@RomanStanek, founder of GoodData wrote a masterclass the other day in TechCrunch about how to sell Enterprise Software. And, since Enterprise Software is “sexy” again, it’s a very worthwhile read.

From my experience working at one of Europe’s largest and oldest enterprise SaaS companies- we’ve been on this journey for a long time- I think there is some colour to be added to Roman’s post, plus some room for debate. I think, however, the dismissal of the lean startup theory for Enterprise software is ill advised.

The highlight of the post for me was his 6 requirements of Enterprise Software Sales Success:

1- Have a significant, monetizable value proposition. Getting people to use something is different from getting them to pay for something. From the beginning, your offering has to be something that people find so valuable that they’ll pay for it, not just play with it. Yammer, the enterprise social platform, had plenty of penetration, but it was not fundamentally connected with the business systems people used every day to do work. The company was sold to Microsoft, which could bundle Yammer’s capabilities into its Office suite and exploit its significant presence in enterprises.

This is the so-called penny gap. Ironically, in Enterprise software where the purchaser is often not “paying,” you’d think the gap would be smaller… But, even though there is a very strong correlation between use and value, the penny gap remains significant. If you can change someone’s habits so they feel like it’s a must have- you could strike gold. The challenge for vendors is: If you want a lower Customer Acquisition Cost (CAC) for your product / service you have to deliver significant value up front in the form of a trial or freemium offering to get people to change habits, but then still leave enough room for the upsell to monetise. Some might say Yammer did this very effectively, but beware- the maverick sale is often not welcomed by IT.

2- Sell the way the enterprise buys. Selling to the front office can be on an inbound basis, with relatively horizontal, lightweight, consumer-like pitches. The problem is, you’ll find that some serious company – Salesforce, Google, and Microsoft – already owns most of the desktop. Enterprise IT is used to provide significant, detailed explanations of functionality on an outbound sales basis. That means real salespeople burning real shoe leather. If you want to upsell, you’ll probably have to up-staff.

Yes- if your initial sell is to IT folks (like here at Mimecast), that’s exactly what you need to do. But if IT doesn’t have to be the initial buyer, can you first build a bridgehead then sell to IT once significant value is being delivered? A bottom up vs top down sell as Marc Andressen would put it. That’s how Salesforce got its foot in the door, as did Yammer. But don’t kid yourself- if you want to upsell, you’ll need that shoe leather, because getting past IT even when it’s being used is no cakewalk. However, in an ideal world I’d rather be upselling than prospecting for net-new names. And don’t forget you can use those vendors to sell for you in their marketplaces. Salesforces’ AppExchange is their strongest feature IMHO.

3- Meet enterprise requirements. Your technology will need to satisfy all of the enterprise’s requirements for the “-ilities”: scalability, reliability, security, availability, and so on. Enterprise IT wants to know that the software can integrate with long-established systems of record. Be prepared to answer questions about single sign-on, uptime, firewalls, recovery-time objectives, service-level agreements, and failover.

So, so true.

If you don’t have or don’t want to have the “-ilities,” forget selling to the enterprise. Although in actuality it’s more about perception than reality- if you start with the “-ilities” in mind, you can make yourself “enterprise ready” from the get-go. Reverse engineering it is much harder work. It took us a long time to convince banks to store their information with us, but now they do. Things like ISO 27001, SLA’s, monitoring, reporting and alerting help significantly. And on integration, read Active Directory. As the buyer, I want seamless integration with AD as Microsoft owns the desktop and the authentication architecture. I read a recent Gartner report saying Microsoft has approximately 80% of the business email market compared to Google’s 2%. You might like Google Apps, but by-and-large your Enterprise customers don’t.

4- Focus on targeted value scenarios or first go vertical. Because of the “crowded shelf” in the front office, your technology stands the best chance of getting an initial enterprise sales bump if it can solve a deep and irksome process problem that is a known issue across industries, or only applies to one industry. Enterprise IT often won’t buy from companies that haven’t already sold to quite a few of their peers, but you have to start somewhere. Your “land and expand” strategy might do best by starting with a nettlesome issue, deep in the weeds.

This is classic “Crossing the chasm” advice, which speaks directly to the first rule of having a “significant, monetizable value proposition.” I think however, it should be split into two seperate issues. If you want to sell to or through IT, then solving something niche and nasty is the way to go. However, the front office is not nearly as crowded as Roman asserts. The whole BYOD and Cloud revolution has proved consumers (i.e. “front offices”) desperation for more tech in their lives, not less. I don’t know of a single IT department with enough time on their hands to satisfy every user’s requirements. If consumers can solve their problems without IT’s involvement, in a safe and future “-ilities” passable way, then much the better for the customer and vendor. But if you rely on the consumer sell and can’t pass the “-ilities” test, you’re going to be in trouble as soon as IT finds out. And you’ll likely be the recipient of a big boot. That topic however is a minefield and a series of posts on its own, but suffice to say a careful balance has to be negotiated.

5- Have some patience. We like to say, “selling to the consumer is about selling positive emotions. Selling to the enterprise is about suppressing negative emotions.” Enterprise IT is not a culture of early adopters. “Ain’t it cool?” is not enough. Enterprise IT sales cycles are often months long and you should prepare to be met with skepticism. Consumers usually ask, “Is it awesome?” “How much does it cost?” Enterprise IT asks, “What if it doesn’t work? Will I get fired?”

This is spot on and speaks once again to the “-ilities.” If you flunk the “-ilities” tests, then IT immediately thinks about the “What if it doesn’t work? Will I get fired?” questions. But, equally, consider how your system can be implemented to deliver value without risking all of those factors. Can you do something non-trivial that delivers value at low levels of risk to IT or users to build trust?

6- Establish a control point. With enterprise IT, being the first to market is not always the winning scenario. What’s more important is having a gambit that puts your technology’s hooks in an organization’s fabric – a “control point” of sorts. Your technology has to have some aspect that will prevent customers from moving to the nearest competitor tomorrow. Salesforce and LinkedIn sell dozens of products based on their control of customer data, which can be aggregated and, importantly, monetized, because they reveal important trends in business. Yammer’s control point was its community of thousands of people in an organization, which made it difficult to replace, though ultimately, it could not capitalize on that proposition alone.

This sounds more sinister than need be- Instead, I would write “Establish a position of persistent value.” Deliver persistent value and Enterprise customers won’t want to swap you out. Ever. You don’t want to become a tax. And first to market is often not the winner-  Microsoft grew their business by building arguably the best, not the first products- a fast-follower strategy. The famous expression the first pioneer up the hill is the one with the arrows in their back is never truer:

Also, having competition validates the market, which is especially important in Enterprise Software.

However, I disagree about the Yammer comments. A $1.4bn exit does not strike me as a company that “could not capitalize on that proposition alone.” IMHO Microsoft’s acquisition cements Yammer’s position in the Cloud Social Software space, probably making it the de-facto choice for Microsoft shops worldwide.

And, finally, on Lean Startup- I’ve been a big proponent for many years of the test and data driven approach to solving unknown unknowns to create products people actually want to buy. To advocate against it flies against what is now conventional wisdom.

This model just won’t work in the B2B space. New products, especially those aimed at IT, must usually be sold. If you don’t have both the technology logic and the business logic of your product worked out, the founders and early investors are in for a rough ride.

That makes the assumption that you’re right about your assumptions, a belief system that surely has been debunked by the Lean Startup movement?

You need to design your value proposition and product in a way that enables you to iterate your way to success without alienating the Enterprise software buyer. No mean feat but an absolutely essential one, if you are to succeed in Enterprise Software. Start with the “-ilities” and focus on solving pain. My experience is that the buyer is delighted to be involved in a process that iterates to solving their problems.

Net-net, if you’re looking to sell to the Enterprise, you better start investing in some shoe leather. But think long and hard about how you can get software into users’ hands before IT to help IT buy. Ultimately, lowering your Customer Acquisition Costs is the holy grail and hallmark of a successful SaaS company. Nobody says it better than David Skok: Startup Killer: the Cost of Customer Acquisition.

As usual- the most interesting responses to the post were offline- but it gave me some deeper insight into how some sectors are thinking at the moment.

One of the most interesting was the comment that:

“Traditional vendors are just looking at their Channel for sales now”

Where the vendor used to use their channel to add value to the sale by installing, configuring and maintaining the software/hardware/etc, the majority of that work is done by the vendor now. And by default, if the Channel doesn’t change what it does, it’s becoming not much more than sales.

Now I think that’s a pretty cynical view- but I suspect they were playing devils advocate to make the point.

And it’s a point well made. The good times, as we knew it in the IT channel are gone. Remember the perfect storm? Economic and Technical change at once?

I think the good times will return, they’ll just be different.

How can the Channel evolve and adopt Cloud?

• Why should the Channel take the initiative?
• What assets do the Channel have today which they can leverage?
• How does the channel make money? (hint: Cloud support won’t replace on-premise support)
• Where should the Channel start?
• Why won’t Customers do it themselves?
• Why is Cloud positive for Customers and the Channel?
• What value can the Channel add?

We also run thorough the top ten list from my IAMCP presentation.

If you’re in the Channel- your reputation is on the line.

SaaS and the Channel Part 2 from justinpirie on Vimeo.

I’ve been wanting to catch up with Anders for months- in December we collaborated in putting together this presentation (below) to the UK IAMCP chapter on the changing landscape for Resellers in the Cloud World, as many of know you is turbulent.

Anders comes at IT from a really interesting angle- he’s worked in IT, Supply Chain and Consumer goods- he really understands the value proposition of IT to the buyer. He always reminds me- “WHY IT, not HOW IT”, which is good, as technologists we often love technology for technologies sake.

Some people have said- the Cloud represents a “Perfect Storm” for the Channel –what is making that storm happen?

In this first part of a three part series, we cover:

·      How does the supply chain (i.e. the channel) need to change?

·      Where do people fit into the supply chain in the future?

·      What do people need to do to transform? What services will they be providing?

·      What is the transformation that IT is going through?

·      Where is the budget going?

·      Why isn’t the Channel happy?

·      Should the Channel embrace cloud?

·      Why is the Channel in a place to take advantage of the Cloud?

SaaS and the Channel- what is happening? Part #1 from justinpirie on Vimeo.

Next week: we discuss the top ten tips for Channel to take advantage of the Cloud.

I’m on my way this morning to speak at the IAMCP UK Member meeting at Microsoft London. That’s the International Association of Microsoft Channel Partners to you and me. The people who actually deliver Microsoft solutions to customers and handle 95% of Microsoft Revenue.

But as Bob Dylan would sing: The Times They Are a-Changin’

The Cloud is creating a “perfect storm” in the Channel business. A lot of  the value Partners used to offer Customers is now available through the Cloud without them- Email, Collaboration, Storage and even Authentication!

Not only that, but the shift from traditional licenses, Cap-Ex and Maintenance revenue to Op-Ex or Subscription revenue is wreaking major havoc with profitability and cash flow. If your business is geared towards big, lumpy sales, with healthy margins, shifting to a smaller recurring income is going to disrupt the business model.

And because the technology is changing, to be less technical, with more technical detail abstracted away, the skills partners have been investing in for years are becoming obsolete. The people that provided that service aren’t needed anymore.

But I think the Channel is too quick to look to doom and gloom. They mustn’t forget their USP’s.

They’ve got great TRUST with real customers that pay them actual money.

The stuff Cloud providers CRAVE. They have in fact got a head start in the Cloud Business because the Economics of Cloud are so hard, as they’re discovering for themselves. But the reason Cloud Economics are hard is because it costs Cloud providers money to acquire customers. The Channel has the customers already. There is a perfect fit here if the channel can get to grips with the model.

So what does the Channel need to do to transform? Here is my top ten:

1. Construct a Portfolio of Cloud Services
2. Start eating their own Dog Food- using Cloud their own business
3. Sell Support for Cloud Services- It won’t fix itself
4. Add Services around Cloud- It won’t configure itself
5. Cross Sell, Up Sell- Keep that IT budget but deliver more
6. Do Due Diligence on Cloud Providers- They aren’t all the same
7. Guide Cloud in to Networks Safely- and securely
8. Start Delivering On-Ramp Cloud Services Today- because that is where demand is
9. Leverage On-Prem and Cloud for “Hybrid” Solutions- drive ROI with existing networks
10. Focus on Business Transformation- The future is less IT and more Business

As my good friend Anders Trolle-Schultz says- It’s no longer about “How IT” but “Why IT”.

httpv://www.youtube.com/watch?v=y7ir4Z0bIis

Probably the hottest topic in SaaS is Sales and Marketing- nothing defines success in SaaS as much as how cheaply you can acquire a customer for- Customer Acquisition Cost (CAC) as we often refer to. Those of you that track the space like I do will probably be aware of the major moving parts- especially content, but it’s great to have a workshop brought together to make it easy to digest and get you away from your email…

There are three forces that impact marketers have not seen since the early proliferation of the Web: the growth of social media, the ubiquity of mobile devices, and the embrace of entertaining online. The change in audience expectations are changing and putting unprecedented pressure on B2B marketers.

Presenting at the event are analysts Sirius Decisions, M62 Communications, Brainshark and me. You probably will have seen their work- Sirius are one of the few analysts that work at the intersection between Sales and Marketing, M62 are one of the leaders in presentations- how to be more effective and Dave from Brainshark is presenting on the challenge for marketing to create relevant marketing for the various stages of the buying cycle.

