TWIS#16 Microsoft ALL IN, Netsuite and RightNow news

TWIS#16

I had some great feedback this week from people who subscribe to this, that sometimes they find it hard to dig through all the content in TWIS, so a summary would be great. The irony is I’ve long given a summary to the Linkedin group, but never here- so starting today, you’ll both see the summary.

In TWIS this week:

• Microsoft announces it’s “all in” for cloud, Ballmer emails every Microsoft employee and asks them to re-evaluate what they are doing and how it relates to the cloud.
• Forrester shows it’s Cloud Privacy Map- be aware of other countries data laws.
• “Local Cloud” adoption in Europe is slower than in the US according to ScaleUp
• Channels in SaaS- Netsuite launches new 100% commission reseller program. What are the effects on their business?
• RightNow aims to change the licensing practices of the “big boys”, accuses Salesforce of having “up to 30% shelfware”. Oh and some rather bad taste marketing to accompany it.
• Topspin Media sharing their internal metrics and process for measuring success- very insightful
• Mobile Roadie’s mobile app platform- now with Android and starting to be a competitor to Adobe?
• And other SaaS news!

Like the summary here too? Email me your feedback- jp@justinpirie.com

TWIS#16

I’ve long said, never underestimate Microsoft. Any company that can spend $9.5 billion dollars on R&D should never be sidelined. Yes, they’ve made some strategic errors in going to SaaS, but in a large corporation changing direction is like steering a container ship, slow and hard work. Their problem has been that they’re configured for the old world of enterprise software, long development cycles and big bang releases of installed software. The world has changed and finally it seems like Microsoft is changing too, Steve Ballmer said yesterday:

As I said today, when it comes to the cloud, we are all in. We are all in across every product line we have and across every dimension of the cloud.

Of course, this is not news to any of you. We have been making huge investments in the cloud for the past decade. Nearly five years  ago, Ray’s “Services Disruption” memo provided the outline for what we needed to do as a company, and with the delivery of Windows Azure at the recent PDC, we have made huge strides in making this vision real.

To keep our momentum, it is critical that  every Microsoft employee works to deliver the full benefits of the cloud to our customers.

As a part of this, I request that you do the following:

• Watch the speech on demand here
• Learn more about our cloud offerings and how they relate to our overarching software plus services strategy here
• Review your commitments to ensure you are landing our vision with customers and partners.

Of course, there is more work to do. We have strong competitors. We need to be (and are) willing to change our business models to take advantage of the cloud. We must move at “cloud speed,” especially in our consumer offerings. And we need to be crystal clear about the value we provide to all our customers. (Emphasis- Ed.)

That says to me they’re going to work double time to catch up. The key phrase in the email to everyone at Microsoft was “Review your commitments to ensure you are landing our vision with customers and partners.” That means sit up and take a look at how you can help us innovate and deliver value. I guess the key issue is how quickly they can transition to a more Agile world where they can do continuous releases and catch up with the likes of Google. Watch this space… The video of his speech is available here.

Forrester seem to be taking a lead in the cloud data protection space and have produced this interesting Interactive Data Protection Heat Map:

I think we’ll see more and more companies care where they’re data is stored because of local or foreign laws and to overcome this objection companies will have to regionalise much more- opportunity for local clouds abounds.

What’s interesting is that on the ground, the feeling by some is that it is still early, especially outside the US, as outlined by Krishnan when talking to ScaleUp Technologies:

I asked them about the European cloud market and what kind of traction they are seeing in the market. Christoph told me that they are finding it difficult to convince customers to move their assets to cloud. He told me that they have to put considerable efforts to educate customers about the benefits of cloud computing. In his opinion, European market is lagging behind US market by at least a year on cloud adoption.

