Totango set to enhance SaaS sales tools

As enterprise users grew tired of installing massive suites of on-premise customer relation management software and Internet-oriented businesses began to rise, Salesforce.com came along and turned hosted applications, or software-as-a-service (SaaS), into a multi-billion dollar market.

Following in Salesforce's wake came lead-nurturing tools like Constant Contact, Eloqua, HubSpot, and Marketo that have attracted hundreds of millions of dollars in venture funding, and have ostensibly added value to their customers' relationship.

This week we see the launch of Totango (pronounced like "to tango"), which bills itself as a "real-time customer usage analysis platform for software-as-a-service (SaaS) applications," and we may be seeing the next wave of offerings that promise to put companies closer to their customers.

Totango provides software that can tell SaaS companies exactly who is using their products, what they're doing, and how often they use it. This is gold for sales people qualifying prospects. And it's a powerful new tool for marketing people defining new SaaS products.

I recently did an e-mail Q&A with Totango CEO and co-founder Guy Nirpaz to learn more about their product.

Question: What are some of the key challenges SaaS companies face?
Nirpaz: The SaaS business is about reducing customer acquisition cost and increasing customer lifetime value. One challenge SaaS companies face is they don't have direct interactions with their customers like they used to. Customer interaction is indirect through the service itself, meaning that in order to really understand customers you really need to understand how they interact with your business.

Another challenge is that the SaaS business model requires dealing with a large volume of potential and current customers while keeping your own sales team small.

What led you to start Totango?
Nirpaz: It came down to how the cloud and SaaS in particular changes the way customers and businesses interact. Most new software businesses start up now as SaaS. More and more legacy software business are also migrating to SaaS. So business models are changing from perpetual software licensing models to pay-per-use and subscription models.

This is the fundamental change in the way businesses consume business services. It's not about buying software and hardware and installing this internally, it's about consuming the service and paying for the value of what you consumed. This describes the model for cloud computing in general.

There are a lot of Web analytics, lead nurturing and marketing automation tools out there. How is Totango different?
Nirpaz: Totango is built for sales people at SaaS companies. Web analytics tools today are intended more for marketing than sales. They provide an aggregate view of traffic clicks on the Web site, not the actual usage of people on the service the SaaS offers. Also, Totango tracks down to the per user basis so you can see individual user interactions--how much they've used, where they went, pretty much whatever you want to know about how they experienced your software.

Marketing automation tools are targeted more at marketing people, the lead generation specialists. They provide "lead scoring," which measures the engagement of a customer by things such as Web site visits. Then they give each user a score to determine a high potential lead that they pass on to sales or some other automated action [like send an e-mail]. They identify leads to prospect but typically before they are actually using the application.

Totango targets people who have already signed up for a service and are using the application (perhaps as a free trial or a premium or an existing customer). It tracks almost everything a person does using the actual application. It gives sales people a lot more sophisticated information that can make sales people more effective in trial conversions or renewals.

Are you trying to compete with Salesforce.com?
Nirpaz: We don't compete with Salesforce.com, we complement them. In fact, through our Salesfore.com API, we have integrated Totango so that sales people can access all the prospect usage data from within their native Salesforce app. We look and feel just like we're part of Salesforce.com. Nothing new to learn. I think this will be key for us overcoming the "not another tool" pushback from sales departments.

How does your technology provide benefits beyond sales effectiveness?
Nirpaz: While our initial offering is focusing on sales, the longer-term vision will encompass the entire customer lifecycle. Think about building webs services. Because Totango can tell on a granular level what users are doing in real-time, it really acts as a brutally honest focus group and can yield an excellent market requirements document expressing the customer's wants and needs for the service