The Content Crisis: Three forces making your B2B marketing content irrelevant with presenters from the US and UK- brought to you by Brainshark- tomorrow -Wednesday October 20th from 8:30-10:30 a.m. at the Charlotte St. Hotel in Bloomsbury/London.

I’m a last minute addition to the bill talking about cloud computing- so apologies for the late notice.

For those of you that haven’t heard of Brainshark, they’re an interesting SaaS company- their service enables the rapid creation of on-demand rich-media presentations and have recently gone freemium…. (my.brainshark.com) Hosting the event is their Director of Customer Community, Irwin Hipsmann who leads their community and retention programs- if you’re looking into either of these for SaaS- he is a superb person to get to know.

If you would like to attend the breakfast seminar or learn more about the topic, please contact ihipsman@brainshark.com

On Thursday I’m presenting at IPEXPO in London- The Secrets of Successful Cloud Adoption: what they don’t tell you. and I’ll be at SIAA OnDemand Europe for the next couple of days- if you’re around- it would be great to talk to you.

For those of you that can’t make it in person to any of my events- then here are some decks for you:

• Google I/O news- Google TV- is TV going to be the next cloud battleground and opportunity?
• Google announces “enterprise” partnership with VMware- fails to put enterprise ready SLA’s into the mix but extends PaaS options
• Google tries it’s hand at solving the perennial SaaS distribution problem- announcing the Chrome Web Store
• Android in numbers- it’s growing FAST
• Google launches S3 Competitor- Google Storage for Developers
• Evernote continues to showcase their numbers and make the case for Freemium- new Video
• API festival at Gluecon! How people are solving the problem of Glueing SaaS and Cloud together
• But customers aren’t thinking about Glue says Information Week research…
• Sinclair Schuller on Cloud Architecture
• Reuven Cohen on the coming of Clouds from a historical hosting perspective
• Bessemer CEO conference coverage- Great Design and User eXperience essential
• In other news, Microsoft, Salesforce, Ray Wang, Xobni and Banks in the Cloud.

TWIS Events

Some of you might remember from last week that I’m talking on a SaaS panel at HostingCon July 19-21 in Austin, Texas - with Jeff Kaplan, Lincoln Murphy and others- for TWIS readers there is a discount code and a pass to give away 

Because of the holidays- I’m going to extend the draw for a couple of weeks, and draw the pass on the 14th of June- so get your entries in! To enter- email me jp@justinpirie.com with the subject “HostingCon”

If you can’t wait until then, you can use the discount code “SaaSGroup2010″ which will provide an extra $60 off the current pricing of a full conference pass with lunch for all three days.

It looks like a great conference.

TWIS#27

I got a bit carried away last week with TWIS #26- David Skok’s post on Sales Complexity was absolutely amazing, and I didn’t have any room for anything else, notably Google I/O.

One of the major announcements at I/O was Google TV- via TechCrunch.

That is an enormous user base to tap into. But the TV sector is littered with failures- why is Google going after it?

Last week at the Founder Showcase, a quarterly event put on by Adeo Ressi’sTheFunded, Evernote CEO Phil Libingave a presentation discussing some of the startup’s key revenue numbers and strategy. During his talk, Libin outlined some of the ingredients in making the freemium model work, and how long-term users actually become more valuable over time.

Evernote, for those who haven’t used it, is a great service for quickly storing and organizing ideas, photos, documents and other information that you encounter both online and in the real world. This is actually one of the secrets to the service’s success — as people add more of their content to the site over time, it becomes increasingly valuable to them. Libin has previously shared similar information during his mentorship at Ressi’s incubator The Founder Institute

Founder Showcase – Phil Libin Keynote from Adeo Ressi on Vimeo.

Here are some of the main points Libin covered during his talk:

• Sometimes people say “The best product doesn’t always win”, and are implying that you should focus on other areas, like marketing. In the Internet age, a good product can get the rest of that stuff (marketing, etc.) for free. So focus on that. And then charge for it.
• A year ago Evernote was making most of its money from licensing its technology, but it focused on its premium plans ($5/month or $45/year) because that was more scalable. Now, premium subscriptions bring in around $300-400k a month, and licensing represents around $45k.
• Evernote has 3.1 million cumulative users, and adds around 10k a day. Around 68k paying customers.
• Users have grown more valuable over time. New users convert to premium at a rate of .5%.  But of the users that signed up two years ago and are still active, 20% have become paid customers.
• This trend is important — most users quit quickly. But the ones that stay become much more likely to pay over time.
• Evernote’s cost per user is around 9 cents per active user per month. It makes around 25 cents per user per month. The site reached break even a year and a half ago.
• Entrepreneurs should aim to be making money on each new active user as soon as possible. Otherwise scaling just means you’re losing money faster, rather than earning it

We should note that Libin has previously discussed similar information, though the video provides more detail.

I’m more sceptical about freemium than ever before- I’d be interested to hear your perspective…

This week I wished I was at GlueCon because I think API’s are getting more interesting- how the Cloud and SaaS is stitched together is getting more and more important. RWW covers:

It’s like an API festival here at Gluecon. I tweeted that this afternoon. But it’s not just Gluecon, though – they’re one of the hottest topics in discussions about cloud computing.

In his presentation today at Gluecon, John Musser of Programmable Web illustrated how hot APIs have become and how they’ve matured.

Perhaps most illustrative is his “API Billionaire’s Club.”

Members of the club include Google and Facebook with 5 billion AP calls per day. Twitter has 3 billion per day. Ebay has 8 billion per month. NPR gets 1.1 billion calls per month for its API-delivered stories. Saleforce.com gets 50% of its traffic through its API.

According to Musser, it took eight years to get to 1,000 API’s but just 18 months to get to 2,000. This year, the number of API’s are double what they were last year on a month-per-month basis.

Internet/platform as a service (PaaS) API’s are now number one. That’s illustrative of the increased usage of services like Amazon S3 and all its competitors. Maps are the number three API, dropping from the number one spot last year. Social API’s are number two.

REST API’s are far surpassing SOAP.

There’s a real energy here at Gluecon around the discussions about APIs. The room was packed for the presentations on the topic.

As the space matures- the Glue is going to become more and more important- at the moment I don’t think people outside of the industry are thinking about it enough:

According to a recent InformationWeek Analytics 2010 survey, more than half of software-as-a-service users (59%) look on SaaS as a tactical point solution “for specific functionality.” That’s all well and good, given that SaaS started out that way, mostly in terms of specific applications (CRM, HR), and its primary appeal is still speed of implementation, which is a tactical maneuver.

But they need to be thinking about it in the wider context- without integration it’ll just become another dysfunctional silo…

Even SaaS should no longer be looked on as just a quick fix. In the InformationWeek Analytics survey, about a third of SaaS users (32%) say their “long-term vision [is] to primarily use SaaS applications.” That’s a significant chunk of true believers, and a (growing) cloud constituency that’s hard to ignore.

Still, you don’t have to throw everything over to embrace the cloud. As systems and business processes run their course, cloud services should be considered as replacements. The cloud, or even SaaS by itself, doesn’t have to be the whole of your IT strategy to be part of your IT strategy.

+1 from me.

Sinclair Schuller is thinking along similar lines to me at the moment:

Given that there is so much velocity, tumultuousness and general confusion (acronym hell coupled with taxonomical conflation – aka the “everything and everyone is a platform” syndrome), we’re bound to see some order evolve in the future where the evolution will be motivated by what people actually use and adopt rather than the current landscape which is driven by who can yell the loudest.

The big question is what will the future of cloud architecture look like: a stack of interchangeable layers that allow one to choose best of breed or a group of incompatible but highly specialized “holistic silos?”

Looking at the history of infrastructure middleware, the answer seems to be quite clear. Typically, the trend has been that layering functional best of breeds into stacks provides the best combination of “lowest common denominator” coupled with the necessary functional value to “get things done” and keep risk minimal. For example, I can choose servers made by HP, a Windows OS, Java and JBoss, and build a killer enterprise app. If I so decided, I could have swapped Windows for Linux and essentially had a compatible stack experience.  Why, then, are silos cropping up in the market?

Silos like Force.com have their appeal. They promise a world where all your needs, ranging from hosting and execution runtimes in the cloud all the way through development frameworks and distribution channels. The problem, however, is that the software market cannot be addressed as a broad stroke.

The needs of software companies vary wildly: ISVs in the healthcare space may care more about hosting certifications than someone in the CRM space, while those in business intelligence need low latency, high compute availability and the others who altogether care very little about the hosting and it’s all about what middleware they are going to use. The number of needs permutations is staggering.

To think that Platform as a Service vendors that own the full stack, from hosting through runtime and even UI components, can ever optimize for each of these scenarios is ludicrous.  Furthermore, the silo providers ask for something huge in return for a suboptimal solution:  control of the ISVs destiny in all regards. That’s a high price to pay for a promise that can’t be fulfilled.

Which is why specialised clouds are emerging. Reuven Cohen puts this into perspective from the hosting business going towards cloud:

One of the biggest transitions in the hosting space over the last decade has been that of Virtual Private Servers (VPS)– a market controlled effectively by one company, Parallels. A critical problem with the Virtuozzo Containers product line and approach has been that there is effectively no difference between any VPS hosting company. The lack of differentiation among the various VPS hosting firms has meant that the only real way to set your service apart from that of the other guys is based purely on price. This price centric approach to product/service differentiation creates a commodity market for all the providers. Basically they’re sales pitch is “We’re cheaper”. This means you’re now competing based on a low margin, high volume business, not on any real value proposition. Effectively the VPS space has become a race to zero. So in this market you’ll find that most VPS hosting companies are now charging roughly the same low price, a few dollars a month, with the same low margins for same basic service. The only one making any real margin is Parallels at the expensive of their customers.

What’s interesting about the emerging cloud service provider segment is the opportunity to differentiate based on the value you provide to your customers. It’s not that you’re cheaper than the other guy, but instead that you have an actual solution to a problem they have — today. Maybe your platform can scale more easiliy, or you’re in a specific region or city, you possibly you have a particular application deployment focus.

Great to see that from another perspective- and I really buy into that, because not all customers are the same.

Bessemer’s CEO summit was last week, and for those of you that don’t know, they have a Designer In Residence, Jason Putorti. Design, or User eXperience (UX) is becoming more and more important in the way businesses and consumers choose which products to buy- so it’s essential to get to grips with it. To quote Bessemer’s Cloud Laws- people expect software not to suck anymore. Never before in the history of software have developers had the ability to analyse and adjust in real time their software to iterate quickly- there are no more excuses!

Jason’s presentation was focused on the “10 Things Every CEO Needs to Know About Product Design and User Experience”. The full presentation is available at the bottom of the post but here are the key highlights:

1. Design can change businesses: little things can have a great impact. A simple example: the difference between “I am on Twitter” and “You should follow me on Twitter here” increased the registration rate by 173%!
2. Design is more than pretty picture: it is all about the user experience and the brand you are trying to build
3. Talk benefits not features: It is much better to write “Understand your money” than “20 colorful configurable charts and graphs”. Another way to think about it is Microsoft vs. Apple packaging :+)
4. Think in flows, not screens
5. Do not make the user think: Make obvious what is clickable, minimize noise, omit needless words
6. Start with a great story: Make the value obvious and present it first in the user flow
7. User design as a lever: The best marketing tool you can have is a well designed application
8. Get out of the office: Watch people experience your product or service
9. Have your bible: Synthesize your design guidelines in a company style guide
10. Repeat & refine: Allot product cycles to improvement

In other news:

• Microsoft files lawsuit against Salesforce.com, alleges infringement of nine patents.
• I missed this great post by Ray Wang on the many flavours of SaaS and Cloud
• Xobni launches contextual “gmail style” gadgets for Outlook- it’s finally becoming Social and much more useful- when are Microsoft going to buy them
• Banks taking up Cloud? Safety in numbers it appears for Bank of America, Commonwealth Bank of Australia and Deutsche Bank

Have a great week.

Justin

jp@justinpirie.com

• David Skok on Sales Complexity- how it effects everything. If you read one blog post this year about SaaS- read this one.
• Appirio on the problems that Cloud can cause by being to agile… and remain vigil to cloudwashing
• SaaS use cases for iPads starting to emerge
• Great post on how to develop marketplaces, or Ecosystems as they would be known in SaaS
• Lincoln on SaaS M&A- Vendors buying SaaS companies for their DNA then losing it?
• Joel York get’s it wrong on SaaS Channels- IMHO
• Phil Waignrights comments on All About the Cloud
• Zendesks pricing hike messup… one huge mess!
• In other news: Intuit, Heroku, Android, Docs.com, SAP, Cloud by Numbers, Earnouts and Huddle

TWIS Events

I’m talking on a SaaS panel at HostingCon July 19-21 in Austin, Texas - with Jeff Kaplan, Lincoln Murphy and others- so for TWIS readers I’ve got a discount code and a pass to give away

To enter- email me jp@justinpirie.com with the subject “HostingCon”

I’ll draw it on Monday the 31st of May, so you’ll just have time to get the early bird pricing

If you can’t wait until then, you can use the discount code “SaaSGroup2010″ which will provide an extra $60 off the current pricing of a full conference pass with lunch for all three days (about $399.00 at the moment).

