Economic Model Cloud Services Economic Model
• Legacy technology providers benefit from a highly
attractive economic model – high upfront perpetual
license with ongoing revenue streams from MTCE
• Economic model puts less pressure on efficient post-
sales operations – key revenue generating focus of after-
sales support groups is annual MTCE contract renewals
• Economics of Cloud Services have significant
implications for after-sales support and services functions
• Lower upfront payments will require more efficient cost
structure
• Maintenance revenue must be replaced with other
recurring revenues and be managed more proactively
• Labor intensive nature of traditional support model needs
to be replaced with digital and data driven assets
* Source: Adapted from TSIA, 2013

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Customer Experience challenges as Cloud Offerings scale
• Low upfront payment and lower
switching costs places great deal of
importance on renewals, cross-sales
and expansion
Driving Product Adoption
Creating a common and
consistent Customer
Experience
Adding new organizational
capabilities and skill sets
Optimizing Cost Structure &
Driving Downstream Revenue
• User communication and education
needed as new features and
functionality continually released
• Business value and outcomes need to
be clearly defined to ensure continual
user engagement (given pay per user
or use model)
• Deliver a consistent and scalable
customer experience leveraging low-
cost delivery channels to manage costs
• Proactive churn and account
management must be developed given
low customer switching cost
• New competencies and skill sets
needed to manage social/community
and other digital channels (FAQ’s, KM,
web portal)
Cloud Pure Play Challenges
Legacy companies transitioning to cloud face even more hurdles
Additional Challenges for Legacy
• Need to make up lost revenue --
maintenance revenue tends to
drive the lion’s share of profitability
(60%+ total revenue; 70%+ of total
GM)
• Address need to support hybrid model
- both on-premise and cloud
simultaneously
• Professional services and other
offerings need to support both
offerings and business models
• Creating a consistent customer
experience for both legacy and
cloud based offerings – and within
traditional delivery channels as well
as new digital channels
• Need to maintain resources to support
on maintenance sales and renewals

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Waterstone Transformation Framework for MCR
Embrace New Delivery Channels
Re-think Professional ServicesProactively Manage Customer Success
Monetize Additional Offerings
• Shift the mix of customer support volume to lower cost
delivery channels
• Implement key technology enablers & drive customer
usage of:
̶ Self-service tools, e.g., Knowledge Base, IVR
̶ Multi-channel technology, e.g., chat, mobile, social, voice
̶ Case management across support and infrastructure
̶ User community & social channels
• Measure and report service delivery effectiveness,
resolution and CUSAT for new channels, as historically
done for Field Support, Call Center and Email
• Implement an on-going process of driving # of
users, feature adoption and penetration of premium
tiers and offerings into Renewals function
• Consider the following Customer Success roles:
̶ Customer Success Leaders
̶ Account/Renewal Managers
̶ Support Specialists
• Use analytics to generate insights into user base
and proactively manage customer experience
• Re-define the offering portfolio to include anything that
will drive additional revenue, e.g.
̶ Premium subscription tiers
̶ Expanded features
̶ Cross sell new applications or 3rd party offers
• Manage the portfolio on an ongoing basis, including
structured approach to new offering development and
retirement
• Consider ability of channels to sell-in new offerings
• Position post-implementation optimization and performance
improvement services to maximize solution value/ROI,
achieve customer business outcomes, and enhance footing
as a business partner
• Accelerate time-to-value with packaged offerings designed
to speed deployments (e.g., data migration/import)
• Develop engaging and interactive training content and
proactive real-time outreach at product “bottlenecks” to
improve user experience
• Use an expanded set of measurements (e.g., time to value,
usage, adoption / go-lives)
MCR
for
Cloud
Four key imperatives to prepare for next stage of Cloud Services and recurring revenue growth

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Economic model will vary based on trade-offs made around the
transformation framework
Note: CAC Payback Period defined as reported sales & marketing cost divided by Average Gross Profit Per Unit; Churn rate: represents annual
churn rate as reported or calculated based on retention rate
Source: Waterstone Analysis
CAC
Customer
Acquisition Cost
ARPU
Average Revenue
Per User
Churn
Customer
Cancellation Rate
Payback
Months to CAC
Payback on GP
Management teams
should track & target
improvement in four key
metrics to improve
cloud services
economics…
Company QCompany L
Company K
Company J
Company E
Company S
Company P
Company G
Company A
Company D
Company O
Company N
Company U
Company M
Company C
Company T
Company I
Company R
Company H
Company B
Company F
0
5
10
15
20
25
30
35
40
45
0% 10% 20% 30% 40% 50%
Churn Rate % (annual)
CACPaybackPeriod(months)
… informed by best
practice companies and
performance
improvement
benchmarks….
… which will guide
decisions on new
initiatives and
investments within MCR
functions

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Business and
Operating Model
MCR Drivers
Execution
• How are our revenue streams and margins being impacted as new offerings are
launched, as we enter new customer segments, and/or acquisitions are integrated?
• Do we have an operating model in place that will increasing profitability as we scale?
• Offerings: Does our post-sale offering portfolio extend beyond “traditional” tier
support? Are we taking a comprehensive view of all post-sale revenue generation
opportunities? Are we successful in driving ARPU post the initial sale?
• Service Delivery: Are we thinking comprehensively about our service delivery
channels across mobile, social & self-help? Are we confident these channels are not
actually driving volume to higher cost channels? How do we measure the
effectiveness of these channels (CSAT, Resolution Rate, Time to Resolve)?
• Customer Success: Are we focused simply on getting a renewal or are we driving
customer engagement and usage of our offerings? Is there clear organizational
resources and leadership accountable for account services?
• PS & Adoption: Does our services portfolio meet target attach and usage rates? Are
they being utilized an ongoing basis (not just at point-of-sale)?
• What is the plan and timing for driving these performance improvements?
• Are we tracking the right set of customer experience metrics to measure
progress? Do we have improvement targets that are well communicated across
the organization?
Key Questions for Customer Experience Executives
Opportunities for transformation and performance improvement

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Learn more about Customer Experience for the Cloud and how
Waterstone has helped SW companies transform MCR functions
Waterstone MCR Contacts
Singu Srinivas
Partner
ssrinivas@waterstonegroup.com
Neil Jain
Partner
njain@waterstonegroup.com
Chicago | San Francisco | Boston
http://www.waterstonegroup.com
877-603-1113