@RomanStanek is Right, Selling Enterprise Software is Still Old Skool

But not in all cases and not for all people.

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

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

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

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

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

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

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

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

So, so true.

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

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

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

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

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

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

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

Innovator First to develop or patent an idea
Product Pioneer First to have a working model
First Mover First to sell the product 47% failure rate
Fast Follower Entered early but not first 8% failure rate

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

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

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

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

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

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

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


SaaS and the Channel- What is happening? Part #2

In my first post Anders and I looked at how Cloud is changing the traditional IT supply chain and discussed some of the transformation that needs to take place.

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

One of the most interesting was the comment that:

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

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

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

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

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

How can the Channel evolve and adopt Cloud?

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

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

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

SaaS and the Channel Part 2 from justinpirie on Vimeo.

SaaS and the Channel- what is happening? Part #1

Anders Trolle Schultz came to London recently and I got to spend some time with him on his short visit. For those of you that don’t know him- Anders is one the leading lights in SaaS and Cloud in Europe and in particular routes to market or distribution. He helps a number of vendors, both large and small with their SaaS strategy and since I’ve been remiss in posting text blogs recently, I thought it was a great opportunity for some video blogs.

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

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

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

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

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

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

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

·      What is the transformation that IT is going through?

·      Where is the budget going?

·      Why isn’t the Channel happy?

·      Should the Channel embrace cloud?

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



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

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

Changing Times in the Channel

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

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

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

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

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

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

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

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

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

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

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


Event: The Content Crisis- Driving Down Customer Acquisition Costs

It’s been a little while since I’ve posted on this blog- but I felt it was time to give an events update as there is some really good stuff happening and readers don’t seem to be getting the best of me these days…

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

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

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

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

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

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

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

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

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

Lean Startup- a primer for EntrepreneursView more presentations from Justin Pirie.

And a new perspective on Cloud Security:
Cloud Security- In Perspective

View more presentations from Justin Pirie.
As always- feel free to email me anytime- jp@justinpirie.com

TWIS#27- Google I/O coverage in depth


  • 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.


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.

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TWIS#26- This could change your life… Understanding Sales Complexity in SaaS

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.


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.

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TWIS#25- SaaS officially crosses the chasm- largest enterprise deployment… ever

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):

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:

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TWIS#24- Cast Iron acquired and what it means for the Cloudsourcing Glue

TWIS#24- This Week in SaaS
  • 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


Dilbert of the week:

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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?

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TWIS#23- Cloudonomics, SaaS / Cloud ROI and the latest Multi-tenancy shenanigans

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 ;)

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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:

Eric, Lori and I are on the same wavelength when it comes to why we get ROI from Clouds- it’s all about agility- and Eric sum’s it up really well in this post:

Alright, I admit it! This whole public-private-hybrid cloud debate the clouderati love to go back and forth about just — *yawn* — never really — *yawn* — did much for me. Only you crazy engineering types could get so worked up over the purity of a definition. ;-)

Same thing for the whole “capex/opex” cloud benefit speech. I see it at every single cloud event running today — you know, the “why the cloud will improve your bottom line” panel (or some variation on that theme), and wow I have something approaching zero desire to hear about that.

But until this morning, I could never figure out why. And then I read this piece. In it, Lori MacVittie lays out an amazing argument as to why “the benefits of cloud computing” (as in “public cloud”) aren’t about cost (or efficiency of cost) as a driver. As it turns out, *agility* is probably the key driver in the cloud, with a cost factor coming into play in the private cloud. Let me elaborate a bit.

Agility: This is the one that’s always made sense to me. You want an agile architecture, right? I mean, there’s not a C-level person on the planet that wakes up and says, “you know what we need? An IT architecture that makes us react to change as slowly as possible.” Agility should live at the infrastructure and platform level (an obvious, if not easy, benefit of cloud computing), but it *also* should live at the application layer. In ALL of these cases (infrastructure, platform and application), what makes agility work is “glue” — which is to say, when your architecture allows you to easily connect, disconnect, plug and play, whatever you call it (glue together the networks, data, people and applications), then you’re agile. Forget cost, the pure operational benefit of an agile architecture is self evident. Agility gives you the greater chance of survival in a world that seems to have become a constant stream of black swans.

Cost in the private cloud: This benefit makes perfect sense to me. At the infrastructure level, the private cloud collapses the network administrator (1 function), the security administrator (1 function), and the compliance administrator (1 function) into 1 function (3 into 1), thereby reducing the IT hours in the equation of cost. But it occurs to me that gluecon’s view of the application layer (essentially, one that’s been around since the dawn of SOA), namely, that we need business IT architectures to resemble our webby architecture — in fact, we need it to *become* the same as the web architecture — also lowers the cost of application development, deployment, scalability and interoperability. In other words, I’m wondering does the “cost benefit” of cloud computing happen at the infrastructure layer via a private cloud, at the platform layer via a hybrid cloud and at the application layer via a public cloud?

