TWIS#27

• 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

This Week in SaaS #26

• 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

TWIS#25 This Week in SaaS

• 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):

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:

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

TWIS #23- This Week in SaaS

• 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

TWIS #22 -- This Week in SaaS

In this week’s TWIS:

• Major Morgan Stanley “State of the internet” report analysed- how will it effect SaaS? Where is the market going? Great Deck and Video coverage.
• Great new stats from Genentech about how mobile has increased their adoption and use of SaaS
• Big Freemium news this week- Ning withdraws free version and cuts 40% staff- does freemium really work? ReadWriteWeb, 37Signals and Lincon Murphy comment.
• Really nice thoughts by Giff Constable on funding vs effectiveness on the back of Ning / Twitter.
• And in other news- Oracle’s latest SaaS acquisition, Chirp Stat’s and the tech sector is hotting up.

I’m speaking tomorrow at the Cloud Circle in London on the ROI of SaaS and Cloud- deck + post to follow shortly (my head is full of SaaS ROI at the moment…) and next week I’ll be at InfoSec Europe talking to people about the state of SaaS and Cloud security. Any thoughts on what you’d like me to ask? Your comments via email or twitter please!

TWIS #22

Some of you might have been thinking I’ve been going on and on about mobile the past few weeks- what’s it got to do with SaaS???

Well, sometimes I’m not all that cognisant of where things are taking me- I guess that’s one of the pitfalls of writing a weekly blog post on the state of the industry, but this week things really crystallised for me with the latest Morgan Stanley “State  of the internet” research being released.

I realised that we’re active participants of the next shift of computing- from desktop internet to mobile internet.

Cloud (and therefore SaaS) is a key enabling technology as part of this shift.

The really interesting trend is that the mobile web is predicted to be bigger than the desktop web in the next five years:

Now research is just research, and it does matter where it comes from. GigaOm thinks it’s a pretty good source of insight:

Mary Meeker of Morgan Stanley isn’t just any Internet analyst. She was covering the sector when the brokerage firm was the lead underwriter for Netscape Communications’ initial public offering in 1995, was dubbed the “Queen of the Net” by Barron’s magazine in 1998 and was covering the space in 2004, when Morgan Stanley helped launch the Google IPO. Now a managing director at Morgan Stanley and head of the global technology research team

They went on:

The Morgan Stanley analyst says that the world is currently in the midst of the fifth major technology cycle of the past half a century. The previous four were the mainframe era of the 1950s and 60s, the mini-computer era of the 1970s and the desktop Internet era of the 80s. The current cycle is the era of the mobile Internet, she says — predicting that within the next five years “more users will connect to the Internet over mobile devices than desktop PCs.”

And what’s even more interesting is mobile’s trajectory:

Interesting also how they see Japan as a lead in this- a new market to watch for TWIS? The effect on the carriers? GigaOm again:

But that mobile boom will take its toll on carriers, Meeker says, because mobile Internet use is all about data. The average cell-phone usage pattern is 70 percent voice, while the average iPhone is 45 percent voice. At NTT DoCoMo, data usage accounts for 90 percent of network traffic. The analyst says her team expects mobile data traffic to increase by almost 4,000 percent by 2014, for a cumulative annual growth rate of more than 100 percent. Such numbers will likely strike fear into the hearts of carriers, but joy into the hearts of equipment suppliers and mobile service companies.

Shall we keep tracking the carriers in TWIS and how they effect SaaS and Cloud? I think so.

What are the characteristics of the new paradigm according to MS?

Reduce Usage Friction Via Better Processing Power + Improved User Interface + Smaller Form Factor + Lower Prices + Expanded Services = 10x More Devices

Sounds familiar to previous shifts doesn’t it? But regardless- I think SaaS and Cloud can only benefit from the mobile trend, since mobile depends on SaaS and Cloud services for much of it’s functionality. The entire deck is worth checking out as well as the video:

www.youtube.com/watch?v=X1w1FvgdZnE

I love hunting out stats for TWIS readers and in preparation for the Cloud Circle event tomorrow (where I’m speaking on Cloud ROI), I came across this slide from Todd Pierce’s deck, the CIO at Genentech:

Normally we’re stuck at comparing mobile usage of facebook to web (60% mobile apparently), rather than usage of an app with real substance like the Genentech one, which is for their Pharmaceuticals business. The key takeaway- put the app where the user wants it most and the business is going to drive results (average double the number of calls in this instance).

SaaS / Cloud + Mobile = Real business results

Anyway- enough of Mobile for this week!

So the other big news this week was the freemium social network Ning cutting 40% of their staff posted ReadWriteWeb:

In an email to staff yesterday, new Ning CEO Jason Rosenthal wrote that “When I became CEO 30 days ago, I told you I would take a hard look at our business. This process has brought real clarity to what’s working, what’s not, and what we need to do now to make Ning a big success.” With that, he announced Ning would be abandoning its longstanding business model and discontinuing non-paying sites on its network. In light of this, is it time to reevaluate and reign in some of the excitement about the freemium model for startups?

Now anybody who reads TWIS regularly will know the problem with the previous paragraph- Freemium is not a business model- it’s a marketing tactic and should not be talked about in any other way. The reason people get into trouble with Freemium is because they confuse it with a business model.

David Heinemeier Hansson from 37Signals had a much more realistic perspective than RWW:

Ning is laying off 40% of its staff and dumping free versions of its service. That’s a shitty day for the people who lost their job and the folks left behind without their coworkers. I went through a few rounds back in the dotcom days and fun it was not.

But I can’t help but be puzzled by the coverage of this. Here’s TechCrunch on the situation:

While the massive layoffs are obviously a big hit to the company, it isn’t all bad news for Ning: the service is still seeing its traffic grow according to comScore. But traffic growth is no longer good enough for the company — it needs to start generating some serious revenue, and advertising clearly isn’t cutting it.Are you kidding me? The company has blown through $120MM of VC funding over six years, built up massive traffic, yet just had to slash and burn, and you’re saying that “traffic growth is no longer good enough”. How the hell was it ever good enough?

Ning’s problem is not a lack of eyeballs but its inability to turn them into cash money to pay the bills. Getting more of something that’s a net-negative is not going to make up for it.