It looks like a great conference.

TWIS#26

David Skok has written a seminal post this week- How Sales Complexity impacts your Startup’s Viability I’ve reproduced much of it here because it is simply one of the most game changing posts of the year.

An obvious requirement for a successful startup is that they are able to make more money from a customer than they spend for a customer, i.e. Lifetime value (LTV) should be greater than cost of customer acquisition (CAC) (see my prior blog post, Startup Killer: the Cost of Customer Acquisition). In this post, we’ll focus on the complexity of the sales cycle for various different types of B2B software and hardware products, and looking at how that impacts the viablity of startup business models by increasing CAC. And I will introduce a “zone system” that entrepreneurs can use to help evaluate different start up sales models.(Note: This post is primarily about B2B technology companies. Some of the concepts may apply to B2C internet, or to other industries, but it was not written with them in mind.)

Understanding Sales Cycle Complexity

Let’s start by looking at the sales cycle spectrum. Some products/services are easy to sell, and buyers will feel comfortable buying them online the first time they visit a web site, while other products and services require complex sales cycles with multiple on-site visits, meeting with various decision-makers, a protracted proof-of-concept trial of the product, etc.

The following diagram attempts to portray the spectrum that exists from the simple to the complex:

That makes sense perfect sense- he goes on:

Impact of Sales Complexity on Customer Acquisition Costs (CAC)

If you are like me, you would expect the Cost of Customer Acquisition (CAC) to rise as sales complexity increases. So the first time I talked about this topic, I drew the following simple graph:

However, when I looked a little deeper into the costs, a very different picture emerged. The diagram below shows rough estimates of how CAC increases with the complexity of the sales process. (For a look at the spreadsheets that support these estimates, take a look at the embedded spreadsheets in Startup Killer: the Cost of Customer Acquisition.)

Now let’s create a more accurate graph with these estimated numbers:

What we see above is something quite surprising: using the rough numbers that I had estimated for these different categories, CAC appears to increase exponentially as Sales Complexity increases.

To help understand this phenomenon further, I looked at the estimated numbers against a logarithmic scale:

The above diagram illustrates the same phenomenon in different way: using my estimated numbers, the cost of customer acquisition (CAC) jumps by about 10x as you move between these different sales models.

That’s quite a revelation. In fact quite is an understatement. That’s the first time I’ve seen it expressed so clearly and backed up with quantitative research. I guess that’s why we’re all so obsessed with Freemium. So maybe price isn’t the issue- maybe it is Sales Complexity.

Reducing CAC by reducing Sales Complexity

The numbers indicate that it is possible to reduce CAC by very significant amounts if you could change your sales model from:

• Inside Sales –> No Touch
• Direct Field Sales –> Inside Sales

This is obviously much easier said than done. But the impact is so powerful, that it bears serious thought and brainstorming.

What causes Sales Complexity?

To understand if we can reduce sales complexity, we need to understand its causes. Here is a quick list of things that will make a product or service have high sales complexity:

• Complex to understand and/or evaluate, install, configure
• Requires multiple people to get a purchasing decision (frequently caused by a high price)
• Mission critical
• Has high cost if it fails (e.g. data loss, significant financial impact), and the risks of failure are high
• Expensive – high cost to the purchaser, and/or takes a long time to get an ROI
• Affects many other IT systems, people or departments
• Requires significant change to the way people work
• Requires the purchase of other elements, or integration/development work to make a complete solution
• No customer references that have the same usage needs as the buyer
• Pricing complexity, where the buyer can’t easily figure out the right configuration, etc.
• Custom contracts need to be negotiated

The list is probably incomplete, so please add your own thoughts via comments.

There are two other factors relating to your buyer that can make it harder to sell a product:

• Where there is low customer pain
• Where there is no sense of urgency

If you are an entrepreneur looking at your next startup, the following sections will help you understand the impact on your business of a product or service that has the specific sales complexity properties.

Customer Monetization (LTV) must exceed CAC

As stated in the introduction, for a profitable business the money that you make from your customers must exceed the cost that it takes to acquire them. i.e. LTV must be > CAC.  (This topic is covered at length in Startup Killer: the Cost of Customer Acquisition.)

As Sales Complexity and CAC increase, this means that businesses need to find a way to charge their customers more money for their product/service to remain profitable.

To get a customer to pay for a much higher priced product in today’s tough economic environment, I believe there are three driving forces that need to be in place:

• Value: the customer needs to perceive that they are getting good value for the money they are paying
• Pain: the customer needs to be experiencing some significant pain that they need to see resolved
• Urgency: there needs to be a sense of urgency to get the problem resolved

The combination of these three factors could be said to equate to your ability to monetize the customer (Lifetime Value of the Customer, or LTV).

Lets look at what happens when we plot Value/Pain/Urgency with a logarithmic scale against Sales Complexity:

Startups that fall below the line are likely to be in the Unprofitable Zone where their buyers will not be willing to pay them enough money to cover just their sales and marketing costs. See diagram below:

A Zone System for evaluating Startup Sales Models

Using the above chart, it is now possible to group startups into a series of interesting zones based on the complexity of their sales process. Lets start with the Red Zone.

He goes on to analyse the zones in detail- but concluding the post:

Conclusions

The most fascinating new insight that I discovered while writing this post, was how CAC grew at a roughly exponential rate as sales complexity forced higher levels of human touch into the sales process.

Given this, I recommend that B2B Entrepreneurs gain a clear understanding of the sales complexity of their proposed new business, and carefully contrast this with the associated customer value / pain / urgency levels. This comparison should help them understand if they have what it takes to make a viable business model. (A viable business model requires that you are able to monetize your customers at a higher level than it costs you to acquire them – i.e. LTV>CAC.)

The data also shows that it is extremely important to consider ways to redesign your product/service and resultant go-to-market models to minimize the amount of human touch involved in the sales process. It is not enough to simply want to use a lower touch sales channel. The product/service has to be simple enough to evaluate and purchase for it to work in that channel.

If you have an existing business, my recommendation is that the CEO should be leading brainstorming sessions with his or her VPs of Products, Sales and Marketing to see if it is possible to move from one tier of sales complexity to a lower tier.

Key Takeaways

• Understand the sales complexity of your business. Figure out your LTV and CAC, and make sure that your LTV>CAC so that you have a viable business model.
• Look for ways to decrease your sales complexity, which might involve redesigning your product and leveraging engineering resources to eliminate issues in the sales process.
• Realize that reducing sales complexity is an achievable goal, and should be an ongoing process that merits a significant investment.

Brainstorming suggestions:

• Do you have a clear documented picture of the issues in your buyers’ mind in each step of the sales cycle that have to be resolved before they can make a purchasing decision? (This needs to be in hard copy form for the brainstorming group to be effective. It is rare that I find this step has been properly completed.) For more details, refer to Building a Sales and Marketing Machine.
• What attributes of your product/service are causing it to require a complex sales cycle? Can these be changed?
• What would be required to allow your company to use the next step down in sales model (e.g. to move from Field Sales to Inside Sales, or from Inside Sales to No Touch Self-Service)?
• Are you using all the latest techniques for leveraging the web including Inbound Marketing, lead scoring and lead nurturing, marketing automation, SEO, SEM, social media, web video, etc. Those interested in pursuing the Low Cost Sales Model would do well to study the techniques and behaviors pioneered by the leading companies like SolarWinds, Acronis, HubSpot, ConstantContact, etc.
• Does your Web site answer all the questions and issues that arise in your buyers’ minds during their purchasing process?
• Are you making it easy for the customer to sell themselves, including providing a free trial?
• Is your pricing causing you problems by increasing sales complexity? Could you reduce entry level pricing to the point where only a single individual is required to make a buying decision?
• Can you use a free product to help acquire customers that you can later up-sell or cross-sell?

Important Final Note

It would be wrong to read this article and conclude that any business with high sales complexity is a bad business. There is nothing wrong with having high sales complexity provided you are able to get large enough orders, in a reasonable time period, to cover your cost of sales. That is a very viable business model.

The opposite situation is also worth stating: any business that has low sales complexity but inadequate value provided to a customer is very unlikely to be successful.

Flipping heck! It’s going to take some time to sink in, but the takeaways are absolutely clear- Sales Complexity can kill chances of profitability if the LTV isn’t greater than CAC.

Key Takeaways for me:

• Sales Complexity grows exponentially not logarithmically
• We should all look at how we can reduce Sales Complexity- as that will drive a massive reduction in cost.
• If you do have sales complexity- you better ensure you can get large enough orders before your cash runs out.
• Sales Complexity does not always have to equal pain / cost, it just predicates price if you have it…

Is David now the best individual SaaS VC, knocking Bessemer off the top?

Mark Koenig from Appirio was out visiting customers last week and his customer threw him an interesting curve-ball:

At one client, we were discussing the well-documented ability of cloud providers to deliver a new release every four to six months, and how best to incorporate newly released functionality – using the example of salesforce.com Chatter – into the organization. It was at this point that our client – the CIO - threw a curve ball: “those rapid release cycles can be a problem.”

I got ready to hit that ball out of the park by talking about the importance of participating in release previews, and gathering advice from customers participating in the beta release, as well as the importance of organizational change management. That’s when he went on to explain that on an earlier cloud project their e-commerce system went down because one of their on-premise software partners was not able to keep up with the rapid changes in the cloud solution.

Nasty nasty curve ball. Our experience has been that cloud integration is generally easier than on premise integrations because of the service-oriented architecture foundation on which most cloud solutions are built. So all I could think about was how frustrating it must have been for thatCIO: feeling held hostage by a vendor who provided a key element of his e-commerce infrastructure when all he was trying to do was improve his customer experience and introduce new products. The amount of incremental revenue he was missing out on while he waited for his traditional on premise vendor to catch up with his cloud vendor crossed my mind too. While thinking about what it must have been like to integrate that application into their environment the first time around, I took a weak swing and said something about how integration is perennially the hardest part of any substantial implementation effort.

My initial reaction would have been totally the same and probably would have argued that users are now trained by Google and Facebook to expect constant changes in the UI, driven by the “what would it look like if I designed it now culture” that exists in those companies for creating the best products and not the integration problems it’s creating for his on prem vendor. In fact that’s exactly what I did argue, when I was sat on a panel at a legal company CIO event last week…

I’ve been replaying that conversation in my head ever since, and now I’m ready to step into the batter’s box again. Yes. Not being able to adapt your business processes and introduce new products and services because your application architecture is too brittle to handle it is a big problem. No question. But being able to move so fast that your on-premise apps can’t keep up is a pretty high class problem to have.

This increase in agility is one of the primary reasons that organizations are choosing to move their business onto the cloud-based applications and platforms. In the cloud, applications can be configured and re-configured to adapt to changes in business processes or to the introduction of new products and services, with minimal impact to the future upgrade path. And there are cloud integration platforms with pre-built and configurable integration templates to help knit applications together. Sure there may be the occasional on-premise app that makes for a challenging integration, but in the long run, moving to the cloud means that IT can focus on innovation instead of infrastructure.

Appirio are one of the key proponents driving the understanding that the key driver of ROI in SaaS comes from the increased Agility. Here’s some ammunition for helping your prospects think more clearly about their move to the cloud:

So what is a CIO to do when some vendors who comprise the application architecture can’t reach cloud speed soon enough? Waiting until every solution provider in your portfolio is cloud-based is not the answer: the competition will have feasted on you by then. A more proactive approach is to conduct a portfolio review with three aims in mind:

• Which applications in my portfolio can be migrated to the cloud platform (or platforms) of my choice? (Hint: it’s not just your least strategic apps.)
• Of those that remain, which have vendors with a roadmap that will support my move to the cloud? Which have substitutes in the cloud ecosystem that I should consider?
• What is the best path to the cloud for my organization?

The best path to the cloud will be different for each organization. What each organization should do the same, however, is to create a roadmap and a business case based on the analysis above, chart the course, and check progress frequently along the way.

And fundamentally we need to bang the Agility drives ROI drum until people understand the true value of SaaS and Cloud. They wrote another great post-

Over the past 2 years, these questions, combined with the need to do more with less, has had dramatic impact on the enterprise adoption of cloud computing technology. Companies facing IT budget cuts postponed or canceled expenditures on their traditional on-premise infrastructure, and spent money on cloud computing projects instead. Salesforce, Successfactors, Taleo, Concur, and other cloud-computing pure plays had record years in 2009. SAP, Oracle, Microsoft, HP, not so much. The receding tide of the economy exposed some ugly rocks indeed, and allowed CIOs to chart a better course toward achieving their goals.

The receding economic tide also exposed many IT industry stakeholders who weren’t wearing their bathing suits. ISVs were resisting the switch to SaaS because of the impact to their revenue streams. Data center providers were relabeling old technology with new names, selling “private clouds” to companies that had no business operating data centers. Services firms were going along, because they have more to gain than they have to lose in the transition to the cloud. Many IT professionals themselves were resistant to change because of fears to their job security.

Now, as the tidewaters slowly return, the IT industry is faced with the same question as the broader economy—will we use this opportunity to fix our underlying problems? or will we go back to “business as usual”?

Our view is that there is no going back. CIOs who initially were attracted to SaaS solutions for their lower TCO are now discovering that they have a powerful platform in their enterprise, one that’s suitable for running more and more of their business. They’re moving from opportunistic adoption of point SaaS applications to what’s being called “cloudsourcing”—sourcing complete business solutions from one or more cloud platforms.