Anyway you slice it, the issue is not some cheap-hit panel on the “business benefits” of the cloud. It’s actually just *slightly* more nuanced than that. Every engineer in the space knows this instinctively. It’s why you won’t find them hanging around those kinds of panels. It’s why you *will* find them at gluecon.

Enterprise Irregular and Salesforce VP Anshu Sharma wrote an interesting post this week- 5 Big Trends I Missed and You Probably Did Too:

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 ;)
Thinking about mobile- this is a great presentation on Mobile  from this week’s TechCrunch Geek’n’rolla:
Also thinking about mobile- it is currently responsible for about 60% of Facebook’s traffic and we’ve seen from Genentech last week in TWIS#22 what it can do to SaaS usage, this week Mashable posted:

A recent study by Ground Truth, a mobile measurement firm, revealed that approximately 60% of the time spent on the mobile Internet is spent on social networking sites and apps. Users spent only about 14% of mobile Internet time on portals, the second most popular category.

“The disparity of time spent between social networking and the next category, portals, which account for 59.83 and 13.65 percent of time spent respectively, is a vivid illustration of the impact social networking has on Mobile Internet traffic in a given week,” observed Vice President of Marketing Evan Neufeld

Interesting- real data showing Apps and Social networking are driving mobile traffic.
I love it- the multi-tenancy debate rolls on… but we’ve got a new term- SaaS-querade: When on-premise vendors try to pass as SaaS vendors. Let the argument begin:

Customers who don’t see through the fakery will get stuck with old, expensive solutions

Lately, my phone and calendar are getting filled with calls from vendors who want to tell me all about their re-purposed, on-premise applications. The calls have a few familiar aspects but they’re all masquerades. And, mostly, they’re bad for software users.

First, the pattern:

An on-premise vendor, seeing softness in new license sales numbers, starts to (finally) realize that Software as a Service (SaaS) is real. So, the vendor decides that a ‘hosted’ ERP application is a close enough facsimile to a SaaS solution. All the hosted product needs is a bit of SaaS marketing and it’s a done deal. Right? Wrong!

A dear friend of mine is a software marketing pro. She told me that her ERP product is about to get a big splashy marketing campaign announcing its SaaS credentials. I immediately said that this can’t be as its an old school ERP product that the vendor sometimes hosts. She replied that whether the solution is hosted by the vendor or in someone else’s cloud is immaterial to a customer.

That’s really wrong on a number of fronts. To begin with, a hosted on-premise product is likely not a multi-tenant solution. Multi-tenancy permits a vendor to apply a software upgrade once and have it automatically work for dozens or hundreds of customers simultaneously. In a single tenant solution, the software vendor must apply the changes one customer at a time. The latter approach is very expensive and potentially error-prone.

My good friend said that this argument (multi-tenancy) is immaterial to the customer as the responsibility for applying upgrades is the vendor’s problem not the customer’s. Again, this is wrong.
This leads to the second point: When solutions are not multi-tenant, they will be more expensive to upgrade and the vendor must either pass those costs on to the customer or the vendor must be willing to offer few upgrades to the product. Seriously, who wants a product with a built-in cost disadvantage? Who wants a product that a vendor is disinclined to upgrade? No one does. Multi-tenancy is a necessary component to true SaaS solutions if the customer is to get frequent upgrades and a lower cost solution.

…The hype machinery is also going full-bore to convince software buyers that SaaS-enabled applets or bolt-on applications around older on-premise applications are a great value or proof that the vendor is delivering on SaaS. That, too, is a bit of a stretch as the cloud-based applications may possess different technical architectures than the on-premise applications they are supposed to work with.

Those architecture differences could make configuration changes a challenge. Suppose you want to tailor the new cloud-based application. Will its configuration changes work with the old on-premise product? Probably not. Those changes will need to be replicated with a different set of tools in the on-premise application. And, that’s assuming those changes are even possible in the older products.
This spring brings an exceptional level of FUD (fear, uncertainty and doubt) to the applications world.

And, I fear the FUD will continue to grow at an exceptional rate. Software buyers really need help now. The misdirection and misinformation may create too many opportunities for bad decisions.
Sir Walter Scott may have had it right in 1808 when he said “Oh, what tangled web we weave. When first we practice to deceive.” I think he’d want to update those lines today….. (Emphasis Ed.)

Well put Brian. That’s why there’s an extra D in the FUD in common parlance,  closely related to Sir Walter Scott’s saying… We mustn’t let traditional ISV’s try and get away as passing off “on-demand” or hosted offerings as SaaS when they are clearly not- it’s bad for the customer and ultimately bad for the SaaS industry.
Regular Readers will know I’m a big fan of the Lean Startup school of product management- their first conference was this week and there were some excellent presentations- including this from IMVU- the company that inspired the whole movement.

Watch live video from Startup Lessons Learned on Justin.tv

Click on the link above to access more videos from the conference.
Other big news in tech was the McAfee blocking the Network port of some protected machines- Krishnan uses it to subtly remind the SaaS nay-sayers of their own problems:
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.
Traditional vendors are not safe from the cloud! Krishnan also wrote a great article this week on why PaaS is the future.
In other news:

Have a great week!