That was always their problem. From day one. Just like it’s any other business’ problem. Acting all shocked and surprised now is just incredibly ignorant of our industry’s very recent past.

This is the same kind of ignorance that goes on to celebrate so-called businesses successes before they posted black numbers on the balance sheet. Until that happens it’s all conjecture and possible maybes.

The just-give-it-away-for-free-and-they-will-come-and-we’ll-be-rich automatron is as broken now as it was in 2001.

He’s not fooled by $120m in VC money… Babbel announced they’ve finally turned a profit after dumping the freemium model.

Lincoln probably had the best perspective of everyone:

There continues to be interest in what companies like Evernote are doing with Freemium and how they are making a lot of money with the majority of their userbase not paying a dime. Lets be very clear here; Evernote has found a strategy that works well for them. One of the keys to the Freemium marketing tactic working for Evernote is that it has a very large potential audience; essentially anyone in the world with any sort of device connected to the Internet is a potential user. That is much different than the new tool you created for the Health Club industry in the United States.

So what does this mean for the “Freemium model?” Like most marketing tactics, some will find success with it and others will fail miserably. If you understand that it is simply a marketing ploy and don’t build your “business” around Freemium, when it doesn’t work, you will be in a better position to recover. If you spend all of your time, money, and resources up front attempting to collect some “critical mass” of users thinking that you’ll convert them later when you “turn on the revenue tap” you might have a big, negative surprise waiting for you.

Something that I presented at the Freemium Summit that seemed to be very popular was what I called my “back of the napkin” formula for figuring out if you have a large enough market for Freemium to work. Essentially it says, are there enough people/companies/potential users of my app for the “numbers game” that is Freemium to work. If not, then Freemium is not for me. You don’t even need a fancy calculator for this one.

The formula is dead simple and until now was buried in the slide deck from the Freemium Summit. Since the brief renewed interest in Freemium this week, and the fact that I’ve seen some people talk about the formula, I thought I would extract it from the deck and talk about it here.

Maybe they’ve had this problem?

Money isn’t a magic wand.  For as much as it frees your business from some debilitating constraints, it can also be extremely dangerous, which I’m sure Ev knows well.  With startups, and frankly anything in life, if you spend money too fast, you usually end up wasting a lot of money and making bad decisions (just look at U.S. spending in its conflicts overseas).

The super smart Giff Constable was talking about Twitter but it’s interesting nonetheless. He goes on:

Once you get passed a certain level, more money cannot significantly speed up the amount of time it takes to find good hires, learn about your market, or develop key strategies.  Nor can you purchase product-market-fit.

Yup. Ning obviously failed to do that. His blog is well worth subscribing to.

And a bit of ERP vendor fun

www.youtube.com/watch?v=ahPdh4f2g80

In other news:

• Oracle buys Heathcare SaaS company Phase Forward for $685m. Nice to see some big SaaS acquisitions.
• API analytics specialists Apigee comes out of beta with their Twitter API analytics app.
• In case you missed the Chirp madness- Twitter is growing very fast!
• Apparently the Tech sector is hotting up again- Tech companies are on a hiring drive and competition for great staff is hotting up according to the WSJ

Have a great week!

Justin

jp@justinpirie.com

TWIS#21- This Week in SaaS

Breaking news- Is Salesforce to enter the IaaS arena with VMware?

In this week’s TWIS:

• Apple v.s. the world madness (in case you missed it…) It is feeling like Orwell’s version of 1984, not Apples (inc. video)
• What to do about distribution channels for SaaS apps, lessons learnt from Apple, Twitter, Robert Scoble and Mark Suster
• Salesforce show’s chatter in action (and get’s buried under the Apple nonsense)
• Techcrunch beats up Microsoft’s cloud abilities
• Great post on why multi-tenancy matters by David Linthicum
• In other news- Google releases new version of Docs, Clouds working for Governments, Jeff Kaplan Helpstream post mortem, Joel York’s excellent SaaS finance series continues and Mikael launches SaaS customer support survey

TWIS#21

OK, OK, I’m now really sorry if you’re fed up with the coverage of the iPad in TWIS, but I think it’s really important to cover the major issues of the day, and analyse how it affects SaaS.

Ben Kepes opens the debate:

The blogosphere is aghast with the latest salvo fired in the Apple vs the world war – this time it came in the form of an update to its iPhone Developer Program License Agreement that specifically bans the use of third-party compilers for creating apps that will run on the iPhone OS. Basically it looks like Adobe’s plans to create a workaround for Flash on the iPhone and iPad may have been stymied.

What do you make of this 1984 Apple commercial- launching the Mac:

www.youtube.com/watch?v=OYecfV3ubP8

Ben continued:

Hmmmm – anyone else feeling a little uneasy that Apple have, in an Orwellian twist, seemingly returned us to the days of Big Brother? It seems that the public also feel this latest step is one too far if a Facebook fan club and a bunch of replies to various post is any indication – feel the passion evident here!

Anyway… back to the new terms and conditions. I was chatting about this with a friend who is involved with a company that makes a web application that utilizes Flash heavily. My comment to him was that it seems the writing is on the wall, what with the market share, and more importantly share of the hearts and minds, that Apple has, it seems that the war for Flash has been lost.

His perspective was a little different, taking the line that Adobe seems to be in all this by saying that it’s a big web out there and no one company will succeed if it attempts to lock down users to one particular way of doing things. He also went on to suggest that Apple developers where experiencing something of a Stockholm Syndrome – and developing an empathy for their oppressor that is beyond all reality. personally I see it a little different – given the ridiculously large number of iPads that Apple sold in the first weekend post release, Apple developers realize that life under a dictator might not be pleasant, but if that dictator brings along with him potential revenue, sometimes what is “right” needs to be left to the side.

Ouch! Stockholm syndrome… But the bigger point here is about openness and walled gardens. Some history via Robert Scoble:

Fact: In 1994 I thought Apple was going to own it all. By 1999 most magazines thought it was dead.
Fact: In 1992 Pointcast shipped. By 1999 it was dead.
Fact: In 1994 Microsoft was beta testing a system called “Blackbird.” They killed it before shipping it. It was designed to compete with Pointcast and AOL, both walled garden approaches….