A low tide isn’t always pretty. But if the focus forced by tough economic conditions helps you chart a path towards clearer waters, then a crisis truly is a terrible thing to waste.

And in this business, we’re very happy to see clouds on the horizon.

LOL

But joking aside, we’re starting to see situational computing driven a la iPad coming to market- UrbanSpoon this week announced their Restaurant Management app RezBook. TechCrunch posted:

Urbanspoon plans to continue its assault on OpenTable, and its weapon of choice is going to be the iPad. I am not talking about Urbanspoon’s slick iPad app which is already out and is aimed at consumers. I am talking about the RezBook, which is part of Urbanspoon Rez and is aimed at restaurant owners.

When it comes out in June, RezBook will be a full reservation system. Instead of writing down reservations in a paper book, restaurant owners will be able to enter them directly into the iPad, see bookings by time and by table. With a $500 iPad and RezBook, any restaurant will be able to afford a computerized reservation system. It won’t be free. RezBook will charge $1 per reservation, plus a low monthly fee. It will be much cheaper than a dedicated reservation system, and slightly cheaper than OpenTable, which is the company Urbanspoon is really going after.

RezBook works hand-in-hand with UrbanSpoon Rez, an iPhone application that launched last Fall. Urbanspoon Rez helps restaurants promote open tables and add a Rez button to their Websites, their page on Citysearch, mobile apps like Urbanspoon, or to other sites and apps through CityGrid. RezBook takes those incoming reservations and manages them on the backend, and creates a customer database in the process.

The combination of Rez button promotions and the iPad’s off-the-shelf affordability should allow Urbanspoon to target a wider swath of restaurants than the kind you currently find on OpenTable. At least that is the plan. I place RezBook in the same category as Square’s iPad app, which turns the tablet into a mobile cash register. Both of these apps leverage the iPad to bring sophisticated business software to small merchants with the promise of bringing them into the digital age.

I think this is a brilliant example of a SaaS app utilising an iPad to break into a new market segment utilising features made commonly available by the iPad that previously would have required expensive hardware and or configuration. SaaS makes this simple and easy.

Those of you that are regular readers on TWIS, know that I’m a fully paid up member of Lincoln Murphy’s 7 Revenue Streams in SaaS Club and that I always look for and share practical information- one of the key revenue scalable and profitable revenue streams in Lincoln’s model is Ecosystem- where you create a marketplace for people to build on top of your technology- think Apps for the iPhone or the salesforce.com AppExchange. The Ecosystem radically differentiates them from their competitors.

Yet it is chicken and egg- which one comes first?

I was delighted to come across this post by Jason Cohen on starting ecosystems- or as he calls it marketplaces:

A sizable percentage of Capital Factory startup submissions take the form of the “marketplace.” In fact, 3 of the 10 selected companies from the past two years have followed this business model.

Marketplace companies are notoriously difficult to start, so I’m constantly amazed that so many entrepreneurs chose this route. Maybe it’s the “go big or go home” mentality? If there’s a business plan less likely to succeed than a restaurant, this has to be it.

But it’s not impossible; here’s some of the pitfalls and how to address them.

A marketplace is born

A “Marketplace” connects buyers and sellers who otherwise have trouble finding each other….

These companies typically make money either by charging sellers for listing (akin to the yellow pages) or by charging a sales commission (akin to a “finder’s fee”). It’s easiest to charge sellers because they’re the ones trying to make money.

So what’s the problem?

The hardest part of any business is the beginning, but this is especially true for marketplace companies because you have a classic chicken-egg problem.

Specifically, buyers don’t visit the site because you’re obscure and lack inventory, but sellers aren’t interested in listing because there’s no buyers.

It’s worse than it sounds because you also have what I call the double company problem: You’re trying to build two companies at the same time, and both have to succeed or you’re dead.

He went on:

Forget automation: Do everything manually

One of the allures of the marketplace business is that once you reach critical mass, you should be able to “sit back, relax, and let the money roll in.” Automation is the key; buyers and sellers have to find each other and perform transactions without requiring additional human beings.

But just because automation is the goal doesn’t mean it’s the way to start.The good thing about automation is it’s efficient; the bad thing is you cannot learnbecause you’re not involved in the process. And at the start, learning is where youshould be spending most of your time!

For example, when SpareFoot began they weren’t sure how to charge storage companies. Should it be a $20/month listing fee? Or a flat “finders fee” per lead? Or a commission on leads which convert to sales? Could they charge extra for a “premium” listing? Should purchases go through SpareFoot so they can extract their cut, or should they bill storage companies separately?

If they had picked a strategy and automated it, there’s a low chance they would have picked the right one. All that time spent writing and debugging code, worthless.

Instead SpareFoot decided to automate nothing. When a potential buyer made a search, they grabbed their email or phone number and said “Thanks, we’re going to find you a great deal by Thursday.” Then they banged the phone all day, calling up regional storage facilities. Their pitch was awesome: “I’ve got a lead for you; his name is John Doe and he’s looking for a 10×20 with air conditioning. If your rate is competitive, we can do the deal today. By the way, if you want us to send leads like this to you all the time, it’s $20/mo to list with us.“

The bold phrase in there is damn compelling, right? And of course they varied the offer based on current pricing theory or in real-time based on the interaction with that particular storage facility.

None of this — determining the pricing structure and amount, building relationships with facility managers, and ensuring buyers’ success — would have happened if they started by writing code or any other sort of automation.

Happy buyers before the network effect

Clearly the value of a marketplace increases as it grows — both as a business and to the buyers and sellers.

This is most apparent with companies like eBay and Craig’s List: The immense variety of listings facilitates long-tail transactions that would be impossible with a smaller, more specialized marketplace.

But at first your marketplace won’t be large, so to get started you have to deliver value even though you’re small.

He suggests you:

Solve the seller side first

It’s typically easier to solve the seller side of the equation than the buyer side.

After all, the value proposition to the sellers always boils down to “You’ll make more money,” whether that means a new sales channel or a way to monetize surplus inventory. Sellers are often already selling, which means they’re easy to find and they answer the phone. With the right proposition there’s little reason for them not to try you out.

and:

Use a novel strategy for attracting buyers

The buyer side of a marketplace often boils down to a numbers game: If you can get N visitors per month and P% of them buy, it works. Typically P is small, so Nhas to be really big.

Unfortunately that puts you into the same position as every other website on Earth — competing for traffic.

If your answer to how you’ll attract big N are things like SEO, Google Ads, and word-of-mouth, that’s an automatic fail. First of all, this is what everyone else is doing, so none of this is a competitive advantage. Second, you can’t directly control any of these things, so it’s do-and-pray, not a strategy.

Interesting!

At least we have the advantage that we should have the buyers and the data but are looking to expand profitability and differentiate…

We’ve been covering SaaS M&A extensively in TWIS- and this post by Lincoln rang true:

Evangelos in his post on M&A activity in SaaS thinks it will be mid to late 2011 before legacy companies really ramp their acquisitions of SaaS firms. We saw an uptick in activity starting in mid-2009 with some major legacy vendors brining us in to help vet SaaS companies for acquisition, but I think it was just the tip of the iceberg. As he states, the ramp will happen when vendors realize that doing it themselves is harder than just buying a company; and it will likely be due to their lack of “SaaS DNA.”

Whenever Sixteen Ventures is involved in due diligence or market intel work for a legacy company seeking to acquire a SaaS firm, a lot of effort is spent in understanding that “DNA” that makes up the target firm. Legacy companies still don’t “get” SaaS so they think by acquiring or “injecting” SaaS DNA into their firm, the entire organization will overnight become a “SaaS company.”

In theory that is nice, but in practice I’m not so sure. SaaS is often fundamentally different than the core business of a Legacy Software company. It just is. And while the “SaaS DNA” that they brought in could be beneficial, it is usually the acquiring company that is unwilling to change that causes the acquired DNA to whither away and die; the host is rejecting the transplanted material.

I’ve seen that absolutely first hand- as soon as people’s lock in goes, they leave. But what should acquirers do to retain talent and transform? Lincoln looks at it from the other perspective:

But this isn’t all doom and gloom! In fact, it is actually good news as it shows that every time a legacy company acquires a SaaS firm,  a new opportunity is born in that space. For instance, if you have a SaaS WMS solution,  you might have looked at Smart Turn being bought by Red Prairie as a death knell for your firm. A well funded market leader, possibly going IPO, just got acquired by a legacy market leader and now they’ll eat your lunch.

But there are other potential outcomes. First, if the company that acquires your competitor has their own Legacy Baggage (negative market sentiment, a distrust of their practices, over priced, etc.) that baggage will spill over nicely to their “new On-Demand product.”  Plus, the new company will likely cave to pressure to do one-off installs and customizations of their product since they don’t really understand SaaS, leading to the same negative market sentiment that befell the acquiring company.

In some cases, we recommend that firms start a new company from scratch or continue to operate the acquired company as a wholly owned subsidiary to keep from commingling the two. Trust is a HUGE factor in SaaS and many legacy software companies do not have the trust of their customers. The customers are happy to use their software if they get to run it themselves but would never want the vendor to run it for them. How can you take advantage of their newfound baggage?

Just as interesting is the serious likelihood that both companies have used negative marketing campaigns against each other or their delivery methods/business architectures (SaaS is insecure, legacy software is antiquated and broken) and now they are one. How do they position their products now? This can create an amazing amount of market confusion for another vendor to take advantage of.

Finally, there is always the possibility that the acquired company will die on the vine, never having a chance to really take off under the direction of their new owners. Perhaps the acquired company will linger in the purgatory that is a “hybrid” organization (both On-Premises and SaaS) while the executives, with strong non-competes in that space, wait out their prison sentence. This creates amazing market opportunities for savvy and strategic SaaS vendors.

I guess that’s what Bob, Rick and the team at Boomi will be thinking after CastIron’s acquisition by IBM…

Unbelievably rarely do I disagree with Joel York, but his post a couple of weeks ago on channels for SaaS was completely wrong IMHO- Lincoln again sum’s up the main arguments:

The thing that has analysts and pundits excited by things like VMForce is that now the “channel has something to do“… as if the only reason for a channel is to build on or extend a platform. Extending an application, and essentially building a platform, a la SFDC’s Force.com and AppExchange can be a fantastic opportunity for the core vendor and the surrounding ecosystem; but its exactly that – an ecosystem. This has very little correlation to traditional channels and more closely resembles developer programs in legacy software companies, but that analog doesn’t do it justice. Further, the notion of a true ecosystem is an opportunity quite unique to SaaS or other single-instance, multi-tenant “cloud” applications or platforms. Celebrating that technology VARs finally might be able to add value to SaaS or Cloud apps is not progress. In fact, its a rerun from legacy software and an attempt to justify the existence of VARs.

There has always been a HUGE opportunity for SaaS and the channel that only a few companies are really taking advantage of. The reason? Other than the lack of industry support and promotion of these opportunities, it requires the SaaS or Cloud (or whatever) company to stop thinking like a “software” company and start understanding just what they have at their fingertips. They are service companies who can provide tremendous value not only to the end-customer but to intermediaries that help the SaaS vendor reach those customers. In some cases, its possible to directly monetize the relationship the SaaS vendor has with the intermediary.

Of course, progress isn’t helped along by the traditional channel consultants or former VP Channes at XYZ Legacy Software Corp who wants to get into SaaS or “Cloud” trying to force their traditional channel management best practices square peg into the round hole that is SaaS. There is so much Legacy Baggage coming into SaaS and Cloud (due to bandwagon-jumping) that it is really bogging down the substantial progress that seemed to be happening in terms of next-generation channels, network effect, ecosystem, etc. Announcements like VMForce that are actually quite revolutionary unfortunately don’t help because they can so easily be twisted to fit nicely into that legacy baggage being drug along by “industry insiders”

At Sixteen Ventures, we have always looked at SaaS as something far beyond “software” delivered over the web. Whether its SaaS or Web Apps, if there is multi-tenancy and you’re solving a business problem, the opportunities for channels, specifically distribution via Trusted Advisors, is significant. Forget traditional VARs, the real opportunities are in understanding who the end-customer is, who they trust, and giving tools to everyone that sits between the vendor and the end-customer so that all involved can add, and extract, value. If there is a third party involved at the “technology level”, they aren’t a traditional VAR; likely they’re an integrator using the services or tools from above. Think of the relationship between SaaS vendor, intermediaries, and end-customers as a value-chain or value-network.

Look at a company like Xero, with their SaaS accounting package, and how ~50% of their business is via channels; specifically CPA and Accounting firms. They work through the trusted advisors to get to the end-customers they want to use their products. But Xero isn’t just giving spiffs or a cut of revenue to those professional firms; that would be misaligned with the business of their channel partners. Xero actually helps the trusted advisors do more of their CORE business by giving them tools, insight, visibility, etc. into their end-customers’ activity, data, and operations. This is far more valuable to Xero’s partners than some cut of monthly revenue and much more aligned with the business model of their partners.

Would CPAs or Accounting firms want to touch installed software? Some have in the past, including affiliations with products like QuickBooks, Great Plains, etc. because it made sense on paper; they shared the same end-customer. But the logistics didn’t work. Few non-technical companies want to get involved in “software;” so Xero simply provides a service. And everyone in the value-chain wins.