For me the problem is still that the market isn’t transparent enough in terms of pricing and performance- people in Europe are probably going with the big players like Amazon and Rackspace because of mindshare and scale, leaving the smaller providers struggling, even if they have more suitable offerings in terms of location and performance. What we don’t want is this:

I blogged this week about Channels in SaaS and a start at 5 rules for SaaS channels- I’d appreciate your feedback. A few of the comments have thus far turned into a established SaaS co vs. everyone else, and it’s a point I think worth investigating somewhat…

One of the key issues that exists in SaaS today is that first movers into SaaS (Salesforce, Netsuite, WebEx) have trained us to think that SaaS is a low TCO application delivered via a browser. It was that, when they started, but it’s not any more. Anyone starting or running a SaaS company now needs to focus on Network and Ecosystem effects to differentiate themselves against their competition and on premises apps, otherwise it’s too difficult to sell and you’ll find yourself in Customer Acquisition Hell.

The big guys still run big sales teams and horrible processes, because they can afford to and it’s how they’re measured in the public market, not because it’s the right thing to do. I think two moves this week allude to the structural problems that exist in the big boys- Netsuite’s new channel program and RightNow’s new contract terms.

Netsuite, in a move to woo channel partners will give partners an option to take 100% of year one revenue- yes 100% !!! In the following years, the partner will get 10%. I think this is a really smart move by Netsuite, they obviously know their Customer Acquisition Cost (CAC) and their Customer Life Time Value (CLTV) intimately and are listening to their channel partner’s pain. And I bet a few prospects pains too. I remember as a VAR how horrible to switch from on premises to SaaS was and what that did to my profitability and cashflow (hint: not good) and I think this will win many friends. What’s more, you can mix and match your percentage of margin between the 100/10 plan and the 50/30 normal plan, so as you suffer less and less pain you can build out your future revenue streams.

In terms of economics for Netsuite, assuming their cost of delivery is about 5% and the partners add very little marginal cost to their existing channel program, say 5%, they’re 10% out in year one, but this only accumulates at 0.84% per month.

The only figure I’m slightly suspect of is the on-premise commission earned by the VAR in year one.

What’s more interesting is the impact it has on their profits over 5 years- I’ve made some broad assumptions based on industry benchmarks:

CAC for direct sales = 1 year revs

Ongoing comission or partner management = 5%

Cost of delivery = 5%

Impact on 5 year profits… nothing! OK- crude analysis but you get the idea. These guys are smart and know how important the channel is and is listening to their pain. They have of course got the cash to fund the losses in the interim. In case you’re interested, the links to the spreadsheets are: Partner Revenue and Netsuite Profit

The other big SaaS news was RightNow’s new contract announcement that they’re changing their contract terms. The net effect is that you buy pools of capacity- in other words user months, enabling you to true up and down automatically. If you have on average 100 users across the year you need 1200 user months, which means if you have big seasonal variations, you only pay for what you use. A key competitive differentiator in the big boys space of horrible contracts and commitments.

Here are the official terms:

• Annual Usage Alignment Up or Down
• Three Year Price Commitment Plus Three Year Renewal Price Cap
• Annual Termination for Convenience
• Annual Pools of Capacity
• Cash Service Level Credits
• Unlimited Capacity for 90-Day Pilots

Phil Waignright posted:

RightNow’s Cloud Services Agreement makes several key commitments, such as forward price visibility, being able to adjust numbers of seats in line with usage, the right to walk if the vendor doesn’t meet commitments and — most strikingly — cash refunds for breaches of the SLA. I suspect a lot of people’s first reaction is going to be, surely I get that already from a SaaS vendor? Amazingly, this kind of proposition is a novelty in the SaaS industry. I should add, though, that this is in large part the fault of customers, who are so used to buying conventional licensed software with no guarantees, huge shelfware components and long-term contract terms that they blindly walk into the same arrangements with SaaS vendors without even realizing there might be a better way.

Enterprise buyers like to budget over one-year or three-year periods and in some senses it’s more convenient to tie yourself into paying for too many seats because that’s the way you’ve always done things. But SaaS vendors have been taking advantage of that, to the benefit of their bottom lines — RightNow’s CEO Greg Gianforte quoted anecdotal estimates that as many as 30% of Salesforce.com seats are shelfware. (Emphasis- Ed.)