What did Pointcast in (content publisher greed) isn’t what did Apple in, though. No, that was all about the closed arrogant system that Apple had built. It turned off developers by the droves.

Not that Apple was all that wrong. They were trying to protect users from ugly apps. They saw the Macintosh as “art” while Bill Gates had no such delusions. Bill told developers “build” and even gave them a tool that looked like a modern Hypercard: Visual Basic. Apple in the meantime killed Hypercard because it enabled normal people to build really ugly and wacky apps.

What did Steve Jobs do yesterday? Told the normal people “you will NOT build apps on my beautiful machine.”

Robert continues:

So, what does Apple need? Is it more apps? No way. At 130,000 apps Apple already has enough apps to keep a sizeable lead for years over its competitors like Google’s Android OS.

No, what Apple needs is better quality apps. So, does Apple care about templated apps or ones developed in Flash or some other cross-device language/system? No way.

In fact, if anything, Apple does NOT want developers to develop apps for other hardware at all, or if it must, it wants the apps on other platforms to suck and suck visibly. Just like today. Tweetie (which was just purchased by Twitter, more on that in a second) is a LOT better than Seesmic or Twitroid on Android. Steve Jobs LOVES when that happens because it keeps you locked into the iPhone and iPad.

So, how does Steve Jobs make sure that the best developers work on iPhone and don’t work on building systems that make it easy to port apps from iPhone to Android or Microsoft’s new Windows Mobile 7, or to Nokia or to RIM’s Blackberry (which is VERY hard to develop for)?

Well, easy, make it against the rules!

This pisses everyone off, because they thought that they would be able to hire one development team to build for all platforms, but now they’ll have to build two development teams: one for the iPhone and one for everything else.

So what this whole argument is about is about is dominance- Steve Jobs doesn’t trust the developers to develop great apps for his platform without his influence (and approval). Yet history has shown in the long term, companies struggle to consistently innovate and eventually die, or become laggards, just like Apple did. Companies that embrace openness and innovation consistently lead, like Google.

How long will we put up with the walled garden? I dunno, but Techcrunch doesn’t think Steve will be able to re-write history, twice.

The other big tech news of the week was Twitter’s acquisition of  Tweetie- again via Robert:

So now Twitter is showing its own version of causing trouble with developers in order to move to the next level. What did Twitter do? In the past few days they’ve released a Blackberry client and bought iPhone developer Tweetie and said they intend to rerelease Tweetie for free under the Twitter brand.

This was like a bomb going off in the Twitter developer community as developers like Seesmic and Tweetdeck realized they had a new competitor: Twitter itself. How unplatform like!

So now the Platform is competing with it’s ecosystem.

This is a major consideration when choosing if you use a platform as a distribution method for your SaaS business- it could be Google Apps Marketplace or Salesforce AppExchange. What to do? Mark Suster explains:

I articulated in a previous post that startups should not treat the iPhone as a business but rather as a channel.  The same is true of Twitter, and as a VC I would personally never fund a company that looked to simply plug a functional gap in Twitter.

So Platforms are channels- not an end game in themselves…

Despite Benioff’s best PR efforts this week, his noise was duly drowned, as was everyone elses… (remember Jo Moore? A good day to bury bad news) Maybe that’s what twitter was trying? Anyway, he was on the road promoting chatter:

As you’d expect, Salesforce CEO Marc Benioff is a constant salesman. At a dinner last night in New York City, he kept showing everybody in the room his newest baby, Salesforce Chatter, which turns Salesforce into feeds of people and customer data. He was showing it on his iPhone, which he wields as a sales weapon. (Benioff cornered one poor CIO with his iPhone demo for a good 20 minutes).

I got Benioff to show me the iPhone app on video (above). It is a supercharged, Chatterized version of Salesforce’s iPhone app which is not yet generally available. But you can see how it is very Facebook-like in that you follow a stream of updates from people you work with. Each one has a profile. But companies and customers also have their own feeds and profiles. Anyone who uses a Twitter app on an iPhone or Facebook or Yammer will find this user-interface familiar.

Benioff might be a big believer in the iPad as a new window onto the cloud, but it is the iPhone that he can whip out every time he meets a customer that is going to help him sell Chatter. At the beginning of the video, Benioff also mentions the news announced earlier today that Chatter will get its own marketplace of apps.

Breaking news out this evening is it looks like Salesforce is going into the IaaS business with VMware- check out http://www.vmforce.com/. They’ll have the entire SPI stack covered soon, SaaS, PaaS and IaaS.

Techcrunch was particularly hard on Microsoft this week:

Microsoft is still fumbling as it tries to navigate its way out of the innovator’s dilemma. The business was built and nurtured on its lucrative suite of Office products— unfortunately, that reliance on Office is now complicating its full migration to cloud computing. Today, we spoke to Senior Vice President Chris Capossela, who acknowledged the challenge of growing profits without pay-to-install software.

In our video interview, Capossela eventually goes on mention that there will be paid services on cloud computing, although he did not articulate which services are expected to be the biggest revenue drivers. However, the fact that Capossela heavily (and immediately) highlighted the old pay-to-install Office model, underscores Microsoft’s ongoing dependence on the old cash cow and perhaps, excess optimism. Last month, Steve Ballmer said, “when it comes to cloud, we’re all in.” The company’s head may be in the cloud but one foot is on installed software.

Have they forgotten they’ve got $9.5bn to spend on R&D?

Remember their profit chart?

Not much coming from online services- i.e. Cloud…

A couple of weeks ago a reader asked me to cover more about multi-tenancy. This post gets directly to the heart of the issue I had to reproduce it here in full:

Alok Misra hits on good issues around the dispute, or should I say silly dispute, about multitenancy: “There’s a debate in the software industry over whether multitenancy is a prerequisite for cloud computing. ”

Let’s get this straight right now. Cloud computing is about sharing resources, and you can’t share resources without multitenancy. Even if you have virtualization, I don’t consider that alone to be cloud computing. Some multitenancy has to exist within the architecture, allowing resources to be apportioned efficiently. That point of view strikes me and to most of those in the cloud computing space as logical, but it seems to be lost on those attempting quick migrations to “the cloud,” without having to put in the work.