It is great that VARs finally have something to do with “the Cloud,” but for SaaS vendors, the message being sent by the “industry” is still off-point. Just because you don’t have some technical layer that will allow you to engage technology VARs doesn’t mean that channels are not available to you. On the contrary. There are likely far more lucrative channels out there if you understand how to find them; look for Trusted Advisors that share the same end-customer with you and figure out how to help them do more of theirCORE business while also helping the end-customer.

I would add only one more thing- that the main driver of cloud is agility- adding a brittle layer of “customisation” that the VAR’s deliver smacks of software of old, where customisation could cost 10x the price of the software- don’t let channels do that to SaaS!

Phil wrote a great post about the opening keynote to All About the Cloud which stuck a chord with my day to day life:

From a sentiment perspective, the opening session has set an interesting tone, perhaps best summed up by Saugatuck Technologyanalyst and CEO Bill McNee, who has just completed a presentation on current market trends. His very first statement was that the world is not moving wholesale to the cloud — the cloud will co-exist with on-premises IT infrastructure for the foreseeable future.

“I don’t like the word hybrid,” he added. “We call it an interwoven world. The vast majority of the new money will go the cloud, but we’ll build bridges between these two environments.”

The opening keynote, by Intuit CTO Tayloe Stansbury, reinforced this message from a different perspective. “Likely you know us for boxes of software that people run on their desktops,” he had begun by saying. He went on to discuss Intuit’s early commitment to using the cloud to deliver services, beginning with the launch of the web version of TurboTax in 1999, and ran through the company’s now vast catalog of online software and services. All of its SaaS lines, he revealed, amount to $1 billion in revenues, and the total revenues of what Intuit calls connected services — which adds to the SaaS total other important online services that don’t fall into classic definitions of software such as merchant services and tax e-filing — come to $2 billion. “That accounts for about 60% of our company’s revenue,” he concluded (shouldsomeone tell Sage I wonder?).

So conventional software vendors are becoming cloud providers, while cloud providers are having to learn how to work in harmony with conventional IT infrastructure. Cloud is here to stay, but I sense a new maturity at this year’s conference, which sees it taking its place within the evolving mainstream software industry. What does that mean for concepts like private cloud? Well that’s the subject of the panel I’ll be moderating tomorrow, so let me leave the answer to that question until then.

Well put Phil- I need to pen some of those thoughts in more detail shortly…

Zendesk really messed up their new pricing rollout this week… I love the title of this TechCrunch post- Zendesk Apologizes For Suddenly Hiking Its Prices, CEO Hopes For “Make-Up Sex”- Genius!

A lot of companies can learn a thing or two from how Zendesk has now dealt with the huge backlash from its customer base after the startup changed its prices overnight (which resulted in a lot of their users suddenly paying up to 300% more than what they signed up for years ago).

In a blog post, titled “Sorry. We Messed Up.”, the company doesn’t mess up its mea culpa:

When we decided to make a change to the Zendesk pricing structure for our existing customers, we tried to be as thoughtful, transparent, and straightforward as possible. We failed. We let you down. And we apologize.

While it’s refreshing enough to see a company stand up in the middle of a shit storm and unequivocally state that they indeed screwed up, Zendesk is also trying to turn the ship around.

As a result of the backlash, they are now killing the time limit of the half-baked grandfathering terms they tried to appease their earliest and most loyal customers with at first.

That basically means all customers will continue to receive the same functionality they’ve had in the past, in addition to the new community support and knowledge base features that were announced on Tuesday, all while paying the same price they’ve been familiarized with. Which sounds to me like the only correct way to go about this.

As an added bonus, here’s what Zendesk CEO Mikkel Svane just e-mailed us:

Hey Robin and Leena,

We just rolled our price changes back for existing customers. It has been a hectic 48 hours talking to our customers. But it has also been a very educating process. We’ve had a very public argument. Despite our good intentions we understand we did wrong and we feel miserable. We hope our customers will accept our apology.

And we hope for make-up sex. But let’s see about that

Mikkel

I wonder how many customers effectively jumped ship and are no longer interested in make-up sex, but having seen the company’s response to the backlash I do hope many of them will take Svane and co up on it. Just don’t send us pictures, please.

Nice!

In other news:

• Intuit acquires healthcare software company Medifusion- Nice vertical provider to add to their stable
• Former Microsoft execs lead investment into Amazon based Ruby PaaS provider Heroku- betting against Redmonds Azure?
• Android tops iPhone in US smartphone sales last quarter- now #2 to Blackberry….
• Microsoft’s Office online- Google Doc’s competitor – launches. Nice domain name but not that impressed really…
• SaaS Billing company has billed over 1 billion in subscription revenue- congrats to Tien and the team!
• SAP to acquire Sybase for 5.8 Billion to compete with Oracle
• I like numbers- Reuven Cohen pulled together some good ones.
• Nice example what SaaS can do when someone put’s their mind to it (for a high profile VC / Blogger)
• Earnouts (almost) never work- post from Mark MacLeod
• Congrats to Huddle for their new funding! Great to see UK companies on the world stage (sorry I’m biased :p)

Just in case you’re wondering- “Where’s the Google i/o news?”, there’s loads, too much in fact… I’ll have that all wrapped up for you next week

Have a great week

Justin

jp@justinpirie.com

• Big news- SuccessFactors signs biggest ever SaaS customer- 2.1 million seats and buys SaaS vendor CubeTree, then does an upgrade.
• Eric Norlin puts the CastIron deal in a historical perspective- have we crossed the chasm?
• SaaS based security for your SaaS vendor? WAF and they types of cloud security.
• Joel York on SaaS Channels- still hard work!
• Great deck from “the real world” of building SaaS businesses- Xobni and Dropbox on growing from 0 users to 2 million users in 2 years plus Xobni’s pivots
• Sean Ellis on Steve Blank’s presentation to the SLL conference- “a must watch”
• Jeff Kaplan’s interesting observations from his participation in the cloud conferences over the past few weeks
• Evernote continue to share their growth stats
• Lincoln analyses Ning’s pivot away from freemium and new pricing
• In other news; Lithium, Google Apps integration, VMware acquisition

Events- The brilliant Simon Wardley, Canonical Cloud Evangelist (makers of ubuntu) is speaking at the EuroCloud UK event on the 19th of May near Kings Cross, London. Simon is probably best known for this presentation on Cloud (well at least to 23,500 people):

http://www.youtube.com/watch?v=okqLxzWS5R4

Despite being mere yards from my office- I have a triple clash

TWIS#25 This Week in SaaS

The big SaaS news this week was that SuccessFactors signed the highest scale Enterprise IT deal ever- 2.1 million seats! The customer is thought to be WalMart, although nobody is giving anything away.

Information Week interviewed SuccessFactors CEO Lars Dalgaard:

SuccessFactors said this huge customer had installed its products two years ago for 300,000 employees but has now agreed to increase that deployment seven-fold to all of its 2.1 million employees around the world in what company founder and CEO Lars Dalgaard called “something truly legendary.”

Speaking of the 2.1 million-seat customer, Dalgaard said, “This is a company that was being very skeptical about cloud computing, and thinking that the cloud wasn’t real, and then a couple of years ago we convinced them to do a trial for 300,000 people. Then not long after that they saw that this is literally–literally!–the way to run the company for the future. And for them to decide in an 18-month framework to jump on another product of ours for succession planning and then go global–global!–with 2.1 million employees, it was just mind-blowing.”

To put this Wal-Mart (my contention) deal in context: about 15 months ago, SuccessFactors won a global deal with Siemens for 430,000 seats, and at that time that was widely regarded as by far the largest deployment of an enterprise application. And now, just over a year later, that biggest-ever scale has been increased by a factor of five to 2.1 million, all in the cloud.

“Software has changed forever,” Dalgaard said. “Nobody would have believed a deal this big could happen and some big companies till don’t believe it but that’s okay because they’ll come around and they’ve been conditioned by their own experience, often bad, to have reason to think that this type of software deal just can’t happen.

“But in reality, 300,000 users is now a story of the past because we’ve proven with this deal that you can go all the way to 2.1 million employees. Nothing like that was ever done before–ever!–and the closest we can find is a client-server deployment PeopleSoft did for the U.S. Army for 600,000 people but you could never do 2.1 million with client-server.”

I think SaaS has arrived! Well done to SuccessFactors.

If this is not crossing the chasm, I don’t know what is.

Even the BBC covered cloud computing this week. Eric Norlin lends a historical perspective:

Anyone that’s been reading my blog posts here or over on Defrag has probably figured out that I’m a big fan of recurring cycles in history, industries, societies, etc. It’s always especially interesting to watch it play out in the tech world.

Yesterday’s acquisition of Cast Iron Systems by IBM seems like an indicator of where we’re at in the cycle for Cloud Computing. Let me break down tech industry development into 7 stages (this is the “successful trend curve,” not the “it crashed and burned” curve):

1. The pre-alpha stage: This is the stage where the new trend/niche doesn’t have a name yet. Normally, it’s growing out of the ashes or success of another industry movement, so people *try* to just call it that. For example, before there was “identity management” (in the enterprise) there were directories (and meta-directories). Hence, before IdM (identity management) was called identity management, it was called “directory services” — even though that name didn’t quite fit.

2. The “we’ve named it, but it’s all buzz” stage: Somewhere along the way, a name sticks. “Cloud Computing” – a helluva lot sexier than “Application Service Providers” isn’t it? Once the name sticks, you enter the stage of “all buzz.” This is where a ton of startups take root, and the common mantra is “technology X will *revolutionize*/permanently change/totally destroy the enterprise IT world [or whatever] and the big tech CO’s are clueless.” This is the time for visionaries and daring entrepreneurs. And, of course, some of the forward looking guys inside of the big vendors start paying attention. What this stage ALWAYS lacks is a) fully developed technology and b) customers.

3. The “um, we might have something real here” stage: In this stage the startups get their technology developed just enough that they begin to land customers. If the trend is lucky, the buzz word is now in full force and running headlong towards completely overhyped. Initial customers always arouses the big tech vendors — and they begin to make noises.

4. The “we’ve gotta get in” stage: This is the stage where the big tech vendors hear enough about this new thing from analysts and customers that meetings start to occur wherein an engineering guy says “holy sh&!, we’ve GOT to get in to this space.” The big tech vendors then do one of three things: 1) enter denial (ie, what we currently call “The Ellison”), 2) begin building something that will take 18-24 months to roll out (and be hopelessly outdated when it arrives), or 3) start buying startups from stages 2/3 (ie, the “CA” approach).

5. The end of early adoption stage: In this stage, the early adoption is in full force, and you can almost just *sense* that mainstream adoption is about to start happening. This causes the big tech vendors to wake up…which is to say, the CEO, COO and CFO finally go to that engineering guy and say, “holy sh&% this is gonna be big! why didn’t you tell us?” When this stage happens, an old, stodgy, been around forever tech company (*ahem* IBM *ahem*) makes a substantial acquisition (Cast Iron).

6. The “mainstream adoption/market gets real” stage: This is actually the longest stage, and it normally lasts 2-3x whatever stages 1-5 were. So, if stages 1-5 took 24 months to run through, stage 6 will take 48 to 72 months to occur. Some startups get REALLY big in this stage, some big tech guys make REALLY big acquisitions, and general mayhem ensues. In this stage, some tech conference will throw an expo around the topic and have 5, 10, or even 15 thousand people show up.

7. The “mission accomplished” stage: This is when you come out of the mainstream adoption curve, and the “industry” that has been built gets a) steady b) boring (to entrepreneurs) and c) profitable (for startups that ran the gauntlet). This stage usually lasts 2 years. At which point, the next trend will start.

Total time for stages 1-7: roughly 7 years.

Now, where are we in this cycle? Somewhere in the middle of Stage 5 (the “end of early adoption” stage). I don’t think we’ve seen the end of early adoption yet (indeed, I think it’s just beginning), but IBM’s Cast Iron buy lets us know where we are. Figure the early adopters need a year to play out (or so), and then we’ll move to stage 6 (assuming all stays on track).

What does that mean for the “cloud computing” industry? That there’s probably 4 years of REALLY explosive growth ahead of it, followed by 2-ish years of steady profitable stuff.

So he agrees I think- we’ve just crossed the chasm and we’re ready to go!

In addition to that big customer win, SuccesFactors bought CubeTree this week- Ben Kepes analyses:

Salesforce.com have got significant exposure of late with Chatter – despite it being beta (at best) there has been a huge flurry of interest from third parties too either integrate chatter into their applications, or built on top of chatter.Salesforce’s strategy seems to be one of land-and-expand – with Chatter being the tool to build adoption further up it’s product offering.

SuccessFactors (and other vendors for that matter) has remained somewhat silent through all of this. At the recent SuiteCloud conference (see disclosure) I took part in a session where CEP Zach Nelson was questioned about the role of social in what they do – he made it clear it’s a area of huge interest for them, but one they haven’t got anything concrete to offer at this stage.

With this acquisition, SuccessFactors get’s an already built and inherently social offering that they can then backend into their own application to find a way to use a similar approach as that taken by Salesforce with Chatter.

In terms of the numbers, the extreme long length of the earn out clause means that, for all intents and purposes, this is a $20 million acquisition. Not bad for a company that’s only had a product for six months or so but chump change to SuccessFactors and worth spending if for no other reason than to head off any competitors from making a similar acquisition.

