Many of the B2B software and start-up companies I meet with have plans to expand their activity and enter international markets, based solely on their product or on a handful of features which they have developed.
This is natural for a software company, as this is its primary focus – developing a software solution and expanding its capabilities by adding new features.
Some companies do indeed have unique features. Sometimes a particular feature may have considerable business implications for the client, which will cause it to recognize the advantage a particular software product has and maybe even pay a premium for it. However, in other cases, these functionalities have little value to the client. This second case is fairly clear and doesn’t need special discussion. However, what is wrong with defining a marketing strategy for international markets that is based on unique features only you have?
A Profitwel study examined 900,000 data points from clients of software providers, and showed that products and features lost nearly 70% of their value over the past 5 years. This research offers an example: if a provider could, at one point in the past, charge a client $100 per month for a particular third-party-system integration feature, such as Salesforce, then by the end of a five-year period, that same feature could be sold for just $30. In other words, the client’s willingness to pay diminished dramatically:
Although these numbers have unprecedented implications, software companies in general – and SaaS providers in particular – whose revenue model isn’t based on a one-off payment, but rather focuses on recurring payments, whose sum may depend on the feature package included in the product, shouldn’t be too surprised:
It is now easier than ever for competitors in the software industry to copy your functionalities. Development and version update cycles in software in general, and in cloud-based software in particular, have reduced in length significantly. This will take place faster than before. As a result, clients won’t be willing to pay a premium for a given feature; this may even harm your ability to differentiate yourself from your competition.
Many companies, surely global ones, are attentive to their clients’ needs in varying degrees (be it through managerial philosophy or as a result of pressure from many clients). Ultimately, in the case of an important feature, existing clients will require that it be added by the provider, your competitor, which will harm your previous relative advantage.
Markets in general, and software markets in particular, are now more competitive than ever. This is true for nearly every area. Where in 2013 there would be an average of two SaaS competitors in a given field, now there are nine. Competition is growing, and in nearly every product category you’ll find several large, well-known companies which have established themselves as category leaders, as the following diagram shows:
Therefore, it is important to know that competition causes feature commoditization and downward price pressure.
How can we address this challenge? Does this mean our product is insignificant? Should we stop developing new features?
Of course not.
What we need to do is realize that penetrating international markets successfully depends, first and foremost, on our ability to develop a competitive advantage.
Developing a competitive advantage requires a marketing strategy. Marketing strategy has several components, and the product is just one of them. Your unique feature is just a part of the product (in addition to other elements and characteristics making up the product). Therefore, a comprehensive, global marketing strategy based only on a single feature would be a short-term move which would collapse once the first competitor copies your feature.
By its nature, marketing strategy is a long-term concept, whereas a software feature has a short-term life span. You should work toward a long-term competitive advantage and try to see how your feature can be integrated into that strategy, rather than replace it.
Furthermore, when organizations and companies buy software, they evaluate the company itself as a provider, and not just the product. This however will be the topic of another article.