Alok agrees: “I sit firmly in the multitenancy camp. A multitenant architecture is when customers share an app in the cloud, while a single-tenant cloud app is similar, if not identical, to the old hosted model. But compare two subscription-based cloud apps side by side — with the only difference being that one is multitenant and the other is single-tenant — and the multitenant option will lower a customer’s costs and offer significantly more value over time.”

Why is there even a debate? The traditional on-premise vendors, as Alok points out, are moving to the cloud. These vendors are finding that building multitenant architectures is a much bigger nut to crack than they thought. Indeed, I’ve built three of those architectures in my career, and I can confirm that they are not at all simple to design, build, and operate.

Therefore, those moving from single-tenant on-premise architectures to multitenant cloud computing services are going to find that the transition is years in the making, not months. This is especially the case if you have to remain backward-compatible with your existing customer base.

Thus, the quick fix is going with easy-to-deploy single-tenant architectures that soon run out of resources as they scale (because few items are shared). This is a way to jump into an emerging market, but without taking the time to design and build the required technology, it won’t serve the market for any length of time.

There should be no debate here: Cloud computing, both private and public, requires the concept of multitenancy. The traditional providers are welcome in the cloud as long as they can provide multitenancy. If you can’t do it, then don’t try to argue that it’s not needed.

Get to work!

(Emphasis- Ed.)

Can we put that one to bed now?

In Other news:

• Google launches re-write of Docs- realtime collaboration. Offline going as Gears is sunset but coming back with HTML5. Wave where are you or should we wave goodbye?
• New report shows cloud can definitely save governments money- between 25 and 50%. Are we surprised? CIO Kundera thinks fed data centres are only 7% utilised.
• This is not turning into an Apple Blog- but they’ve sold 450,000 iPads and 50m iPhones to date.
• Jeff Kaplan’s post mortem on Helpstream (from Google cache).
• Joel York’s excellent SaaS finance coverage continues- this week how to value SaaS companies. Customer Lifetime Value is the key proponent
• Mikael is researching SaaS support- take the survey now!

Have a great week!

Justin

jp@justinpirie.com

TWIS#20- This Week in SaaS

In this week’s TWIS:

• iPad Mania (Sorry if you already hate the iPad)
• Benioff on Cloud 2.0 (surely we must be over the hype cycle of cloud if it’s already being re-branded 2.0) Trough of disillusionment anyone?
• The Video is now out of Fred Wilson’s seminal FOWA talk on the 10 Golden Principles of Successful web apps.
• Freemium summit shenanigans: Gigaom, Lincoln, Rags, Matt and Tom with interesting perspectives on how to and not to do freemium plus actual figures from Xobni.
• Amazing Clay Shirky post on the demise of Complex business models.
• A vintage Kashflow vs Sage rant to follow up the brilliant Shirky thoughts and how it might apply to SaaS
• In other news: Bessemer stacks up the in-house talent again, Twilio finally has a competitor, Amazon launches support for legacy storage systems, Mobile data to rise 40 fold over the next 5 years, Are multi-year Up-front payments right in SaaS and more excellent coverage on why Multi-tenancy matters in SaaS.

TWIS#20

Welcome to the new Monday edition of TWIS!

It’s somewhat predictable that the world has gone somewhat ga-ga over the iPad over the last few days, given the impact apple has over it’s fans. But this blog isn’t about consumer devices- the reason I keep covering it is because I think it’ll be a transformational device for SaaS- I’m sorry if you’re among the 50% of people who wish everyone would stop talking about it.

Here’s why:

• It’s going to be incredibly user friendly- Great UX is going to open it up to new audiences
• It’s cheap for a touchscreen device at $499.00
• It’s got little or no storage- apps need to be run from the cloud

So to start-the UX has to deliver- CrunchGear thinks so:

I just grabbed my iPad, dock, and case and I’m ready to start living in the 21st Century. Say what you want, but the iPad is clearly a new way forward in terms of user interaction and portability. In fact, I regret that I don’t have a long haul flight to test this thing out on because this device may be the elusive missing link between full-bore laptop and underpowered netbook for which we’ve all been searching.

On the whole, the iPad is nothing revolutionary: if you know iPhone, you’ll know this thing. But Numbers, Pages, and Keynote, the office suite that isn’t Office, is amazing on the iPad and iBooks are already a big hit around our house. Thankfully, Apple includes an A.A. Milne Poohbook for the kiddies.

Hyperbole without experience is hype so I’m going to ruminate on this thing this week and report back shortly. However, if you’re in the market for a netbook, this may be your solution. The jury is still out on WiFi v. 3G/WiFi (I’m leaning 3G/WiFi) but it’s still a fascinating product.

Mike Arrington went on:

But one thing I have had the chance to do is test iPads at developers who’ve been willing to bend the rules a little. Well, actually, a lot. This is exactly what Apple didn’t want – bloggers and other outsiders to get access to and play with the devices.

But play I did. I’ve surfed the net on the iPad. I’ve played games on the iPad. And I’ve done email on the iPad. Yes, those iPads were chained to desks and in a bolted on steel case. And even so, the experience was stunning. It’s a nearly flawless device.

And the iPad beats even my most optimistic expectations. This is a new category of device. But it also will replace laptops for many people. It does basic computer stuff, like email and web surfing, very well. Applications load quickly and are very responsive – think iPhone 3GS with a 50% speed boost.

That’s what surprised me the most. The iPad isn’t just for couch computing when you want to look something up on Wikipedia or send a quick email. It’s a perfectly usable business device. And the form factor just happens to work far better for cramped places like airplanes than a normal laptop. I doubt I’ll ever open a laptop on a plane again after tomorrow.

I am easily able to type 50 words per minute on the large virtual keyboard. A physical keyboard is a nice add on when I’m in my office or hotel room, but it works just fine without it, too.

The iPad will put significant pressure on laptop sales, particularly second device laptops. And it will also have a devastating effect on single-use devices like the Kindle, unless the price of those devices drops substantially. I will quite happily read books on the iPad, and the battery really does last for up to ten hours.

And then there are the apps. Some of the iPads best uses are yet to be imagined. This is certainly an amazing game device and productivity tool. And I’ll happily consume massive amounts of music and video content on the iPad. Third party apps, and there are a ton of them coming, will make this even more useful.

