Funding software from add-on services
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.
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.