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

TWIS#24

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?

The reason it’s important is cloudsourcing.  What is Cloudsourcing?

Cloudsourcing is sourcing complete solutions to run your business from the cloud—by knitting together cloud applications, cloud platforms, and cloud infrastructure. Each stage in the path towards complete cloudsourcing presents unique challenges but comes with step change in benefits. When you go from adopting point SaaS solutions to multiple cloud platforms, you need to deal with more complex data management, user management and governance issues. However, this will also come with step change in business agility and user effectiveness.

By running your entire business on cloud-based IT applications and services, cloudsourcing can dramatically lowers your IT costs.  And, running your business on a pre-integrated suite of cloud-based applications results in a better-integrated, more flexible and elastic technology foundation for your business operations.

It’s important to put this in context:

Or another way:

OK- you get cloudsourcing but why does Cast Iron matter? Integration companies like Cast Iron and Boomi provide the integration glue that enables the various SaaS and Cloud solutions to integrate with eachother- Quickly and Easily. James Governor (@monkchips) posted:

What’s the big idea?

Take companies onto the cloud. That’s right folks- its a cloud onboarding play. The firm has 75 employees, was founded 2001, and has a stellar list of partners… and adapters to integrate with them. Pretty much every SaaS company of note is on the roster. We’re not just talking Netsuite salesforce.com and RightNow technologies though- ADP is another example.

He went on:

One interesting element of the Cast Iron “cloud” play is that its OmniConnect is an on premise integration appliance. The software allows for drag and drop integration of on premise and cloud apps. So now IBM Software Group has another appliance play to join Datapower.

In fact as Hayman said:
“In the early days we said “jeez- you could do that with Datapower. But… they had specific application integration patterns for the space.”

In other words IBM acquired Cast Iron Systems to accelerate its own cloud play. IBM is being onboarded to the cloud as much as its customers are…

The case studies IBM talked this morning were pretty compelling.

Companies like ADP that normally take 4 months to bring a new customer onboard are now able to do it in a matter of weeks.

“The biggest issue is migration of data and so on. They said yeah we’ve heard it all before…. But they were “a little taken aback”. “you guys and your drag and drop technology are removing the effort of building code.”

Cast Iron’s CEO continued:
“Google is doing a lot [in terms of application capability]. Its great, but the data they need – for example in SAP, is held behind the firewall. So we help with integration of that data through Google App Engine.”

“You can’t have a SaaS app that talks to quick time to value, if it then needs three months to integrate…”

Cast Iron is available as an appliance, or cloud, by monthly charge. Its already available on the IBM product list.

One issue I keep hitting is that IBM doesn’t do enough to simplify operations. Hayman spoke directly to that.
“In terms of simplicity- you have beaten us up on that, and rightly so…”

Cast Iron generates adapters that run on existing integration tools such as WebSphere MQ, or JPA.

I think in summary that the play is really interesting. If we think of classic hub and spoke supply chains – the dominant companies always demand better integration with their suppliers. Cast Iron will be great for that.

IBM’s cloud play just got a boost with a very clear business message. Nice.

+1 from me for James’s analysis. IBM just grabbed themselves a very nice piece of cloud glue. I reached out to Boomi this afternoon for comment- CEO Bob Moul posted:

For Boomi, the announcement came as no surprise. IBM has a long history of acquiring appliance-based companies, from DataPower in the XML world to Diligent in the backup area.  Cast Iron has been offering an integration appliance for many years to traditional on premise focused enterprises and WebSphere is an appliance-centric business unit so it’s a good fit for both groups. Boomi, on the other hand, has focused exclusively on the cloud computing space – having built a pure cloud-based integration platform that does not require software or appliances. IBM is obviously a very large company and other areas of the company are quite active in pursuing cloud integration strategies so we continue to view IBM as a very attractive partner prospect for Boomi.

If anything, it probably helps to clarify the cloud integration space. Boomi remains the industry’s largest integration cloud with hundreds of global customers, a vibrant open community with over 60 partners (including the major SaaS ISVs such as salesforce.com, NetSuite, Taleo, RightNow and SuccessFactors), the broadest range of connectivity with 75+ SaaS apps and hundreds of on-prem apps supported, and handling the greatest volume of transactions – over 130 million transactions a month and growing rapidly.

We remain convinced that a pure cloud integration platform built entirely as SaaS, is the best model to power the continued growth and success of the cloud computing industry. We made a decision in 2006 to go completely into the cloud ala salesforce.com and we remain committed to that path of execution. In our minds, it only makes sense to integrate SaaS applications with SaaS integration solutions. Our platform also provides a natural on ramp for traditional enterprises to migrate to the cloud, as we offer seamless SaaS-based connectivity to on premise applications (70% of our use cases).  We think the amazing traction we’ve had since launching AtomSphere in the fall of 2007 is a testament to that vision.