Social is becoming big news in the enterprise.

As I write this, I’m hearing that they’re releasing an update too. All in a day’s work for a SaaS vendor.

Since infosec- I’ve had a heightened awareness of SaaS security, and this post caught my eye- why not buy in best of breed SaaS security as SaaS? Krishnan explains:

In fact, it is my gut feeling that many startups offering web 2.0ish applications or SaaS applications are completely ignoring the application security and it is just a matter of time before things blow up on their face. The IBM X-Force annual report in 2008 showed clearly how there was a 8X increase in the count of web application vulnerabilities (an exponential increase from 2004-2008) and at the end of 2008, 74% of these vulnerabilities were left unpatched. Most of the users have absolutely no idea about what is in store for them when the web applications they use are severely vulnerable. It is like a bomb waiting to explode and the costs of any attacks using these vulnerabilities could be devastating to both the vendors and their users.

In the traditional web application hosting era, we used web applications firewalls which adds a layer around the web server fending off any attacks based on the rules we add to the configuration of such firewalls. Mod Security is one such example for Apache web server and in my previous avatar of system admin, I have used Mod Security extensively to fend off attacks on PHP scripts running on our servers. Such web application firewalls served the purpose to a reasonable extent protecting web applications from attacks exploiting vulnerabilities (known and, sometimes, unknown using some of the Just In Time rules).

As web applications moved from traditional development model to a SaaS model, things got pretty complex. For one, it makes it difficult for cloud providers because they will have more than one client in a single hardware. The traditional web application firewall approach will not work here. Not only these firewalls are dependent on the hardware and, thus, adding to the complexity, they also consume quite a bit of resources. This makes it useless in a cloud based scenario.  A better way to do it is to implement the security measures into the applications itself so that the security also scales well with the cloud. It is not happening anytime soon and we need a different kind of solution to handle this requirement. Enter dWAF, distributed Web Applications Firewall. dWAF comes in the form of a plugin or even a SaaS service and seamlessly integrates with many cloud environments. These firewalls offer support for detection of vulnerabilities and protection from attacks in a seamless way without consuming much resources.

Art of Defence is available on Amazon and GoGrid as a SaaS solution or as a plugin. I’d be interested in what people think- certainly seems interesting to me. Reading Christopher Hoff’s post on types of Cloud Security put WAF into better context:

When my I interact with folks and they bring up the notion of “Cloud Security,” I often find it quite useful to stop and ask them what they mean.  I thought perhaps it might be useful to describe why.

In the same way that I differentiated “Virtualizing Security, Securing Virtualization and Security via Virtualization” in my Four Horsemen presentation, I ask people to consider these three models when discussing security and Cloud:

1. In the Cloud: Security (products, solutions, technology) instantiated as an operational capability deployed within Cloud Computing environments (up/down the stack.) Think virtualized firewalls, IDP, AV,DLP, DoS/DDoS, IAM, etc.
2. For the Cloud: Security services that are specifically targeted toward securing OTHER Cloud Computing services, delivered by Cloud Computing providers (see next entry) . Think cloud-based Anti-spam, DDoS, DLP, WAF, etc.
3. By the Cloud: Security services delivered by Cloud Computing services which are used by providers in option #2 which often rely on those features described in option #1.  Think, well…basically any service these days that brand themselves as Cloud… 

At any rate, I combine these with other models and diagrams I’ve constructed to make sense of Cloud deployment and use cases. This seems to make things more clear.  I use it internally at work to help ensure we’re all talking about the same language.

I had to chuckle though- in HiFi circles WAF means Wife Acceptability Factor…

Joel York wrote a great post today on SaaS Channels:

SaaS channel partners have definitely received the short end of the stick compared to their software channel counterparts. With a few notable exceptions like Salesforce.com, Netsuite (and largest, but least recognized as SaaS, Google AdWords) there simply have not been enough customers or enough work to engender a thriving ecosystem of SaaS channel partners, at least not when compared to the sprawling extent of enterprise software channels. I think this is about to change.

Channels Always Follow the Money

There is one universal law that governs all channel management: CHANNEL PARTNERS MUST MAKE MONEY. The biggest channel mistake made by many a SaaS start-up CEO is to fall into the fantasy that SaaS channel partners are there to help your business. They are not. They are there to help themselves. And, how much money they can make boils down to a very simple formula.

SaaS channel money = SaaS channel value-add x SaaS application customers

And right here is the rub. The self-serviceability of many SaaS applications from customer acquisition through deployment significantly reduces the value-add for SaaS channel partners. In fact, if all SaaS vendors embraced SaaS Top Ten Do #3 – Accelerate Organic Growth, then the SaaS channel situation might be even more dire. Moreover, the number of SaaS applications with enough customers to drive SaaS channel development can be counted on your fingers and toes.

Food for thought if you want to use channels for distribution in SaaS, although I don’t agree with his conclusions about PaaS being a big channel opportunity…

More great content from the SLL conference- how Xobni and Dropbox got from 0 to 2m users in 2 years, and Xobni’s pivots:

Sean Ellis said- Steve Blank’s SLL Keynote – It’s a “Must Watch”

Some of my favorite quotes are:

Role of the Entrepreneur

• Your job as an entrepreneur in a startup is to search for a repeatable and scalable business model. When you find it, your job is to build a company around that business model.
• Search for a business model rather than write a business plan. Biz model is how a company makes money.
• Customer and agile development is how you search for a business model.
• You fail if you stay a startup – goal is to become a large company.  Search is bringing order out of chaos, pivoting all the time.
• Goal is not to becoming the world’s most fun startup. Goal is to become a valuable company.
• No business plan survives first contact with the customer.

Differences Between Startups and Established Companies

• Startups search and pivot; companies execute.
• Very different skills needed to execute a business model compared to those needed to search for a business model.
• Customer development = hypothesis testing, minimum feature sets and pivoting.  Product management is very different than customer development.
• You need to brainwash and deprogram product managers if you want them to perform customer development.
• Key startup numbers are not: balance sheet, income statements and cashflow.  They are cash, viral coefficient, customer acquisition cost, burn rate, average transaction size…

Want more Steve?  Check out his blog.

And you can see that great Steve Blank video here.

Jeff Kaplan had some really interesting observations from the recent Cloud conferences:

Cloud Conference Observations

• SaaScon: When was the last time you heard CIOs talk about being heroes in their organizations? Well, the CIOs who spoke at SaaScon repeatedly described how the SaaS solutions which they’re implementing in their organizations are generating an overwhelmingly positive response from their end-users and corporate executives. And, they admitted that this has made their jobs gratifying again.
• Under the Radar: This was a terrific day of company presentations and American Idol-style judging sessions aimed at uncovering the next hot Cloud companies. Most of the presenters won’t become major players, but many may be acquired by bigger companies. While the remainder will die on the vine because of poorly conceived solutions or go-to-market strategies.
• AlwaysOn OnDemand: It was a privilege to work with Tony Perkins and his staff to organize and co-host this first-time event. Tony is a living legend in the tech industry because of his association with the Red Herring publication and his very influential conference business. The AlwaysOn events have become important meetingplaces for industry leaders, investors and aspiring companies. The content of the OnDemand conference was also first-rate as you can see in the online videos.
• State of the Cloud: What happens when a major financial institution decides that it wants to better understand the rapidly evolving cloud computing marketplace? Well, in the case of Fidelity Investments, they decided to put together a first-class conference aimed at top-level enterprise decision-makers. And, because of Fidelity’s tremendous influence, they were able to bring together a very impressive list ofspeakers and sponsors to examine various aspects of the cloud computing environment.

I think we’re seeing a real shift in the understanding of what Cloud and SaaS does for IT- turns them into heroes! More on this in the coming months. I’d missed the videos when I first covered the conference- delighted now to have found them.

Evernote continues to share their growth statistics:

If there is something everyone needs help with now and then, it is remembering stuff.Evernote does that very well via the iPhone, the iPad, Android phones, Blackberries, Windows PCs, and the Web. It just crossed the three million user mark in about 60 percent of the time it took to get to two million. Evernote took 447 days to get its first million users, 222 days to get to its second million users, and 134 days to get to its third.

Evernote lets you take pictures of things with your phone camera or clip pages on the Web and stores them in a searchable, chronological tape of geo-tagged notes. A full 79 percent of its daily mobile usage is on the iPhone OS, including the iPhone itself (63 percent), the iPod Touch (7 percent), and the iPad (9 percent). Android makes up 12 percent of daily mobile usage, and Blackberry is only 2 percent. On the desktop, Windows rules with 49 percent of daily desktop usage, followed by the Mac client (38 percent), and the Web (13 percent).

The key stat for Evernote’s business is how many people it can convert to its premium service, which costs $45 a year for more storage and features. There are now 59,000 paying Evernote subscribers, up from 35,000 when there were two million total users. It is still a modest number, but it is steadily growing and the conversion rate keeps getting better. But in order to justify the $25.5 million investors have put into the company, it is going to have to figure out ways to get more than 2 percent of its users to pay.

So the interesting takeaways for me are:

• Revenue is about $2.65m- not that great for $25.5m invested
• iPhone dominates the mobile usage- I wonder how much is desktop v.s. mobile?
• They are still struggling to convert more than 2% of users- freemium still not paying

Lincoln covered Ning’s pivot away from freemium and analysed their new pricing:

Ning is an example of a company that is well funded (>US$100M), can spend heavily on marketing and user acquisition, and certainly seemed to have anaddressable market size that made Freemium look like a good idea. But it wasn’t.

Unfortunately, one of the biggest problems we see with companies using Freemium, and it appears that Ning was no different, is that they attract the wrong crowd. That base of free users that you look to as a group of hot prospects just waiting to give you their money; not so much. This isn’t always the case, but with Ning that was certainly in play.

So Ning pivoted; they changed focus at the business level and killed Freemium. No more free networks. And on May 4, 2010 they announced their new pricing. So lets take a look at the pricing page they put up and see if they really understand this whole “premium” SaaS business.

He doesn’t think they do…

In other news:

• SaaS SocialCRM vendor Lithium Technologies buys ScoutLabs, a Social media listening company- interesting to see SaaS vendors buying each other to extend their functionality. Congrats to the founders.
• Google Apps to finally become more connected and integrate more of the Google family- Reader, Picasa, Adwords and more- solves major pain of being an apps customer.
• VMware buys GemStone- a scalable distributed data platform. Think solving the big data problem of cloud.

Have a good week!

Justin

jp@justinpirie.com

• Cloudsourcing- why is it important?
• IBM to buy Cloud integrators Cast Iron- the boys in blue just got very serious about cloud
• How to price your SaaS app
• HP to buy Palm- the Mobile OS world just got a whole lot more interesting….
• Apple vs Adobe- the war continues
• Closed vs Open Garden- what should we think and who’s side should we take?
• The Very disappointing VMforce announcement.
• How many flavours of PaaS do we need?
• Analysis of James Hamiltons Mix10 presentation- it’s not all that rosy you know…
• Positive statistics on SaaS adoption from interop and Gartner
• Interview with IDC Security Guru Eric Domage
• Plus naming a startup, Amazon in Asia, Sean Murphy on SLL, Trident SaaS market update and KaChing on Continuous Deployment

TWIS#24

Dilbert of the week:

Breaking news- as I begin to write this IBM is to buy Cast Iron Systems- providers of cloud to cloud and cloud to on-premise integration.

Why is this important? Don’t API’s do everything?

The reason it’s important is cloudsourcing.  What is Cloudsourcing?

Cloudsourcing is sourcing complete solutions to run your business from the cloud—by knitting together cloud applications, cloud platforms, and cloud infrastructure. Each stage in the path towards complete cloudsourcing presents unique challenges but comes with step change in benefits. When you go from adopting point SaaS solutions to multiple cloud platforms, you need to deal with more complex data management, user management and governance issues. However, this will also come with step change in business agility and user effectiveness.

By running your entire business on cloud-based IT applications and services, cloudsourcing can dramatically lowers your IT costs.  And, running your business on a pre-integrated suite of cloud-based applications results in a better-integrated, more flexible and elastic technology foundation for your business operations.

It’s important to put this in context:

Or another way:

OK- you get cloudsourcing but why does Cast Iron matter? Integration companies like Cast Iron and Boomi provide the integration glue that enables the various SaaS and Cloud solutions to integrate with eachother- Quickly and Easily. James Governor (@monkchips) posted:

What’s the big idea?

Take companies onto the cloud. That’s right folks- its a cloud onboarding play. The firm has 75 employees, was founded 2001, and has a stellar list of partners… and adapters to integrate with them. Pretty much every SaaS company of note is on the roster. We’re not just talking Netsuite salesforce.com and RightNow technologies though- ADP is another example.

He went on:

One interesting element of the Cast Iron “cloud” play is that its OmniConnect is an on premise integration appliance. The software allows for drag and drop integration of on premise and cloud apps. So now IBM Software Group has another appliance play to join Datapower.

In fact as Hayman said:
“In the early days we said “jeez- you could do that with Datapower. But… they had specific application integration patterns for the space.”

In other words IBM acquired Cast Iron Systems to accelerate its own cloud play. IBM is being onboarded to the cloud as much as its customers are…

The case studies IBM talked this morning were pretty compelling.

