SaaSletter - Platforms vs Pure Plays
With Brex's President / CPO + primary research with G2
The question of “platform or pure play?” impacts software buyers, vendors, and investors.
This note aggregates platform versus pure play research to help lay out the benefits for all three stakeholders.
For Customers: Platforms vs Pure Plays
2023 has been a favorable environment for platform solutions. The “2023 G2 Software Buyer Behavior Report” shows why:
84% of respondents would prefer to purchase one tool to solve multiple business problems rather than multiple tools.
78% of respondents like to buy complementary products from a single vendor they already work with.
83% of respondents prefer to renew a product than switch to a new vendor.
82% of respondents believe it is important that the software they buy integrates with tools they already have.
However, these buyer preferences do not cover whether platforms deliver better results or superior user experiences versus point solutions.
This distinction between organizational buyers and day-to-day users is worth exploring.
To compare customer satisfaction for platforms versus point solutions, we partnered with G2 and analyzed:
A sample of 12 software categories with clear platform versus pure play dynamics.
These comparisons were conducted at the specific category level using G2’s comparison tools.
For example, when we compared Gong (a pure play) to the call intelligence module of Hubspot Sales Hub (a platform), we used G2 ratings only for Conversation Intelligence.
A total of 46 software companies were included in the analysis.
Caveat: this is a directional and exploratory analysis. Choosing the right software is always case-specific and requires due diligence.
So, what do the results show?
Overall, platforms narrowly edged pure plays: platforms won 7 categories (58% of the total) versus 5 wins for pure plays (42%).
Platforms and pure plays were perfectly equivalent (8.69/10.00) on an aggregate weighted customer satisfaction basis.
At the G2 dimension level, pure plays won for “Ease of Use,” “Ease of Setup,” “Ease of Admin,” and as a “Good Partner.”
This is a rare situation where an “It depends” answer is perfectly justifiable.
Note: Drilldowns by G2 Dimension - like Meets Requirements or Positive Product Direction - are available in our reference slides:
Q&A: How Brex Thinks About Adding Products To Its Platform
Karandeep Anand is Brex’s newly appointed President after nearly two years as the company’s Chief Product Officer, having also led product teams at Microsoft and Meta, two companies well-known for their platform approach. I asked Karan how Brex approaches adding products to its AI-powered spend management platform.
Describe Brex's planning process for adding a new product to its suite.
Like almost everything with Brex, we start with the customer. We flexibly serve a lot of segments, from high-growth startups to scaling midmarket orgs and the most demanding global enterprises, so a lot of our thinking is very methodically broken down into which segment has what jobs to be done. And then we marry that data with three things:
Key customer asks
Evolving market landscape
Brex’s own vision of the future and strategy
The combination of these things creates the framework for building a winning product, and then we do a lot of diligence through both quantitative and qualitative checks to ensure that we can solve real customer problems in a fundamentally different way than anyone else.
What are some indicators that Brex customers really want a multi-product solution?
We get a lot of conviction signals from customers because we’re obsessively following their pain points. For example, we started as a credit card for startups. We soon found they loved that they didn't have to walk into a bank to get a credit card. So they wanted to shift their entire financial relationship to Brex. We built what is now Brex business account as a direct response to customer feedback on the traditional banking experience.
Since then, we’ve seen our customers like Coinbase, ScaleAI, and DoorDash scale globally, and they wanted cards plus powerful workflows for spend management software. So we followed our customers’ lead and added more global expense management capabilities. And that's how we've expanded our solutions.
How does Brex think about building the extra product line itself vs. going the partner/white label/integration route?
Building vs. partnering is a very critical decision for any technology org. For us, it’s about whether we can provide the best possible solution while reducing the overhead of change management for our customers by reducing the need for onboarding and deploying new solutions, training, and shortening the overall learning curve.
For example, we partnered closely with Spotnana to build Brex travel as an adjacency to expense management. Yet it was important that Brex travel was still the same app and experience and that a seamless customer experience accompanied the best global travel platform.