I suspect I’ll rarely be away from this device. In fact it will make my phone far less important for non-calling uses. I may not have the iPad in my pocket with my phone, but it will certainly be in my bag over my shoulder. With a 3G data plan I’ll use it to read the news, look up movie times and reviews, send instant messages and emails, and lots of other things that I do with my phone. I’m not so sure I need to have the latest and greatest phone device any more, knowing that there’s an iPad within reach.

Interesting- you may know Mike’s been obsessed with tablet computing for some time, but even still- that’s a glowing review.

Krishnan back in January hit the nail on the head:

I am looking at it from a completely different perspective. As a heavy SaaS user, it excites me to have access to my applications from a mobile device that is reasonably bigger than a mobile phone and without the disadvantages of netbooks. iPhone changed the way I used business apps. Coupled with SaaS, my productivity has increased many-fold. Most of the SaaS vendors offer access through mobile phone in one form or another. Some like Mindmeister, Remember The Milk, etc. offer native iPhone applications whereas many others, who are fed up with the Apple approval process, use mobile web applications. In fact, SaaS providers like Google and Zoho (disclaimer: Zoho is the exclusive sponsor of this blog but this is my independent opinion) offer mobile web apps that almost mimics the users’ web experience.

However, my experience with using SaaS apps on iPhone left a lot to be desired. I found the iPhone screen to be too small to have a strain-free experience. I also wanted the keyboard to be a bit bigger to suit my fingers. At times, I also want better processing power to have a more seamless experience. With iPad, I get all of these and more. It is a perfect mobile companion for heavy SaaS users without the clunkiness associated with netbooks. In short, iPad is a great device for any SaaS junkie and, in some ways, magical.

So in terms of Apps, there are already over 3000 paid apps, with only 20% being free. That’s nearly triple the apps on the iPad in 3 days as are on Palm’s webOS in how many years? And the jailbreak is on the way.

Even Marc Benioff has gone Ga-Ga over the iPad:

The future of our industry now looks totally different than the past. It looks like a sheet of paper, and it’s called the iPad. It’s not about typing or clicking; it’s about touching. It’s not about text, or even animation, it’s about video. It’s not about a local disk, or even a desktop, it’s about the cloud. It’s not about pulling information; it’s about push. It’s not about repurposing old software, it’s about writing everything from scratch (because you want to take advantage of the awesome potential of the new computers and the new cloud—and because you have to reach this pinnacle). Finally, the industry is fun again.

Beyond the fluff, he makes a very serious point:

Last week I gave presentations to more than 60 CIOs in various meetings throughout America’s heartland. My message to them: We are moving from Cloud 1 to Cloud 2, and the iPad is the accelerator. Many of them haven’t even made it to Cloud 1—some are still on mainframes. They are working on MVS/CICS, or Lotus Notes, and they have never heard of Cocoa, or even that there is now HTML 5. This is unacceptable. The next generation is here. The iPad that shows us what now is really possible—and that we all need to go faster. Unfortunately, some CIOs would rather retire than go faster. (Emphasis Ed.)

It was on TechCrunch in late February that I first suggested that the enterprise software industry has to move forward and posted an article, “The Facebook Imperative.” In 1999, I was obsessed with the question, “Why isn’t all enterprise software like Amazon.com? And in 2010, the question evolved: “Why isn’t all enterprise software like Facebook?” This week we will have the answer to that question in our hands with the iPad. It’s a more productive, easier, and fun way to work and live. The iPad shows us the old world is no longer good enough. We’ll need new software with a new UI.

What’s really interesting is that Salesforce is repositioning themselves against much more modern software, recognising the shift in the industry. I don’t think there they’re yet, but for SaaS people I think it’s interesting to think about the comparisons- and what makes those companies he’s comparing himself against so special?  Network effects and Ecosystems. Check out Fred Wilson’s FOWA speech on the 10 Golden Principles of Succesful Web Apps for some detail:

The 10 Golden Principles of Successful Web Apps from Carsonified on Vimeo.

Enough iPad coverage! Except to say I want one

Continuing on our coverage of Freemium- there have been a slew of posts since the Freemium Conference a couple of weeks ago- but I think the sentiment is slowly changing and people are understanding better what Freemium is and it was great to see coverage in mainstream tech media:

Don’t spend money on marketing, do offer flexibility and data exporting to eliminate buyers’ regret, make sure to capitalize on and value goodwill, and only charge for things that are hard to do.

Lincoln delivered what ended up being a somewhat contrarian perspective (shock horror!)

While I was the lone contrarian in the group, speaking on “Freemium and the Enterprise: Proceed with Caution” and warning those in niche B2B markets especially of the fact that Freemium is likely not even an option for you, all of the speakers had some form of caution for the audience. Universally they said Freemium is not for everyone and it is risky.

The part of my presentation that got the most tweets and I think the biggest reaction was was the back of the napkin math that I encourage those wanting to try Freemium to do. This starts on slide 14, but slide 16 really nails the point home. Everyone says Freemium is a numbers game; indeed, but if the numbers aren’t there to begin with, its a non-starter. Check it out.

The other big reaction was perhaps my giving big ups to Biggie Smalls and the complex concept of “Mo’ Money, Mo’ Problems”. Overall, what a fun, energetic, and very receptive audience at the Freemium Summit.

Rags Srinivasan also posted some sense about people considering Freemium- five questions to ask before you launch and Cost accounting 101 for freemium startups. Both brilliant.

Matt Breznia posted an excellent deck based on real world experience- I like his sharing of real figures plus his insight that the publicly traded Freemium companies aim for a 1 in 10 premium customer as opposed to the 1-4% commonly talked about.

Tom Foremski posted his notes from the Emergence stable of CEO’s (too note like to reproduce here…)

Not directly on topic, but covering business models and innovation, plus probably the best post of last week was Clay Shirky’s take on the collapse of complex business models:

I gave a talk last year to a group of TV executives gathered for an annual conference. From the Q&A after, it was clear that for them, the question wasn’t whether the internet was going to alter their business, but about the mode and tempo of that alteration. Against that background, though, they were worried about a much more practical matter: When, they asked, would online video generate enough money to cover their current costs?

That kind of question comes up a lot. It’s a tough one to answer, not just because the answer is unlikely to make anybody happy, but because the premise is more important than the question itself.

