Waterstone engaged with 25 technology-led companies over the past several months to capture the latest trends around Cloud, Services, and Customer Success. This document highlights key findings, perspectives, and insights.

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Trends in Technology Services
Market Insights: Cloud, Services, and Customer Success
Summer 2017

2. 1Copyright © 2017 Waterstone Management Group LLC. All rights reserved.
Trends in Technology Services | August 2017
Context
Waterstone engaged with 25 technology-led companies over
the past several months to capture the latest trends around
Cloud, Services, and Customer Success. This document
highlights key findings, perspectives, and insights.
Companies range
from early stage to
Fortune 100
~70% Software
~30% Hardware
Participants were
primarily director-
level and above
DEMOGRAPHICS

3. 2Copyright © 2017 Waterstone Management Group LLC. All rights reserved.
Trends in Technology Services | August 2017
Five Key Findings
The cloud shift continues unabated. Market pressure and new leadership
are driving tech providers to compete in the cloud.
For tech providers transitioning to cloud, having the right offers, migrating the
base, and nailing the customer experience are all key challenges to overcome.
The approach to Support and Services are evolving as tech
providers focus more on customer adoption and retention.
Tech providers view Customer Success as a critical capability, but may
still be underinvesting.
As tech providers expand Customer Success programs beyond their
largest accounts, driving scale is becoming a significant challenge.
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4. 3Copyright © 2017 Waterstone Management Group LLC. All rights reserved.
Trends in Technology Services | August 2017
Cloud market is expected to grow significantly faster
than the overall IT Services market through 2020.
Subsets of the cloud market are expected to grow
faster than others.
Shift to the Cloud
Primary Drivers of Cloud for Vendors Cloud Growth
Market pressure and new leadership are driving tech providers to compete in the cloud
New
Management /
Ownership
Competitive
Pressure
Target Net
New Customer
Segment
Sources: IDC: Worldwide Semiannual Public Cloud Services Spending Guide
Gartner: Forecast- IT Services, Worldwide, 2014-2020, 3Q16 Update
Waterstone Survey Results ~25 respondents
21.5%
5.1%
0%
5%
10%
15%
20%
25%
Cloud IT Services
16.9%
30.1% 32.2%
0%
10%
20%
30%
SaaS IaaS PaaS
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5. 4Copyright © 2017 Waterstone Management Group LLC. All rights reserved.
Trends in Technology Services | August 2017
• Companies are increasingly prioritizing subscription revenue as it is typically
more highly valued by investors than one-time revenue.
• Developing a new recurring offering, or recrafting a one-time offer as
recurring, can be very challenging.
• Legacy customers used to one-time fees may object to a recurring subscription.
• Companies seeking to migrate existing customers to the cloud are targeting
conversion of 25-33% of their base over a ~3 year horizon.
• Successfully migrated customers typically see a subscription uplift, including
more seats, new modules, enhanced services, etc.
Cloud Transformation Challenges
Launching
the Right
Subscription &
Services Offers
Migrating &
Converting the
Legacy Base
Setting
Profitability /
Profit Margin
Goals
• The subscription economy requires different operational/financial targets and
controls than the license/maintenance business model.
• Subscription gross margins for SaaS range from 75-85%, and for hosted
application management range from 65-75%.
Offers, base migration, and customer experience are all key challenges to overcome
Waterstone Survey Results ~25 respondents
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6. 5Copyright © 2017 Waterstone Management Group LLC. All rights reserved.
Trends in Technology Services | August 2017
• Define & launch premium support offerings
• Integrate & streamline inbound support
• Decrease support costs
• Provide more in-product support via chat, bots, guided UI
• Extensively leverage community & self-help
Support and Services Evolution
Changing Support Priorities Greater Shift to Tiers of Premium Service
Greater focus on customer adoption and retention driving changes in Services and Support
PS Viewed as Subscription Revenue Enabler
Standalone Profit / Margin Generator
Generate Enough Revenue to Cover
Costs; Not Concerned with Profit
Loss Leader or Cost Center; Focused
on Enabling Product Revenue Growth
As strategic focus of
PS shifts away from
pure revenue
generation, companies
are increasingly
measuring PS expense
as % of revenue
of companies
now offering
tiered service
levels
• A named account manager
• Better SLAs
• More support channels
• Proactive monitoring
• Ongoing training
• Annual health checks & QBRs
• Custom configurations
• Priority access to R&D
• Support case analysis
• Access to company resources
Waterstone Survey Results ~25 respondents
75%
Common Components of Tiered Service

7. 6Copyright © 2017 Waterstone Management Group LLC. All rights reserved.
Trends in Technology Services | August 2017
Customer Success Is Ramping
Level of Investment In Customer Success
Tech providers view Customer Success as a critical capability, but may still be underinvesting
79%
21%
Yes No
Percentage with Dedicated
Customer Success Function
0% 20% 40% 60% 80% 100%
<5% of ARR
5-10% of ARR
>10% of ARR
Waterstone Survey Results ~25 respondents

8. 7Copyright © 2017 Waterstone Management Group LLC. All rights reserved.
Trends in Technology Services | August 2017
Customer Success Challenges
Customer
Success
Teams Still at
Early Stages
of Maturity
Measuring
Customer
Success
As Customer Success expands beyond largest accounts, driving scale is a significant challenge
Customer
Retention
($) **
NPS / CSAT
Cross-Sell /
Upsell
Most
Common
CS Measures
90-95%+ NPS of 30 for
Tech Companies
15-20%+
Typical
Target
Metrics
Key strategies to
accelerate Customer
Success maturity include:
• Institutionalizing
processes
• Using analytics
• Using self-help /
communities
70%
30%
0%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Early stages – We
haven’t defined the target
customer journey, but
know that we need to
develop one
Moderate – We have
defined many target
customer journey maps,
however we still operate
in silos
Advanced – We are
organizationally and
operationally aligned to
proactively engage
customers across their
lifecycle
Net Retention*: 110%+
*Net retention rate is rate of customer renewals that captures the negative impact of lost customers, but also the positive
impact of price changes, cross-sells, up-sells, and growth in usage or seats within the established customer set
**Customer Retention ($) is inverse of churn
Waterstone Survey Results ~25 respondents
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9. Chicago | San Francisco | (877) 603-1113 | www.waterstonegroup.com
Should you have any questions about these trends, or wish to
discuss them in greater depth, please contact:
Waterstone Management Group is a boutique management consulting firm that helps technology companies and
their investors create measurable value by identifying and capitalizing on disruptive growth opportunities and by
driving excellence in Services, Cloud, and Customer Success performance.
Neil Jain, Partner
njain@waterstonegroup.com
(312) 508-6163