Paradigm Shift

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