SaaS: What happened to the “prosumer” model?
Hi there, we’re Point Nine Capital a VC firm focused on SaaS and marketplaces.
Written by Clement Vouillon · First published on Point Nine Land on Medium, May 2017
A couple of years ago the “prosumer” model was really hot among SaaS investors. Prosumers ( professional + consumer) are individuals who buy “professional software” either for their use or their activity as freelancers / solopreneurs. Regarding customer segmentation you end up with:
Prosumers: individuals / freelancers / solopreneurs.
Small Businesses: 2–99 employees.
Midsized Businesses: 100–999 employees.
Enterprise: +1000 employees.
The prosumer segment is very attractive due to its market size with tens of millions of potential customers. If you manage to capture only a fraction of them paying 5$ — 10$ per month you can build a significant business. Another advantage of this model is the “land and expand” strategy a.k.a employees bring their own software within their company which is “forced” to buy a pro version after a while.
If on paper this model looks very attractive the challenges which come with it quickly became obvious.
Scaling prosumer acquisition is insanely hard. The problem with the prosumer segment is that it has a high churn and a low account revenue expansion potential — prosumers cannot pay much more than a few tens of dollars monthly. As a consequence to scale revenue, you need to continuously increase your top of funnel lead generation without increasing your customer acquisition costs which is almost impossible without a viral product.
The land and expand strategy is insanely hard too. It also became increasingly clear that the “landing” part was doable, but the “expanding” part was a real challenge for pure prosumer products. Businesses need specific features, and very often the gap between a product which appeals to prosumers and its “business compatible” version is huge. Trying to bridge this gap killed many startups.
Many founders and VCs learned these lessons the hard way, and today the pure “prosumer” SaaS model is probably not as attractive as it used to be — in a VC compatible perspective at least.
Are C2C & B2C players taking over the prosumer segment?
However the trend I noticed the past couple of years is that the prosumer segment is increasingly served not by pure SaaS players but by B2C / C2C players who are offering extra “prosumer” features to their consumer base:
Sharing economy products: several “sharing economy” products started as pure C2C listings to evolve into real software that enables users to manage their inventory like professionals. For example, as an AirBnB host, you have access to plenty of features that let you manage your guests as if you were using a B2B customer support tool.
Content production & consumption: content production on the internet is exploding whether it’s podcast, videos, music, etc. More and more platforms and social networks provide to “prosumers” tools to create and distribute their content. Ex: Facebook Audience Insights & Pages, Messenger bots, Twitter Analytics, Adobe creative cloud, Spotify for artists.
eCommerce: an increasing number of B2C eCommerce platforms (Amazon, Etsy…) build features for prosumers, mainly with a “marketplace” approach.
Trading: Robinhood is a free stock trading app that looks like a B2B app (they also have an “as a service” business model for power users).
…
All the companies cited above are “consumer” companies first (whether B2C or C2C or social).
Implications
The pure “prosumer” play, as described in the intro, is almost impossible to scale without a highly viral product…
… and some B2C / C2C / social platforms are better positioned for that once they have reached critical mass.
This is why we should expect these companies to increasingly offer “prosumer” features as a complement to their core offer.
In many cases, it makes more sense to expand from C2C / B2C to prosumers rather than from prosumers to B2B.