Companies like ADP that normally take 4 months to bring a new customer onboard are now able to do it in a matter of weeks.

“The biggest issue is migration of data and so on. They said yeah we’ve heard it all before…. But they were “a little taken aback”. “you guys and your drag and drop technology are removing the effort of building code.”

Cast Iron’s CEO continued:
“Google is doing a lot [in terms of application capability]. Its great, but the data they need – for example in SAP, is held behind the firewall. So we help with integration of that data through Google App Engine.”

“You can’t have a SaaS app that talks to quick time to value, if it then needs three months to integrate…”

Cast Iron is available as an appliance, or cloud, by monthly charge. Its already available on the IBM product list.

One issue I keep hitting is that IBM doesn’t do enough to simplify operations. Hayman spoke directly to that.
“In terms of simplicity- you have beaten us up on that, and rightly so…”

Cast Iron generates adapters that run on existing integration tools such as WebSphere MQ, or JPA.

I think in summary that the play is really interesting. If we think of classic hub and spoke supply chains – the dominant companies always demand better integration with their suppliers. Cast Iron will be great for that.

IBM’s cloud play just got a boost with a very clear business message. Nice.

+1 from me for James’s analysis. IBM just grabbed themselves a very nice piece of cloud glue. I reached out to Boomi this afternoon for comment- CEO Bob Moul posted:

For Boomi, the announcement came as no surprise. IBM has a long history of acquiring appliance-based companies, from DataPower in the XML world to Diligent in the backup area.  Cast Iron has been offering an integration appliance for many years to traditional on premise focused enterprises and WebSphere is an appliance-centric business unit so it’s a good fit for both groups. Boomi, on the other hand, has focused exclusively on the cloud computing space – having built a pure cloud-based integration platform that does not require software or appliances. IBM is obviously a very large company and other areas of the company are quite active in pursuing cloud integration strategies so we continue to view IBM as a very attractive partner prospect for Boomi.

If anything, it probably helps to clarify the cloud integration space. Boomi remains the industry’s largest integration cloud with hundreds of global customers, a vibrant open community with over 60 partners (including the major SaaS ISVs such as salesforce.com, NetSuite, Taleo, RightNow and SuccessFactors), the broadest range of connectivity with 75+ SaaS apps and hundreds of on-prem apps supported, and handling the greatest volume of transactions – over 130 million transactions a month and growing rapidly.

We remain convinced that a pure cloud integration platform built entirely as SaaS, is the best model to power the continued growth and success of the cloud computing industry. We made a decision in 2006 to go completely into the cloud ala salesforce.com and we remain committed to that path of execution. In our minds, it only makes sense to integrate SaaS applications with SaaS integration solutions. Our platform also provides a natural on ramp for traditional enterprises to migrate to the cloud, as we offer seamless SaaS-based connectivity to on premise applications (70% of our use cases).  We think the amazing traction we’ve had since launching AtomSphere in the fall of 2007 is a testament to that vision.

I didn’t realise Cast Iron was appliance focused though… I’m with Bob on the need for Cloud Glue rather than appliance to Cloud glue… Anyway- I think it’s very positive news nonetheless.

I often get asked- how much should I charge for my SaaS product? Here is a really really good way to quantitativly test pricing via Dave Concannon:

Hiten Shah (@hnshah) of Kissmetrics had some great suggestions in relation to an audience question on pricing to his Lean Startup Circle talk (given with Cindy Alvarez@cindyalvarez, and John Butler) last week.

He described three useful strategies to test pricing:

1. Set a relatively high price and then send out various discount codes: e.g. 10% off, 20% off, 30% off.  Analyze which discounted price point brings you the most value on a cost vs volume basis.
2. Split-test landing pages with different prices
3. Test a price increase, and if a user buys only charge them the “normal” price. This is useful to prevent any bad feeling that option 2 might cause. (See Amazon’s lessons on this one)

If you’re in the Bay Area, join the group!  There was some great advice from Cindy and John in this session, including some great points on what types of questions to ask in a Customer Development Process. Watch the full video, courtesy of David Binetti (@dbinetti) -

KISS Metrics at LSC from David Binetti on Vimeo.

The big tech news this week was that HP is to buy Palm for 1.2bn. GigaOm posted- Does HP want to become the new Apple?:

With HP’s $1.2 billion planned acquisition of Palm, the computer giant hopes to turn Palm’s webOS operating system into a platform to rival Apple’s mobile computing franchise. “Ultimately the Palm webOS and Apple are the two that can scale best over multiple devices and we are going to compete with Apple going forward in the broader mobile category,” said Brian Humphries, SVP of corporate strategy and development at HP.

I spoke with Humphries last night after the deal was announced, but he declined repeatedly to give details as to when or what devices may get webOS. So we have no idea if the HP Slate that Steve Ballmer, the CEO of Microsoft, was waving about at CES will continue to have Windows or webOS, but we do know that HP has a big vision for webOS — it hopes to put it across an array of mobile devices, creating a platform backed by the power of HP’s sales and distribution channels to which developers will flock.

I guess it makes sense- HP mobile devices have been rubbish and they don’t seem to want to back Android- so owning WebOS seems to fit.

Yet I really don’t understand how HP could hope or want to become Apple without destroying their core business of shipping commodity PC’s. Apple is design obsessed, charging a premium price for beautiful products. HP hasn’t displayed that DNA in the past and I don’t think Palm brings any of that designed obsessed DNA to the company…. Interesting to see that WebOS is not dead! I guess that’s why HP dropped Windows 7 for the slate last week….

The other mobile news is the whole Apple vs Adobe wars- fuelled on by Steve Jobs post. Mark Bernstein had a brilliant take:

I find the whole Apple-Flash brouhaha to be unpleasant to watch. Lots of good people happen to make a living from their Flash expertise. When people criticize Flash, that takes groceries off their table. It makes them angry and resentful. When Apple pokes holes in Flash, it hurts their livelihood and damages their careers. The popular metaphors of the internet community – rich in jargon terms like “open”, “free”, “evil” that have acquired very technical meanings but retain their primal resonances – have been profoundly unhelpful.

John Gruber’s recent analysis of Apple’s policy is, I think, almost exactly correct. He is right to pinpoint PowerPlant/Metrowerks as a source of Apple’s anxiety. (Tinderbox is still struggling with that one.) Java was another bad memory for Apple. An even worse memory, I think, is OpenDoc – the platform on which Apple bet the company, and lost.

But Gruber forgets the emotional memory behind all of this.

In 1997, Apple was on the ropes. Every trade press story speculated that Apple would soon go out of business. Apple’s computers were toys, hapless, hopeless. The only hope seemed to be that Microsoft’s antitrust problems would extend the struggling company’s life a year or two and something might turn up.

The last straw — what everyone feared and anticipated — was the seemingly-inevitable Microsoft announcement that Apple’s market share was too small to be worth Microsoft’s trouble, and that Office for Mac would be cancelled. On that day — and we all expected it — Apple would for all practical purposes cease to have a business.

It didn’t happen. Microsoft didn’t want to face the anti-trust consequences. They promised to extend Office a few years, and lent Apple $150M, and Jobs came back.

And somewhere in the recovery was a moment when Apple stood on a hill, before the setting sun, and shook its fist at the heavens and vowed that it would never be hungry (and powerless) again Never again would another company decide whether the Macintosh lived or died. So, Apple supplanted Metrowerks and wrote its own IDE. It wrote Keynote to inform Microsoft and the world that, should Microsoft discontinue Office for Mac, Apple would be prepared to replace it without delay. It wrote Safari to ensure that it would have a Web browser option, come what may.

This is the key to modern Apple. It’s a big company, and it’s now wildly successful. It assumes that it can write a successful software product in any niche. It’s very talented and very confident. But always, at the back of its collective mind, is fear — the fear of depending on the kindness and competence of others, and the fearful memory of the days when it was cowering in a dark closet, waiting for the blow to fall, while the trade press laughed and jeered

But where do we go from here? There are some serious open vs closed garden unresolved debates going on in my head…

Chris Dixon moves the Closed vs Open Debate forward:

When having the “open vs closed” debate regarding a technology platform, a number of distinctions need to be made. First, what exactly is meant by “open.” Here’s a great chart from a paper by Harvard professor Tom Eisenmann (et al).:

(Eisenmann acknlowledges the iPhone isn’t fully open to the end user – in the US you need to use AT&T, etc.  I would argue the iPhone is semi-open to the app developer and mobile app development was effectively closed prior to the iPhone. But the main point here is that platforms can be open & closed in many different ways, at different levels, etc.)

The next important distinction is whose interest you are considering when asking what and when to open or close things.  I think there are at least 3 interesting perspectives:

The company: Lots of people have written about this topic (Clay Christensen, Joel Spolsky, more Eisenmann here).   In a nutshell, there are times when a company, acting solely in its self-interest, should close things and other times they should open things.  As a rule of thumb, a company should close their core assets and open/commoditize complementary assets. Google’s search engine is their core asset and therefore Google should want to keep it closed, whereas the operating system is a complement that they should commoditize (my full analysis of what Google should want to own vs commoditize is here). Facebook’s social graph is their core asset so it’s optimal to close it and not interoperate with other graphs, whereas marking up web pages to be more social-network friendly (open graph protocol) is complementary hence optimal for FB to open.  (With respect to social graphs interoperating (e.g. Open Social), it’s generally in the interest of smaller graphs to interoperate and larger ones not to – the same is true of IM networks).  Note that I think there is absolutely nothing wrong with Google and Facebook or any other company keeping closed or trying to open things according to their own best interests.

The industry: When I say “what is good for the industry” I mean what ultimately creates the most aggregate industry-wide shareholder value.  I assume (hope?) this also yields the maximum innovation.  As an active tech entrepreneur and investor I think my personal interests and the tech industry’s interests are mostly aligned (hence you could argue I’m talking my book).  Unfortunately it’s much easier to study open vs. closed strategies at the level of the firm than at the level of an industry, because there are far more “split test” cases to study.  What would the world be like if email (SMTP) were controlled by a single company?  I would tend to think a far less innovative and wealthy one. There are a number of multibillion dollar industries built on email: email clients, webmail systems, email marketing, anti-spam, etc.  The downside of openness is that it’s very hard to upgrade SMTP since you need to get so many parties to agree and coordinate.  So, for example, it has taken forever to add basic anti-spam authentication features to SMTP.  Twitter on the other hand can unilaterally add useful new things like their recent annotations feature.

Here’s what Professor Eisenmann said when I asked him to summarize the state of economic thinking on the topic:

With respect to your question about the impact of open vs closed on the economy, the hard-core economists cited in my book chapterhave a lot to say, but it all boils down to “it depends.” Closed platform provides more incentive for innovation because platform owner can collect and redistribute more rent and can ensure that there’s a manageable level of competition in any given application category. Open platform harnesses strong network effects, attracting more application developers, and  thus stimulates lots of competition. There’s some interesting recent work that suggests that markets may evolve in directions that favor the presence of one strong closed player plus one strong open player (consider: Windows + Linux; iPhone + Android). In this scenario, society/economy gets best of both approaches.

Society:  I tend to think what is good for the tech industry is generally good for society.  But others certainly have different views.  Advocates of openness are often accused of being socialist hippies.  Maybe some are.  I am not.  I care about the tech industry.  I think it’s reasonable to question whether moves by large industry players are good or bad for the industry.  Unfortunately most of the debate I’ve seen so far seems driven by ideology and name calling.

Spot on Chris. Interesting to think of Closed vs Open in the context of Core business…

The somewhat disappointing news of the week is that the Salesforce VMforce announcement is not IaaS, but another PaaS language- namely Java using the SpringSource framework. William Vambenepe, Cloud Philosopher-at-Large, Oracle posted:

Overall, I like what I see. Let me put it this way. I am now a lot more likely to write an application on force.com than I was last week. How could this not be a good thing for SalesForce, me and others like me?

On the other hand, this is also not the major announcement that the “VMforce is coming” drum-roll had tried to make us expect. If you fell for it, then I guess you can be disappointed. I didn’t and I’m not (Phil Wainewright fell for it and yet isn’t disappointed, asserting that “VMforce.com redefines the PaaS landscape” for reasons not entirely clear to me even after reading his article).

The new thing is that force.com now supports an additional runtime, in addition to Apex. That new runtime uses the Java language, with the constraint that it is used via the Spring framework. Which is familiar territory to many developers. That’s it. That’s the VMforce announcement for all practical purposes from a user’s perspective. It’s a great step forward for force.com which was hampered by the non-standard nature of Apex, but it’s just a new runtime. All the other benefits that Anshu Sharma lists in his blog (search, reporting, mobile, integration, BPM, IdM, administration) are not new. They are the platform services that force.com offers to application writers, whether they use Apex or the new Java/Spring runtime.

It’s important to realize that there are two main parts to a full PaaS platform like force.com or Google App Engine. First there are application runtimes (Apex and now Java for force.com, Python and Java for GAE). They are language-dependent and you can have several of them to support different programming languages. Second are the platform services (reports, mobile, BPM, IdM etc for force.com as we saw above, mostly IdM for Google at this point) which are mostly language agnostic (beyond a library used to access them). I think of data storage (e.g. mySQL, force.com database, Google DataStore) as part of the runtime, but it’s on the edge of the grey zone. A third category is made of actual application services (e.g. the CRM web services out of SalesForce.com or the application services out of Google Apps) which I tend not to consider part of PaaS but again there are gray zones between application support services and application services. E.g. how domain-specific does your rule engine have to be before it moves from one category to the other?