There are two essential bits of background here. The first is that most TV is made by for-profit companies, and there are two ways to generate a profit: raise revenues above expenses, or cut expenses below revenues. The other is that, for many media business, that second option is unreachable.

Here’s why.

* * *

In 1988, Joseph Tainter wrote a chilling book called The Collapse of Complex Societies. Tainter looked at several societies that gradually arrived at a level of remarkable sophistication then suddenly collapsed: the Romans, the Lowlands Maya, the inhabitants of Chaco canyon. Every one of those groups had rich traditions, complex social structures, advanced technology, but despite their sophistication, they collapsed, impoverishing and scattering their citizens and leaving little but future archeological sites as evidence of previous greatness. Tainter asked himself whether there was some explanation common to these sudden dissolutions.

The answer he arrived at was that they hadn’t collapsed despite their cultural sophistication, they’d collapsed because of it. Subject to violent compression, Tainter’s story goes like this: a group of people, through a combination of social organization and environmental luck, finds itself with a surplus of resources. Managing this surplus makes society more complex—agriculture rewards mathematical skill, granaries require new forms of construction, and so on.

Early on, the marginal value of this complexity is positive—each additional bit of complexity more than pays for itself in improved output—but over time, the law of diminishing returns reduces the marginal value, until it disappears completely. At this point, any additional complexity is pure cost.

Tainter’s thesis is that when society’s elite members add one layer of bureaucracy or demand one tribute too many, they end up extracting all the value from their environment it is possible to extract and then some.

The ‘and them some’ is what causes the trouble. Complex societies collapse because, when some stress comes, those societies have become too inflexible to respond. In retrospect, this can seem mystifying. Why didn’t these societies just re-tool in less complex ways? The answer Tainter gives is the simplest one: When societies fail to respond to reduced circumstances through orderly downsizing, it isn’t because they don’t want to, it’s because they can’t.

In such systems, there is no way to make things a little bit simpler – the whole edifice becomes a huge, interlocking system not readily amenable to change. Tainter doesn’t regard the sudden decoherence of these societies as either a tragedy or a mistake—”[U]nder a situation of declining marginal returns collapse may be the most appropriate response”, to use his pitiless phrase. Furthermore, even when moderate adjustments could be made, they tend to be resisted, because any simplification discomfits elites.

When the value of complexity turns negative, a society plagued by an inability to react remains as complex as ever, right up to the moment where it becomes suddenly and dramatically simpler, which is to say right up to the moment of collapse. Collapse is simply the last remaining method of simplification. more…

Does this remind you of legacy software businesses approach to transitioning to SaaS? It certainly does to me!

That also reminds me of this seminal post by SaaS accounting upstart Kashflow giving advice to juggernaut Sage on how to start a SaaS business properly:

My Tuppence Worth

As Sage seem to be soliciting opinions on their approach, here’s mine just in case anyone is still reading.

They seem to have two major problems:

1. Software for the web bears no resemblance to software for the desktop, they have lots of experience with the latter, but none with the former. The skills are not transferable – that’s what doomed the Sage Live project. Software for the web is not in their DNA.
2. SaaS is a business model as well as a software delivery model. That business model cannibalises the existing models of software companies like Sage. You can’t have the same people responsible for pushing forward a SaaS company and a old-style software company

To me the solution to both problems is pretty simple:

They need to get a new company up and running, owned and funded by Sage PLC (although I know a few VC’s who would happily pour money in)  – give it a big fat budget and some good project managers and let it run independently.

Then recruit developers that are real web developers, not desktop developers. These people can’t be from within Sage - they need to be people that know the web but aren’t tainted by exposure to old-school software houses, their methodologies and blinkered approach. They need to build an app from the ground up using pure web technologies – PHP, .Net, Ruby, whatever.

The new company should be able to access Sage’s expertise on the accounting side of things – but not make use of ANY of their existing technology, code,database structures or concepts of how software should work. That last bit is so important. I can understand how tempting it must be to re-use code and database structures to save time and money. But that would be like a cancer in the new product. Don’t do it!

I reckon they could easily put together something good enough to take to market within 6 months.

From then on, they can revive what I suspect was part of the Sage Live game plan: release the app sooner rather than later and improve it based on feedback from actual users. Improve and release again ad infinitum (a web-app is rarely finished) and price it very aggressively.

Once the product is working well, let them tap in to the marketing machine that is Sage PLC as well as having their own budgets for online marketing.

If done correctly the new business will very quickly start taking customers away from it’s parent company. But these customers were going to be tempted away anyway – better for Sage that they leave for a Sage-owned subsidiary than elsewhere.

Duane is always up for a fight

In other news:

• Bessemer stacks up the in-house talent again- this time hiring Jason Finger as Entrepreneur in Residence
• Twilio finally has a competitor- Teleku. More telephony enabled SaaS apps please.
• Amazon launches support for legacy storage systems inc. punchcards- genius April fools
• Kleiner Perkins “doubles down” on the iFund- takes investment in apps to paltry $200m…
• Greenpeace issues warning about data centre power consumption- power them with green energy please
• Mobile data to rise 40 fold over the next 5 years- yes 40 times!
• Could Cloud be driving down chip sales or was it the credit crunch? Semiconductor revs down 10% in ’09.
• Multi-year Up-front payments right in SaaS? Phil carries the flag and Krishnan follows.
• More excellent coverage on why Multi-tenancy matters in SaaS- inspired by the SaaS group no less
• Just for fun- new comedy Suitemates- taking aim at the big vendors.

I hope you had a brilliant Easter weekend and are raring to go for this week!

Justin

jp@justinpirie.com

TWIS#19- This Week In SaaS

In this week’s TWIS:

• VC Evangelos Simoudis on what CIO’s think strategically of SaaS- Good News!
• Hired- I’ve got a new job! Read All About It (I’m stilll going to be here for you)
• Ben Kepes on Cloud Layers- Is now the time to think again about Cloud terminology?
• William Vambenepe’s presentation to Cloud Connect- what parts of SaaS should be part of Cloud?
• State of the Mobile Nation- February Smartphone update.
• News on Pearl, Recurly, Erply, Helpstream, Timetric.

A great week in SaaS!

