Funding software from add-on services

Funding software from add-on services

Summary: Launched last week in beta in the US, smartrecruiters.com is a SaaS applicant tracking software service for SMBs that's offered free of charge. It will be monetized from complementary services sold alongside the software.

SHARE:

Is it possible to fund software from commissions on selling ancillary services? UK-based SaaS recruitment software vendor MrTed is going to test that theory with a free-of-charge applicant tracking system (ATS) which it launched in beta to the US market last week. Fellow Enterprise Irregular Brian Sommer and Gartner's Jim Holincheck also covered the announcement.

MrTed CEO Jerome Ternynck"Can we give away SaaS for free and monetize it through alternative channels? We think in our space there is room for this," the company's CEO, Jérôme Ternynck (pictured), told me in a pre-launch briefing. The company claims 60,000 users and more than 200 customers, mostly larger organizations with anything from 10,000 to 40,0000 employees, spread across Europe and Asia.

Called SmartRecruiters.com, the new offering will target what is a completely new market for the company: SMBs in the US. There's no risk, therefore, to its existing business from offering the new software for no charge. "We do not service the SMB market at all so we do not lose," explained Ternynck.

The e-recruitment market is significant but not properly addressed, Ternynck told me. Vendors compete on price and by investing in sales rather than product innovation, he said. "What is delivered hasn't really changed since 2001."

MrTed aims to shake that up with SmartRecruiters.com, which will be monetized by selling pay-per-use services alongside the free software. It's designed to be easy to use, claiming that businesses can register and start recruiting within just five minutes. Marketing will use Web 2.0 techniques to drive viral adoption.

The notion of funding the software out of selling ancillary services is based on the calculation that,while the global market for recruitment software is a paltry $1 billion, the total worldwide spend on staffing services is $100 billion. "So there is a 100:1 ratio," explained Ternynck. Even capturing a one percent share of that value would be more than enough to make up for losing all the software revenues.

If the model takes off, then it creates a chilling prospect for vendors still trying to sell conventional licensed software. "I wouldn't like to be in the midmarket space. I think it's going to be very difficult to sell anything once this model catches on," said Ternynck.

I've long argued that offering embedded services at the point of need is a much better way of using the Web to monetize applications than simple advertising. Earlier this year I wrote about Sliderocket's plans to monetize services around its application related to creating presentation slides. But I'm not sure what Sliderocket's CEO Mitch Grasso, who told me that "Giving stuff away for free is just not a sustainable business model," would think of MrTed's viral marketing approach.

I guess the success depends on how well SmartRecruiters embeds services such as online jobboard postings, CV filtering and reference checking into the core application — and how seamlessly its SMB customers will be able to take advantage of them. "[Applicant tracking] is a bit like a desktop for recruitment activity," said Ternynck. "We will give up [the revenues from] this desktop and then we will publish ... the ability to access from within this recruitment software the same services they used before anyway."

In its favor is the 'stickiness' of the application: "Once you have a technology like this, it's plugged into your website and you're not going to change any more," explained Ternynck. Although launched in the US (where the viral potential is seen as being largest) it is multilingual and, says Ternynck, "I have no doubt people will use it in Europe." The new product uses different software and a different platform from MrTed's current product, so it's not seen as a threat to its existing revenues. Larger enterprises, says Ternynck, "want to pay for top-class enterprise-class technology —" an SLA, professional services, and so on.

Topics: CXO, Cloud, Emerging Tech, Software, IT Employment

Phil Wainewright

About Phil Wainewright

Since 1998, Phil Wainewright has been a thought leader in cloud computing as a blogger, analyst and consultant.

Kick off your day with ZDNet's daily email newsletter. It's the freshest tech news and opinion, served hot. Get it.

Talkback

4 comments
Log in or register to join the discussion
  • Just to clarify

    Just to clarify, I'm a big fan of monetizing SAAS through alternative means. While SlideRocket does charge for premium product features, we are also monetizing our free user base through a marketplace of resources and services for presentations. My comment about free software was more in reference to advertising-based business models which I still think are going to be difficult to sustain.

    thanks!
    Mitch
    SlideRocket
    mitchgrasso
  • RE: Funding software from add-on services

    Good article, but of course it is not an either/or thing. There's no reason not to charge for the software, and then also for realtime value-add services also. If your market can sustain it that's probably the best way to go in fact!

    Joanna

    Joanna Lees-Castro
    http://www.software-marketing-advisor.com
    joannaflees@...
  • Better than free...

    <p>First I should say that I have no personal interest in these guys, but from what I see on the surface they are doing cool things beyond monetization.</p>

    <p>Their signup is easy, their community is great and their breaking the mold of traditional HR solutions by really leveraging the Web to reengineer important business processes...not just pushing what's been done before through a browser as a multi tenent SaaS application. For clarification...check out
    <a href="http://chaotic-flow.com/2008/11/17/saas-success-the-top-ten-dos-and-donts/">SaaS Success - Top 10 Dos and Don'ts</a> </p>

    <p>I also read a few of Brian Sommer's posts on reengineering HR and it would be great if other SaaS companies were as creative as these.
    http://blogs.zdnet.com/sommer/?p=248
    I love that I'm not the only old fart reviving
    the r-word here.</p>

    <p>by <a href="http://www.crunchbase.com/person/joel-york">Joel York</a>
    <p>at <a href="http://www.chaotic-flow.com">Chaotic Flow</a></p>
    york_joel
  • Giving Away Software? Sounds Crazy

    I have worked with Jerome and the SmartRecruiters team. Really creative business model and seems to be really taking off since it was launched.

    Given the state of the economy, free is probably an attractive price for many business users. 2009 may actually be a great year to use this type of model to grab marketshare, as long as if it isn't your only source of operating capital.

    I discuss the SaaS Freemium model in my blog:
    http://montclairadvisors.com/blog.

    Kevin Dobbs
    Managing Partner
    Montclair Advisors
    kxdobbs