Our offerings have gone from cards to banking to expense management to travel and bill pay on a global scale, and all of our products are an extension of our core experience. This unified approach to spend management ultimately simplifies the customer's life in the buying, deployment, and change management processes.
What are the key advantages of offering a multi-product platform — for vendors and for their customers?
For the customer, a technology platform helps them get much better economies of scale. They’re working with one vendor in terms of what they're buying, deploying, putting through security reviews, teaching their own entire employee base, so change management and customer support get significantly easier and better. The total cost of ownership is also more manageable. Plus, customers get a trusted partner that can help them navigate related emerging challenges.
The benefit for a platform vendor like Brex is simple: we can increase the depth of the relationship and commercial partnership that we have with existing customers. This improves our customer acquisition costs since winning new customers can take a lot of time and resources. The best SaaS companies are the ones with a high attach rate to multiple products.
Further, these customers trust us with more jobs to be done, because we’ve proven we can do the first few they’ve given to us exceptionally well. Our bill pay solution is a perfect example — accounting teams already trust us for T&E automation. Now they want our advice on solving top accounts payable and bill pay challenges. So, being the best partner a finance team can have is a win for the vendor but really for the customer, too.
For Vendors: Platforms vs Pure Plays
The “Clydesdale Rule” from Brian Halligan (Co-Founder and Executive Chairperson; formerly CEO) of Hubspot succinctly captures the attractiveness of multi-product strategies for software vendors: platforms create 4x leverage:
The Clydesdale Rule has clearly worked for Hubspot: in their 2023 Analyst Day, Hubspot disclosed that 62% of their deals are multi-hub, and ~40% of their $2.1 billion ARR is generated from product lines not present at their IPO.
Of note, Hubspot was included in five software categories (Sales Engagement Platforms, Sales Conversation Intelligence Software, Account-Based Marketing, Landing Page Builders, and Help Desk Software) for our platform versus pure play research.
For software vendors considering a multi-product model, Meritech (a technology venture capital firm) succinctly summarized the pros and cons:
I can only add a few specific call-outs to Meritech’s strong summary:
“Increased TAM (total addressable market) to sell into” — Hubspot’s TAM has more than doubled from $25 billion at IPO to $51 billion today.
“Enduring and durable revenue growth (even through downturns)” — Investor presentations from several multi-product SaaS vendors show the consistency of growth from additional products. Here are a few examples of growth durability (with more in our slides):
Crowdstrike: % of subscription customers with 5+ cloud modules has increased every year from 2% in FY2018 to 63% in Q2 FY2024
Cloudflare: % of customers with 8+ products has increased every year from 24% in 2018 to 48% in 2022
Toast: % of locations using 6+ elective products increased every quarter from 24% in Q2 2021 to 43% in Q2 2023
Datadog: % of customers using 4+ products increased every quarter from 28% in Q2 2021 to 45% in Q2 2023
Workiva: % of revenue from multi-product customers has increased every year from 37% in Q2 2016 to 62% in Q2 2023
“Lower customer acquisition costs (CAC) given new products can be sold to current and new customers more efficiently” — a few notes:
CAC from expansion is 66% lower than CAC from new customers
For "Increasing net revenue retention rates (higher expansion, upsell, and cross-sell)” and “Lower churn rates” — A few examples:
Hubspot: Multi-hub customers have a 300 bps higher NRR than average (90% NRR vs 87% NRR)
Salesforce: Multi-product have lower attrition rates (see slides) and 3x-300x(!) the ARR vs single cloud customers
Cloudflare: 10+ product customers have increased their revenue contribution by 15x from 2019 to 2022
I am particularly opinionated about many software companies’ over-reliance on NRR expansion:
“There is a ceiling on expansion. Taken to the extreme and absurd, ‘let's buy 3.5 Zoom seats for every employee’ doesn't work.”