I think it’s really disappointing that a) they made so much hype about adding Java and b) they’re not adding IaaS! I guess you’ve got to give the marketing machine credit…

William Vambenepe’s blog is brilliant at the moment- I really liked his post on How many flavours of PaaS do we need?

• PaaS for business apps
• PaaS for toy apps (simple form-based CRUD) and simple business front ends (e.g. restaurant web sites)
• PaaS for games, mash-ups and social apps
• PaaS for multimedia delivery and live streams
• PaaS for high performance and scientific computing
• PaaS for spamming, hacking and other illegal activities (Zombies as a Service)

He recognises that not all clouds are created equal and we need different clouds for different services which is why James Urqhart’s analysis of James Hamilton’s Mix10 presentation from TWIS#23 was interesting:

All of that being said, I would be remiss if I didn’t highlight a few things that Hamilton glossed over in this presentation:

• “You can have any color you want, as long as it’s black.” That paraphrasing of a famous quote from Henry Ford in 1909 when discussing the Model “T” is reflected in a basic fact about today’s large-scale infrastructure and platform clouds: you can build any application you like, as long as it fits into the infrastructure architecture prescribed by the provider. Configuration of the infrastructure itself is extremely limited, if not nonexistant.For example, several users of Tomcat have had to rework that application server’s clustering mechanism to allow it to work in Amazon EC2. Why? Because Amazon does not allow multicasting, and has shown no indication that they will anytime soon.Another common example is the limited set of security configuration options, and the amount of “do-it-yourself” left for the users of large-scale IaaS offerings. I’m not saying that’s a deal breaker, as you may not need much more than is provided and you can get additional security capabilities through management platforms like enStratus, but risk mitigation is a key part of data center investment in the enterprise. It pays to be aware of what you will have to accept from the cloud in that regard.
• Price isn’t everything. If computing was all about getting basic CPU, storage and networking capabilities at the lowest possible price, there would be no markets for such things as high-availability infrastructure, high-performance computing, and the wide plethora of data center security software and hardware. Driving to maximum economies of scale for those basic services without enabling support for more specialized needs means that those large-scale services won’t be right for all workloads.Now, let me be clear that I think Amazon knows that, and we will see some pretty significant innovation from them to address alternative architectures and configurations in the coming year.
• Enterprise data centers aren’t going away overnight. Building new applications in the cloud is one thing, but transferring existing systems is something else entirely. Hamilton’s calculations is entirely from the perspective of operating a data center. The cost of re-architecting and moving applications and data is not factored in, and is cost is the “barrier-of-exit” that will keep many applications in internal data centers for some time to come. They may or may not move to private cloud infrastructures, but they’ll stay in house until replaced or savings justify the cost of rework.Joe Weinman, VP of Business Strategy at AT&T, has a great site discussing how you calculate the savings that public cloud computing brings to your applications.

One has to be impressed by the true disruption that infrastructure and platform services is having on data center economics. Both enterprise IT customers and vendors should pay close attention, and understand exactly how they will play in the changing data center landscape.

But he too is right- we need Clouds for different purposes! EC2 isn’t for everyone…

Positive news on SaaS adoption from interop this week:

A survey of network managers and other IT pros attending this week’s Interop Las Vegas business technology conference found that more than 40% have some form of public cloud resources available on their corporate systems.

Of the 104 respondents, 41% said their companies tapped the cloud for apps and services such as Google’s Google Apps productivity software and Salesforce.com’s online CRM tools.

29% of respondents to the survey, which was conducted Network Instruments, said their organizations have adopted private clouds, while 19% reported using some form of Infrastructure-as-a-Service (IaaS), like Amazon’s Elastic Compute Cloud (EC2).

33% indentified lower infrastructure costs as the primary reason their organization is adopting cloud computing services. Another 30% moved to cloud services to leverage the added flexibility it gave their IT departments to answer business changes. Just 3% said they didn’t see any benefits to cloud computing.

I’m really pleased that not only 41% say their using SaaS but 30% recognise that moving to SaaS and Cloud is about flexibility. IW went on:

Indeed, 22% percent said they lacked the tools necessary to monitor and manage cloud activities. 15% said they lacked sufficient knowledge to manage cloud issues, and 12% reported being unable to resolve delays caused by cloud service providers.

“It was significant to note the number of organizations without adequate monitoring technologies and network resources in place,” said Brown.

The top concern (27%) among potential cloud users was the fear that network bandwidth costs would exceed estimates. “Cloud implementations can be fraught with challenges that consume troubleshooting time and bandwidth, jeopardizing the organization’s ability to realize cost savings promised by these services,” said Brown.

Still, cloud computing has many backers. Earlier Wednesday, IBM cloud CTO Kristof Kloeckner, said organizations that embrace cloud computing could cut IT labor costs by up to 50% and improve capital utilization by 75%.

Yet I’m surprised to see security not top the SaaS issues list- my week was certainly dominated defending them- OK, I was at infosec, but even still, the quantitative data doesn’t back this up- for example the Mimecast Cloud Adoption Survey which I help look after, last ran in October last year and found 46% of people surveyed were not moving to the cloud because of security (disclosure- I work at Mimecast).

I’m bringing some thoughts together on Cloud Security post infosec- but check out my interview with IDC security guru Eric Domage:

httpv://www.youtube.com/watch?v=7rUMmllMuQw&

Interesting thoughts, but I remain sore after being beaten up by those infosec people who don’t think anything is secure if it’s outside their data center! We as an industry need to sort the security issues out…

Gartner thinks SaaS is on the way up too this week:

More than 95% of organisations expect to maintain or increase their use of software as a service (SaaS), according to a survey by research firm Gartner.

Unrelated- but a brilliant rant- Coming up with a startup name (i.e. the 6th circle of hell) is a classic read! Naming a company is a total nightmare!

In other news:

• Amazon announces long awaited Asian AWS zone- Singapore Availability Zone Launched
• If you missed it- Sean Murphy’s roundup from the Lean Startup Conference- Startup Lessons Learned is well worth a look
• 1Q10 SaaS Market roundup by Evangelos from Trident- definitely worth a read as he spends a lot of time looking at the economics of SaaS
• Wondering about Continuous Deployment? KaChing have written a great post on how they deploy it.

Have a great week!

Justin

jp@justinpirie.com

• Brilliant presentation video on Cloudonomics by Amazon VP James Hamilton- why Cloud is here to stay, plus some super geeky (but very interesting) details on data centres.
• My Cloud ROI deck from the Cloud Circle conference this week plus Eric Norlin on why agility is the real driver of ROI
• Enterprise Irregular and Salesforce VP Anshu Sharma on the 5 Big Trends he Missed and You Probably Did Too- from Silicon Valley leaders
• Great Mobile sector analysis by Ewan MacLeod plus Mashable on what’s driving mobile network traffic
• The Multi-Tenancy debate lives on! This time with a new name SaaS-Querade!
• Highlights from the Startup Lessons Learned Conference- IMVU video
• McAfee breaking customer computers- take that on-premise vendor FUD!
• In other news, Boomi, Salesforce, SaaS channels, Ingram, Microsoft, Apple, Apps Marketplace, Symantec, Freemium, Cloud myths and Facebook is trying to take over the world….

TWIS Events

A really busy week!

I’m going to be at infosec Europe Tuesday – Thursday, if you’re there I’d love to meet you- please come and say hello! I’ll be around the Mimecast stand and going to SaaS / Cloud related events. If you want to find me- email me jp@justinpirie.com

My main focus will be getting a “state of the nation” on what people feel about SaaS / Cloud security- has it really crossed the chasm or do people still feel there is an issue? I’ve got some good questions from readers- if you’ve got something you want asked- email me.

Also on Thursday this week for those of you that can’t make it to infosec, I’m doing a webinar with my boss, Peter Bauer on Extending your Microsoft Exchange Servers with Cloud Services 2.00pm BST / 9.00am EST. Peter is a real world SaaS CEO, running a company with over 550,000 end users and it’s an opportunity to get to understand how the cloud is meeting the premise in a very real way plus to ask questions of Peter and me. See you there Thursday- or feel free to email me your questions in advance if you can’t make it on the day.

If you’re in Dallas and free tomorrow- there are still some spaces for Lincoln Murphy’s FREE SaaS and Web App pricing round table- he’s doing a broadcast to the UK but you’ll be able to take part in person- you need to get in there very quick as space is limited to 6 people.

One of the most crucial aspects of any startup is to figure out how to make money. Oddly, this is a very overlooked and misunderstood element in startups with many deciding to put it off until later; but often later is too late. Or they just copy 37Signals pricing…

Finding out how your customers buy (what channels they go through), what they’ll  pay, and how they will pay are very important to understand early. You can build the greatest product that meets the requirements of your target market, but if your pricing is off, your distribution methods are misaligned with your market, or your customers simply cannot pay you, it doesn’t matter. Since Software-as-a-Service (SaaS) and Web Apps have inbuilt support for e-commerce and pricing metrics, knowing all of this early in the process will ensure you’ve built a product  that will adequately support your customer base in all areas.

To that end, I have been invited (on very short notice) to moderate a Pricing roundtable discussion by SaaS and Web App founders and CEOs this coming Tuesday 4/27/2010 at 10AM. The event is in actually in England but I will be joining via a teleconference link at the Tandberg offices in Dallas, Texas. There is room for 6 people to join me and to participate in the event. There is no charge to attend this event.

If you are in Dallas, are currently involved in a post-beta (ie. in  the market) startup or later-stage SaaS or Web App company and would like to discuss your Pricing and Distribution strategies while learning from others experience as well, please RSVP here.

This is a great opportunity to meet Lincoln in person and get some valuable knowledge for free.

TWIS #23

I couldn’t resist- after a week of travel chaos in Europe

Nice!

Rick Chapman is running his SaaS survey in Europe- if you’re a European SaaS provider- I would encourage you to fill it out.

James Hamilton, a VP at Amazon,  did a brilliant talk at Mix 10 a few weeks ago- if you haven’t seen it, its well worth a view- if only for a detailed understanding of why cloudonomics work from a vendor perspective and why cloud vendors are going to be around for some time, plus some super geeky (but very interesting) detail on the economics of data centres. Well worthwhile watching- here’s the intro:

High-scale cloud services provide economies of scale of five to ten times over small-scale deployments, and are becoming a large part of both enterprise information processing and consumer services. This talk details the costs, and cost advantages, of high-scale, cloud services. We begin with an inventory of the infrastructure costs, tracking power distribution and losses from 115kV at the property line through all conversions into the data center to final delivery at semiconductor voltage levels. We then look at the mechanical systems responsible for transporting heat from the servers through to heat dissipation outside of the data center. We conclude with a detailed discussion of cloud computing cost advantages.

As I mentioned last week- I delivered a conference presentation on Cloud ROI last week- it was good to meet a few readers who came. I haven’t yet done the voiceover- but here is the deck:

I had an opportunity to meet an interesting set of Silicon Valley leaders last week, and I realized what a loser I am. Okay, so not really – but I did miss out on a couple of trends while I focused on cloud computing and social – trends closer to what I do for a living. I thought I would look back and give you a list of big trends I missed or didn’t pay enough attention to, and what I plan to do about it:

1. Energy Management (or Carbon Apps)
2. Social Gaming and Virtual Goods
3. iPhone
4. SMS
5. Video over Internet

The list is even longer – I didn’t pay enough attention early on to multi-core processors, SSDs, connected devices revolution, — the list is long. What trends have you missed?

Interesting perspective, although I think we’re paying pretty close attention to mobile (he says iPhone) here

Watch live video from Startup Lessons Learned on Justin.tv

One of the biggest criticisms leveled against Cloud Computing, in general, and SaaS, in particular, is the reliance on third party for the availability of applications. It is true that SaaS forces you to rely on the third party vendors because the resources lie on the datacenters elsewhere as opposed to your local machine or on-premise datacenters. But, I do not agree that SaaS cannot be trusted just because we have our applications and data elsewhere. In my opinion, it is pure FUD than anything else.

Our reliance of third party providers dates long back into the human history. Even in the traditional computing world, we have to rely on many third party vendors from electricity to run the business to proper functioning of computing resources to operating system to software. Even though they are located on premise, there is some sort of reliance on third party vendors and service providers. When we buy a software from a traditional vendor, we trust them to work the way we want (unless it is open source), we trust the vendors to make timely security patches and updates, we rely on the update to work flawlessly, etc.. Once upon a time we relied on the vendors to send the updates and patches through media. We trusted that the vendors will send in time, the carriers will deliver it properly and the media will work flawlessly. Once internet became part of our lives, we trusted the vendors to send the patches and updates through the internet so that our software are updated regularly. In short, we have been relying on third party for many of our computing tasks forever. As the vehicle of delivery changes and matures, we rely more and more on such third party providers to save time and cost. Now, with the maturation of internet and internet capable devices of many form factors, we are trusting third party providers to deliver the applications and other computing services through the internet for consumption. This is a normal progression in any technological evolution. Trying to spin it in any other way is pure FUD.

Have a great week!

Justin

jp@justinpirie.com