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:
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:
- 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.
- 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.
- 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
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
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