This Crowdstrike customer journey shows the power and duration of multi-product growth simply not available to point solutions:
From Meritech’s considerations list, “Going multi-product too early can cause a loss of focus: Act I and prior "acts" need to be working already / well-oiled machine” highlights the selection bias inherent in platform case studies.
By definition, successful platform companies have earned the right to win. A strong first base product:
Created goodwill with customers to be willing to buy extra products
Brought in revenue to fund investments in growth
Earned the trust of the Board of Directors to make those investments
Built by good product managers, engineers, and executives — that is, a good team to build the next thing
Going multi-product might not make sense for a vendor in a number of circumstances:
A bootstrapped SaaS might lack the capital and personnel needed to launch, scale, and support multiple product lines
Some categories might not need platforms — a point solution is actually what the market demands
For Investors: Platforms vs Pure Plays
For all of the above reasons, multiproduct software businesses are very attractive to investors.
Tidemark Capital and Lone Pine Capital research from a “Platforms of Compounding Greatness” series highlights multiproduct companies have:
Higher revenue multiples
Higher market capitalizations
Higher absolute revenue
Higher free cash flow (FCF) margins
Higher “Rule of 40” (a measure of combined growth + profitability) metrics
Scoreboard: Platforms vs Pure Plays
So, what do the results show?
For Customers: 1 Modest Win for Platforms. While platforms very narrowly won our *user-centric* analysis, the strong preference of *buyers* towards platforms was the deciding factor.
For Vendors: 1 Strong Win for Platforms
For Investors: 1 Strong Win for Platforms
In total, 3-0 for Platforms.
The Future: Platforms vs Pure Plays
Already a challenging exercise, the dividing line between what constitutes a platform and a pure play will get blurrier with each year for a few reasons:
Composability + Aggregation:
Scott Brinker and Frans Riemersma recently outlined frameworks of composability + aggregation in software:
The “84% of respondents would prefer to purchase one tool to solve multiple business problems rather than multiple tools" (via G2’s 2023 Buyer Behavior research) fits within a consolidation framework, which generally favors platforms.
In a composability + aggregation future — where - per Brinker + Riemersma - users “apply the best features to each particular use case, independent of the software products in which those features are hosted. Instead of ‘best-of-breed,’ we think of this approach as ‘best-of-feature’” — the distinction between platforms and pure plays matters less.
Artificial Intelligence (AI):
Recent studies have shown AI enables meaningful software development productivity gains: A McKinsey study found that documenting code functionality for maintainability can be completed in half the time, writing new code in nearly half the time, and optimizing existing code in nearly two-thirds the time.
For pure plays, AI-enabled shipping of new features and products could represent a “graduation” to platform status.
For platforms, AI-enabled engineering gains will also lead to new features, representing an evolution to “super platforms.”
Importantly, AI will allow platforms to re-factor *old* features and products.
Older products tend to have lower *user* satisfaction scores (see Brinker + Riemersma using G2 data), which can create the opportunity for younger pure plays to emerge.
If AI can enable “legacy” platforms to re-write and modernize old code bases like Oracle is doing today with Cerner (founded in 1979), platforms might become further advantaged:
Going back to the scoreboard framework, platforms would likely be favored over pure plays in a rematch. But future dynamics — like AI or the increasing sophistication of software user stacks — could change the sport altogether.
New Cloud Ratings Product: True ROI
Cloud Ratings has gone multi-product, too: our category quadrants are now complemented by True ROI reports.
Customer interview results were translated into a True ROI financial model with quantitative benefit and cost estimates, reflecting a 3-Year ROI of 4,748% (47x) and 2.0-month payback:
Per G2’s 2023 Software Buyer Behavior Report:
“Vendors are on the hook to show quick value. Of respondents who anticipate software spending to increase in 2024, the necessity to realize an ROI within 6 months is the most important consideration during the purchase process.”
True ROI Reports can help you quantify and provide 3rd party validation of your software product’s business value.
If interested in learning more, consider booking a demo with me:
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