TWIS#19

Vastly under-read, is VC Evangelos Simoudis- who’s meeting week in week out with the best and brightest and who’s commentary I really like:

The future for SaaS applications is getting brighter.  Discussions I had with the CIOs and business unit executives of the companies I recently visited support that the majority of applications used today by mid- and large-size companies can be delivered via the cloud.

They use the following rationale to arrive to this conclusion: Of the applications used in a corporation, 15% are either company-specific, reflecting proprietary business processes, or need to adhere to particular regulatory requirements. As a result, these must be on-premise applications.

The remaining 85% of business processes can be automated using off-the-shelf, packaged applications.

Of these packaged applications, 80% can be delivered through SaaS, i.e., they are based on single instance multi-tenant architectures, or, at the very least, they can be cloud-based applications delivered over private, public or hybrid clouds.

The type of cloud used depends on the customer’s customization and on-boarding requirements.  The remaining 20% must be delivered using off-the-shelf on-premise applications.  Getting this message across will require IT vendors to continue educating the market and offering their SaaS applications in pieces that are easily “consumable” by corporate users.

Issues such as security, and application and data integration, about which I wrote in the past, will still need to be addressed before cloud computing in general and SaaS applications in particular can be broadly adopted.

I didn’t even have to emphasise that one!

For those of you that subscribe via email or to my feed, you’ll know I’ve joined Mimecast as Director of Communities and Content. Rest assured, I’m going to keep blogging, and it’s going to get even better now I’ve not got any pesky consulting gigs to do!

So my rant last week about confusion between the cloud layers went largely un-noticed… but Ben Kepes over at CloudAve has continued the theme:

I’ve been running a bunch of CloudCamps around the place – and a common issue I’ve come up against is being part of sessions where half the crowd are talking high stack level stuff, while the other half is talking infrastructure. It’s easy to see how this occurs – the term “Cloud Computing” covers a huge variety of things – from customer applications, down to the millions of Amazon servers spinning away – along with everything in-between. It’s not surprising there’s sometimes a disconnect between people involved in the cloud.

In the early days of the cloud (hey – a whole few years ago) we needed a term we could hang our hats on – something that was all encompassing and, to a certain extent, something that let us find some commonality in the fight for legitimacy against the legacy vendors and their well articulated, and well funded FUD.

But we’re in a different world now – everyone does cloud, from the most traditional vendor to the smallest startup. Cloud is, to a greater or lesser extent, the default and because of that the term becomes problematic.

I think Ben is spot on- we need to differentiate more clearly between the different layers of the stack- bust it apart? William Vambenepe covered it brilliantly for Cloud Connect- he starts with the various SPI models one sees:

I used this first slide (a compilation of representations of the 3-layer Cloud stack) to poke some fun at this ubiquitous model of the Cloud architecture. Like all models, it’s neither true nor false. It’s just more or less useful to tackle a given task. While this 3-layer stack can be relevant in the context of discussing economic aspects of Cloud Computing (e.g. Opex vs. Capex in an on-demand world), it is useless and even misleading in the context of some more actionable topics for SaaS: chiefly, how you deliver such services, how you consume them and how you manage them.

In those contexts, you shouldn’t let yourself get too distracted by the “aaS” aspect of SaaS and focus on what it really is.

Which is… a web application (by which I include both HTML access for humans and programmatic access via APIs.). To illustrate this point, I summarized the content of this blog entry. No need to repeat it here. The bottom line is that any distinction between SaaS and POWA (Plain Old Web Applications) is at worst arbitrary and at best concerned with the business relationship between the provider and the consumer rather than  technical aspects of the application.

Which means that for most technical aspect of how SaaS is delivered, consumed and managed, what you should care about is that you are dealing with a Web application, not a Cloud service. To illustrate this, I put up the…

… guillotine slide. Which is probably the only thing people will remember from the presentation, based on the ample feedback I got about it. It probably didn’t hurt that I also made fun of my country of origin (you can never go wrong making fun of France), saying that the guillotine was our preferred way of solving any problem and also the last reliable piece of technology invented in France (no customer has ever come back to complain). Plus, enough people in the audience seemed to share my lassitude with the 3-layer Cloud stack to find its beheading cathartic.

Come to think about it, there are more similarities. The guillotine is to the axe what Cloud Computing is to traditional IT. So I may use it again in Cloud presentations.

Of course this beheading is a bit excessive. There are some aspects for which the IaaS/PaaS/SaaS continuum makes sense, e.g. around security and compliance. In areas related to multi-tenancy and the delegation of control to a third party, etc. To the extent that these concerns can be addressed consistently across the Cloud stack they should be.

But focusing on these “Cloud” aspects of SaaS is missing the forest for the tree.

A large part of the Cloud value proposition is increased flexibility. At the infrastructure level, being able to provision a server in minutes rather than days or weeks, being able to turn one off and instantly stop paying for it, are huge gains in flexibility. It doesn’t work quite that way at the application level. You rarely have 500 new employees joining overnight who need to have their email and CRM accounts provisioned. This is not to minimize the difficulties of deploying and scaling individual applications (any improvement is welcome on this). But those difficulties are not what is crippling the ability of IT to respond to business needs.

Rather, at the application level, the true measure of flexibility is the control you maintain on your business processes and their orchestration across applications. How empowered (or scared) you are to change them (either because you want to, e.g. entering a new business, or because you have to, e.g. a new law). How well your enterprise architecture has been defined and implemented. How much visibility you have into the transactions going through your business applications.

It’s about dealing with composite applications, whether or not its components are on-premise or “in the Cloud”. Even applications like Salesforce.com see a large number of invocations from their APIs rather than their HTML front-end. Which means that there are some business applications calling them (either other SaaS, custom applications or packaged applications with an integration to Salesforce). Which means that the actual business transactions go across a composite system and have to be managed as such, independently of the deployment model of each participating application. (Emphasis Ed.)

I completely agree- I guess that cloud is now crossing the chasm we need to differentiate between the layers just like the good ol’ days.

Time for the Feb Mobile watch via Admob/TechCrunch:

According to AdMob, smartphones accounted for 48 percent of its worldwide traffic last month, up from 35 percent in February 2009. Dominant still is iPhone OS, which has increased its share of smartphone requests on the AdMob network from 33 percent in February 2009 to 50 percent in February 2010. Android, however, is the fastest-growing these days.

