The Resurgence of Embedded Apps in SaaS Products
Plus: Demystifying Remaining Performance Obligations in SaaS, Latest News in AI, and Funding Rounds
Happy Sunday crew!
Today, we will explore a simple yet effective strategy that many SaaS companies are adopting and explain a not-so-well-known financial metric that can help you quantify the stickiness of a SaaS product.
BTW, I have an exciting backlog of content I'll share with you over the next few weeks. If you have any ideas you'd like to pitch in, reply to this email and let me know! ;)
🍿 Quick Snack
⏪ Embedded apps in SaaS products are back in vogue and there are five core reasons for this resurgence in popularity.
🤑 Learn how to measure a company's revenue backlog and gain valuable insight into the stickiness of a SaaS product.
👀 Extra Fries: How Rippling raised $500m in 12h during the SVB meltdown, and latest news in AI
💸 +5 Funding Rounds
🍔 The Full Meal
The Benefits of Embedded Apps: Why Top SaaS Companies Are Adopting Them
Have you ever wondered "how" many of the top SaaS products offer a seamless experience and why the ways we interact with these apps seem almost standardized? The answer is simple — embedded apps.
In the early days of modern web design, before Gmail changed its logo, before Periscope and Vine were bought and shut down by Twitter, and before the bluebird app had an edit button, there was a time of uncertain bets. The web was transitioning from nothing to something.
As the web began to take shape, we saw trends in software design come and go. However, one trend in particular has stood the test of time: use of third-party embedded apps (a.k.a. widgets.)
First Wave: Implement third-party widgets for expected website features.
As the internet became more popular, websites were expected to have certain features.
For example, news sites were expected to have commenting and RSS features, as well as social media buttons. Similarly, social sign-on, internal pop-ups, and sign-up boxes for newsletters became common in other apps.
To add these features, engineers used widgets, which are pre-built interfaces that take care of basic features.
The ultimate benefit of widgets is that they provide reliable functionality in a standardized format, making them a convenient solution.
Second Wave: Shift to in-housing everything surrounding app development.
In the early 2010s, app development shifted to in-house work.
Widgets became perceived as cheap and tacky and were associated with outdated Google Sites and Tumblr blogs. Professional websites needed to create an end-to-end experience that was form-fitted for their users.
This led to an explosion of libraries and packages on npm, which allowed engineering teams to extend pre-written code.
Widgets were not dead, but they needed to innovate. This led to the emergence of the third wave of modern web design.
Third Wave: emergence of customizable embedded apps
Today, widgets are back in vogue. Companies like Netlify, Gusto, Yotpo, and Freshworks have action-packed search bars called wonderbars, all powered by CommandBar.
Gitbook, Pitch, and Stacksi use Magicbell to power their notifications panel.
Pfizer, Toast, AMD, and Outreach have authentication panels by Auth0.
Saleshood, Rho, and Copy.ai use Paragon to power their integration authentication and configuration panels. The list goes on.
The point is, many other companies are following this trend and there are five core reasons for this resurgence in popularity.
Reason #1: Personalization and Customizability
Widgets used to be less customizable. Nowadays, embedded apps excel in personalization and customizability.
Designers need personalization to maintain a brand's style, and developers need customizability for bespoke implementations.
Reason #2: Speed and Ease of Implementation
Embedded apps come with many features that are often too costly to build in-house.
Developers have limited time and often delay nice-to-have features due to opportunity cost. However, embedded apps make it nearly as easy to implement these features as it is to implement the simplified version.
Reason #3: UX over UI
Using third-party embedded apps limits UI consistency, even with available personalization features.
However, product teams now prioritize UX over UI. This means that the placement of buttons, for example, is more important than their appearance.
SaaS software is becoming more similar, and users have preconceived notions about where nav-bars and icons should be located. Embedded apps offer a recognizable form-factor that works across broad categories.
Reason #4: Cost versus Risk
Building a feature in-house is often more expensive than purchasing it.
This process can take months, and if the feature's UX is foreign or the release ends up being buggy, additional engineering cycles might be needed. Additionally, there is a risk that the feature may not meet user expectations.