Nice- well Marc was from Oracle

Along with this, they’ve released some videos which are in rather bad taste if you ask me. I think they were hoping they would “go viral”. Someone please tell them that videos that “go viral” don’t normally display the logo throughout… See what you think:

One thing I’ve consistently tried to do here, is uncover actionable metrics and insight for readers to leverage. We’re really bad at sharing in SaaS, so I scour the net for comparable metrics and best practice to share. I was really impressed by the openness of Topspin media in sharing their process, metrics and analysis.

So everything starts with a funnel (similar to Dave McClure’s AARRR).

As you think holistically about the funnel, conduct your direct to fan marketing campaign systematically through a series of scientific experiments to increase each of the variables above in every subsequent campaign:

1. State your hypotheses or goals
2. Craft your offers to meet those goals
3. Collect data
4. Measure your performance
5. Optimize your campaign
6. Repeat successes, iterate improvements, and constantly experiment

I really like their hypothesise then test approach, which lends itself to rigorous analysis. Their thoughts on premium offerings are interesting:

Have you tested your price points and segmented your customers? Are you leaving money on the table?

The last thing that was interesting was how effective their widget was:

The first is the Play to Purchase ratio. When David Byrne and Brian Eno released Everything that Happens Will Happen Today, they released a streaming player with full-length streams, which was embedded far and wide. This proved extremely effective in that 1 in 5 plays led to a purchase in the first few weeks of the campaign. I would consider this highly successful, and since their average transaction prices was over $15 , that means each play was worth about $3.

A metric from the Fanfarlo campaign that signaled  strong performance was their ability to acquire fans at a rate of 49 fans per 1000 impressions of their widgets. This included both new email opt-ins and purchasers. We found this number to be extremely high compared to our paid advertising tests, where we purchased inventory across music services to acquire email addresses at less than 1 per 1000 impressions (0.7 per 1000 to be exact). Fanfarlo’s widget impressions from Topspin may have been lower in volume, but they were FREE and 70x more effective in acquiring emails and paying fans.

The full presentation:

A couple of weeks ago I covered Adobe repositioning Air as a cross mobile platform- iPhone, Android, WebOS, Blackberry etc and how it’s going to impact SaaS by not having to choose one platform for your app thereby enabling much wider app uptake, with all the fringe benefits of only having to maintain one app. Well, a competitor to Adobe has come up- Mobile Roadie. Techcrunch posted:

The beauty of Mobile Roadie’s platform is that it offers a dead simple mostly-automated system to build apps and have them posted to Apple’s App Store in as little as a week.

Another bonus of Mobile Roadie’s platform is that its CMS allows users to simultaneously make updates to both their iPhone and Android Apps. And using push notifications, customers can send alerts that appear on users’ screens, geo targeting messages down to a one-mile radius. With the launch of Google Android support, Mobile Roadie will be powering both iPhone and Android apps for Ashton Kutcher, Dolly Parton, and Madonna. We hear Taylor Swift will be launching apps soon as well.

Great to see competition for Adobe in this space and recognition that multiple platforms represent a nightmare for app developers. Probably something that would be worth test driving and reviewing for TWIS readers…

In other news:

• Just for fun- A Brief Overview of Silicon Valley BS
• Dennis Howlett beats Sage up for software being “painful and error prone”. Doh!
• StartupCFO talks about their Maverick SaaS sales strategy
• Google Wave (finally) gets email notifications
• RSA President says Cloud has potential to be more secure
• Best Tech Story of the week- DVD’s helped Roger Ebert get his voice back
• Phil Waignright writes thoughtfully on Private Clouds
• PiCloud launches Python PaaS on Amazon EC2- nice to have an alternative to Google App Engine
• Anthony Tijan on the benefits of bundled pricing
• Analysis on what’s selling in the Mobile Apps Space- Android fastest growing
• Lincoln’s updated the 7 Revenue Streams- now printable without using up all your black ink
• Trident Capital’s internet (SaaS?) company summit- sharing best practices on CAC and CLTV
• Onelogin SaaS Single Single Sign on app review

Have a great weekend!

Justin