I didn’t realise Cast Iron was appliance focused though… :( I’m with Bob on the need for Cloud Glue rather than appliance to Cloud glue… Anyway- I think it’s very positive news nonetheless.

I often get asked- how much should I charge for my SaaS product? Here is a really really good way to quantitativly test pricing via Dave Concannon:

Hiten Shah (@hnshah) of Kissmetrics had some great suggestions in relation to an audience question on pricing to his Lean Startup Circle talk (given with Cindy Alvarez@cindyalvarez, and John Butler) last week.

He described three useful strategies to test pricing:

  1. Set a relatively high price and then send out various discount codes: e.g. 10% off, 20% off, 30% off.  Analyze which discounted price point brings you the most value on a cost vs volume basis.
  2. Split-test landing pages with different prices
  3. Test a price increase, and if a user buys only charge them the “normal” price. This is useful to prevent any bad feeling that option 2 might cause. (See Amazon’s lessons on this one)

If you’re in the Bay Area, join the group!  There was some great advice from Cindy and John in this session, including some great points on what types of questions to ask in a Customer Development Process. Watch the full video, courtesy of David Binetti (@dbinetti) –

KISS Metrics at LSC from David Binetti on Vimeo.

The big tech news this week was that HP is to buy Palm for 1.2bn. GigaOm posted- Does HP want to become the new Apple?:

With HP’s $1.2 billion planned acquisition of Palm, the computer giant hopes to turn Palm’s webOS operating system into a platform to rival Apple’s mobile computing franchise. “Ultimately the Palm webOS and Apple are the two that can scale best over multiple devices and we are going to compete with Apple going forward in the broader mobile category,” said Brian Humphries, SVP of corporate strategy and development at HP.

I spoke with Humphries last night after the deal was announced, but he declined repeatedly to give details as to when or what devices may get webOS. So we have no idea if the HP Slate that Steve Ballmer, the CEO of Microsoft, was waving about at CES will continue to have Windows or webOS, but we do know that HP has a big vision for webOS — it hopes to put it across an array of mobile devices, creating a platform backed by the power of HP’s sales and distribution channels to which developers will flock.

I guess it makes sense- HP mobile devices have been rubbish and they don’t seem to want to back Android- so owning WebOS seems to fit.

Yet I really don’t understand how HP could hope or want to become Apple without destroying their core business of shipping commodity PC’s. Apple is design obsessed, charging a premium price for beautiful products. HP hasn’t displayed that DNA in the past and I don’t think Palm brings any of that designed obsessed DNA to the company…. Interesting to see that WebOS is not dead! I guess that’s why HP dropped Windows 7 for the slate last week….

The other mobile news is the whole Apple vs Adobe wars- fuelled on by Steve Jobs post. Mark Bernstein had a brilliant take:

I find the whole Apple-Flash brouhaha to be unpleasant to watch. Lots of good people happen to make a living from their Flash expertise. When people criticize Flash, that takes groceries off their table. It makes them angry and resentful. When Apple pokes holes in Flash, it hurts their livelihood and damages their careers. The popular metaphors of the internet community – rich in jargon terms like “open”, “free”, “evil” that have acquired very technical meanings but retain their primal resonances – have been profoundly unhelpful.

John Gruber’s recent analysis of Apple’s policy is, I think, almost exactly correct. He is right to pinpoint PowerPlant/Metrowerks as a source of Apple’s anxiety. (Tinderbox is still struggling with that one.) Java was another bad memory for Apple. An even worse memory, I think, is OpenDoc – the platform on which Apple bet the company, and lost.

But Gruber forgets the emotional memory behind all of this.

In 1997, Apple was on the ropes. Every trade press story speculated that Apple would soon go out of business. Apple’s computers were toys, hapless, hopeless. The only hope seemed to be that Microsoft’s antitrust problems would extend the struggling company’s life a year or two and something might turn up.

The last straw — what everyone feared and anticipated — was the seemingly-inevitable Microsoft announcement that Apple’s market share was too small to be worth Microsoft’s trouble, and that Office for Mac would be cancelled. On that day — and we all expected it — Apple would for all practical purposes cease to have a business.

It didn’t happen. Microsoft didn’t want to face the anti-trust consequences. They promised to extend Office a few years, and lent Apple $150M, and Jobs came back.

And somewhere in the recovery was a moment when Apple stood on a hill, before the setting sun, and shook its fist at the heavens and vowed that it would never be hungry (and powerless) again Never again would another company decide whether the Macintosh lived or died. So, Apple supplanted Metrowerks and wrote its own IDE. It wrote Keynote to inform Microsoft and the world that, should Microsoft discontinue Office for Mac, Apple would be prepared to replace it without delay. It wrote Safari to ensure that it would have a Web browser option, come what may.