Symbian is the big loser: while it accounted for 43% of AdMob’s smartphone requests in February 2009, it only reached a 18% share last month.

I didn’t realise until last week that Symbian had been Open Sourced- did you?

In other news:

• Local (Bristol, UK) boys Pearl released their rapportive addin for Gmail/Google Apps- Nice and simple CRM integration in email- GREAT for small business wanting simple integration.
• Love the open pricing discussion by Recurly in true lean startup style.
• Love SaaS shaking up verticals- Retail/Online +Stock = Erply from the founders of skype
• Notes from the field: Bob Warfield on the Freemium Experience from Helpstream
• Nice SaaS charting program timetric- find data: chart online- Great infographics?

Have a great weekend!

Justin

As of this morning I work for Mimecast. The title is “Director of Communities and Content”. The focus is Email. Fun is expected (via Tim Bray).

Context?

Well, as many of you know, I’ve been looking for a new home for my skills for a little while- I really miss being part of a team and having a clear focus that you don’t get while consulting. I’ve been having loads of conversations but most of the offers have been US centric, at which point the conversation ended with “I’m not looking to relocate to San Francisco/New York/Boston” (delete as appropriate). Not much good for me- so I was sticking to consulting…

That changes today. I’ve been looking for a UK based SaaS company with a great team, excellent technology, traction, a compelling vision and well funded- I found this at Mimecast. I was introduced to Mimecast by one of their VC’s, Josh Bell and their marketing director, Tim Pickard. The process was slick- lunch with Tim, then an interview with the CEO Peter Bauer and three days later a group presentation to the team (60 minutes of new content in three days- nice!).

They made an offer and I accepted, so here I am.

Why?

Well like I mentioned before, I was looking for a great team, excellent technology, traction, a compelling vision and well funded. Not so easy to find in the UK.

I think there are three interesting things to highlight- technology, traction and vision.

Technology

For those of you that don’t know, Mimecast provides email security, archiving, compliance and continuity primarily focused on Microsoft Exchange. The really interesting thing about the technology is that it uses a grid style data architecture, similar to Gmail or Google Apps, which means you get Gmail style horizontal scalability, speed and searchability, but for Exchange.

This is delivered using an Outlook connector, so you don’t have to leave Outlook to search and should the exchange server go down, the connector takes over email delivery and delivers continuity. Once the Exchange server is back up, it seamlessly syncs the changes back to server giving users the impression of no downtime. Nice! Having that at my VAR would have saved me many nights trying to recover corrupted exchange stores and angry customers…

I also think Mimecast technology could underpin the next wave of SaaSification of email- there are major unresolved issues with Hosted Exchange (known as BPOS) competing with Google and a swathe of hosters and resellers stuck in the middle without any differentiation.

Traction

In terms of traction, Mimecast has almost been flying below the radar, while sweeping up verticals, like the UK legal sector; with over half the top 100 legal firms as customers. When joining somewhere, it’s great to see marquee customers who will have done their due diligence and not stuck around if it wasn’t up to scratch- especially lawyers! This to me feels like great product / market fit.

Vision

The last of the compelling reasons I wanted to join was the vision- which is to be the archive of unstructured data on the net. Let me expand on this a little, as I understand it… One of the major problems I’ve been seeing with Enterprises adopting SaaS is Security, Compliance and Archive. They don’t really care about the ROI of SaaS if organisationally it doesn’t comply with their policies. So organisations are faced with the following: “The 4 states of SaaS in the Enterprise”:

1. Embraced- IT embraces SaaS and cloud technologies
2. Managed- IT manages the businesses use of SaaS and Cloud
3. Don’t Ask- Don’t Tell- IT ignores the presence and risks
4. Banned- IT actively tries to stop SaaS and Cloud initiatives

So how does an archive of unstructured data on the net help things? Well firstly backup. At the moment backing up cloud/SaaS data is hard, and there only recently emerging a few services, like Backupify. They’re freemium and based on Amazon EC2, so I think there is space for an Enterprise grade, data protection compliant SaaS/Cloud backup service.

Secondly Archive. SaaS is becoming increasingly transient, e.g. buy basecamp for that month long project and then decommission- in fact the whole notion of Cloud i.e. elasticity is based on transiency. This isn’t good for enterprise data though, without a good export done by the team at the end and somewhere to store it, that valuable data is lost. It should be archiveable and the enterprise should be able to search and discover that information forever.

Thirdly Compliance. At the moment you don’t know how information is being used in each SaaS or Cloud application, and who has been accessing it like you did when you ran internal systems. I’ve seen people not buy SaaS solutions because of this loss of control.

Lastly- Disaster recovery. As much as we trust SaaS providers, there will be some data losses. This could be the insurance policy for organisations to adopt SaaS, without fear that it’ll be their data that’s lost or the provider suddenly goes out of business and their servers are turned off- because code Escrow is useless if you can’t get access to your data!

I think I’ve probably said enough about the vision- especially as it is exactly that, a vision and not reality today- but I think it’s vitally important to work somewhere where the vision is compelling.

What I’m going to do

Lots of speaking, conferences, blogging and twittering! As an Evangelist I’ll be much more available to everyone- no more pesky consulting gigs taking over my time!

I’m going to keep blogging and running the SaaS community on Linkedin, but I’ll be speaking and attending many more conferences and events. In fact, the extra time I’ll have will enable me to launch some exciting new projects that have been stalled because of lack of time and or resources… I can’t wait- I’ve been collaborating with some of the best people in SaaS behind the scenes for months and the results will be on show soon!

What I’m not going to do

Obviously I’m not going to change the style or content here. That’s not what you want and they understand. I guess I’ll have to add a disclaimer to say that it’s my personal opinion… But for full disclosure and as you’d expect Mimecast did ask to see an advance draft of this post prior to publishing which I think is fair enough and I would ask of me exactly the same thing.

What next?

Well, today is my first day, so I’m going to be getting to know my new colleagues and the organisation, but as always, you can reach me via email- jp@justinpirie.com or in the comments. If you’re interested in consulting, I’ve handed off my practice to the excellent Lincoln Murphy of Sixteen Ventures, so if you need help- go and talk to him!