Reason #5: The Best Product Wins
As you probably already know, the SaaS market is fiercely competitive.
Embedded apps help teams release features more quickly, and in many cases allows them to an edge over rivals with in-house builds.
Ultimately, SaaS startups succeed not by having the most attractive features, but by having the best ones. If this requires you to use an embedded app for, leverage it to your advantage.
Demystifying Remaining Performance Obligations in SaaS: What You Need to Know
This week, I stumbled upon a Twitter thread by our friend Ben that I thought was worth sharing, so here it is!
Hey, SaaS founders and finance pros, have you heard of Remaining Performance Obligations (RPO)?
It's a required disclosure for public SaaS companies and provides forward-looking revenue visibility.
Quick thread. #saas#RPO
— Ben | The SaaS CFO (@TheSaaSCFO)
Mar 18, 2023
Remaining Performance Obligations (RPO) represent the value of contracted revenue that SaaS companies expect to recognize in the future from existing contracts with customers.
In simpler terms, it measures a company's revenue backlog.
Why measure RPO? Any metric that provides forward-looking visibility into a SaaS business is a valuable metric for operators, investors, and the board.
Ultimately, it also helps provide insight into the stickiness of a company’s product.
Currently, RPOs are a required disclosure for US public companies.
You don't see RPOs being used much in private SaaS yet, but I believe this will change. It will be tracked just like bookings. -Ben Murray, The SaaS CFO
How do you calculate RPO? It requires two inputs: Input #1: deferred revenueInput #2: unbilled revenue
Scenario: 3-year contract for a subscription product. $120K ARR per year. $360K total contract value (TCV).
At the time of the booking in January. No invoicing or revenue recognition yet. We booked a $360K TCV deal.
The result is:
One month later (in February), we invoice the customer on February 1 for a February 1 subscription start date.
The result is: unbilled revenue drops by the invoiced amount but deferred revenue increases by the invoice amount.
Note: For visualization purposes, ARR Booked and TCV are left on the chart, but once the deal is booked, those value should not change and should remain only in the January bookings report.
If you wish to read about this topic in more detail, click here.
🍟 Extra Fries
Amazing execution. Rippling, a workforce management company, was affected by the run on Silicon Valley Bank (SVB) that began on March 9. To avert disaster, the company liquidated $130 million in money market funds that its customers needed for their payrolls. In the span of 12 hours, Rippling was able to secure $500 million in fresh funding to protect the company in the event that the markets spiraled even more out of control. (Read More)
Competition heats up. Anthropic, a startup funded by Google, has launched its AI chat assistant, Claude, which is seen as a rival to OpenAI's ChatGPT. Claude is built to produce less harmful outputs than previous AI chatbots and can be used for summarization, search, collaborative writing, Q&A, coding and much more. (Read More)
Will organizations be able to finally justify their investments in AI? DataRobot has unveiled its latest AI platform aimed at helping organizations derive measurable value from their AI investments. The new platform includes Workbench, a user experience that supports users with code-first and no-code approaches, reduced enterprise risk through bias mitigation, centralized model monitoring and automated model compliance, and new AI service packages. (Read More)
RIP Clippy. Microsoft has announced Copilot 365, which combines large language models with Microsoft Graph data and Microsoft 365 apps. Copilot 365 can generate documents based on existing ones, create a PowerPoint, analyze data in Excel, capture meeting notes, and more. (Read More)
💸 Funding Rounds
Mitiga | $45m Series A: cloud-based solution for incident readiness and response in cloud and hybrid environments (link)
HealthPlix | $22m Series C: digital health platform that uses AI technologies to support clinical decisions (link)
Pitchly | $7m Series A: B2B SaaS data enablement platform for firms and businesses to automate document and content generation (link)
Upduo | $4m Seed: platform that help companies deliver engaging 1:1 coaching sessions at scale that drive measurable business outcomes (link)
Deeploi | $3.2 Seed: IT-as-a-Service platform (link)
What did you think of today's newsletter?
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