This is the key to modern Apple. It’s a big company, and it’s now wildly successful. It assumes that it can write a successful software product in any niche. It’s very talented and very confident. But always, at the back of its collective mind, is fear — the fear of depending on the kindness and competence of others, and the fearful memory of the days when it was cowering in a dark closet, waiting for the blow to fall, while the trade press laughed and jeered

But where do we go from here? There are some serious open vs closed garden unresolved debates going on in my head…

Chris Dixon moves the Closed vs Open Debate forward:

When having the “open vs closed” debate regarding a technology platform, a number of distinctions need to be made. First, what exactly is meant by “open.” Here’s a great chart from a paper by Harvard professor Tom Eisenmann (et al).:

(Eisenmann acknlowledges the iPhone isn’t fully open to the end user – in the US you need to use AT&T, etc.  I would argue the iPhone is semi-open to the app developer and mobile app development was effectively closed prior to the iPhone. But the main point here is that platforms can be open & closed in many different ways, at different levels, etc.)

The next important distinction is whose interest you are considering when asking what and when to open or close things.  I think there are at least 3 interesting perspectives:

The company: Lots of people have written about this topic (Clay ChristensenJoel Spolsky, more Eisenmann here).   In a nutshell, there are times when a company, acting solely in its self-interest, should close things and other times they should open things.  As a rule of thumb, a company should close their core assets and open/commoditize complementary assets. Google’s search engine is their core asset and therefore Google should want to keep it closed, whereas the operating system is a complement that they should commoditize (my full analysis of what Google should want to own vs commoditize is here). Facebook’s social graph is their core asset so it’s optimal to close it and not interoperate with other graphs, whereas marking up web pages to be more social-network friendly (open graph protocol) is complementary hence optimal for FB to open.  (With respect to social graphs interoperating (e.g. Open Social), it’s generally in the interest of smaller graphs to interoperate and larger ones not to – the same is true of IM networks).  Note that I think there is absolutely nothing wrong with Google and Facebook or any other company keeping closed or trying to open things according to their own best interests.

The industry: When I say “what is good for the industry” I mean what ultimately creates the most aggregate industry-wide shareholder value.  I assume (hope?) this also yields the maximum innovation.  As an active tech entrepreneur and investor I think my personal interests and the tech industry’s interests are mostly aligned (hence you could argue I’m talking my book).  Unfortunately it’s much easier to study open vs. closed strategies at the level of the firm than at the level of an industry, because there are far more “split test” cases to study.  What would the world be like if email (SMTP) were controlled by a single company?  I would tend to think a far less innovative and wealthy one. There are a number of multibillion dollar industries built on email: email clients, webmail systems, email marketing, anti-spam, etc.  The downside of openness is that it’s very hard to upgrade SMTP since you need to get so many parties to agree and coordinate.  So, for example, it has taken forever to add basic anti-spam authentication features to SMTP.  Twitter on the other hand can unilaterally add useful new things like their recent annotations feature.

Here’s what Professor Eisenmann said when I asked him to summarize the state of economic thinking on the topic:

With respect to your question about the impact of open vs closed on the economy, the hard-core economists cited in my book chapterhave a lot to say, but it all boils down to “it depends.” Closed platform provides more incentive for innovation because platform owner can collect and redistribute more rent and can ensure that there’s a manageable level of competition in any given application category. Open platform harnesses strong network effects, attracting more application developers, and  thus stimulates lots of competition. There’s some interesting recent work that suggests that markets may evolve in directions that favor the presence of one strong closed player plus one strong open player (consider: Windows + Linux; iPhone + Android). In this scenario, society/economy gets best of both approaches.

Society:  I tend to think what is good for the tech industry is generally good for society.  But others certainly have different views.  Advocates of openness are often accused of being socialist hippies.  Maybe some are.  I am not.  I care about the tech industry.  I think it’s reasonable to question whether moves by large industry players are good or bad for the industry.  Unfortunately most of the debate I’ve seen so far seems driven by ideology and name calling.

Spot on Chris. Interesting to think of Closed vs Open in the context of Core business…

The somewhat disappointing news of the week is that the Salesforce VMforce announcement is not IaaS, but another PaaS language- namely Java using the SpringSource framework. William Vambenepe, Cloud Philosopher-at-Large, Oracle posted:

Overall, I like what I see. Let me put it this way. I am now a lot more likely to write an application on force.com than I was last week. How could this not be a good thing for SalesForce, me and others like me?

On the other hand, this is also not the major announcement that the “VMforce is coming” drum-roll had tried to make us expect. If you fell for it, then I guess you can be disappointed. I didn’t and I’m not (Phil Wainewright fell for it and yet isn’t disappointed, asserting that “VMforce.com redefines the PaaS landscape” for reasons not entirely clear to me even after reading his article).

The new thing is that force.com now supports an additional runtime, in addition to Apex. That new runtime uses the Java language, with the constraint that it is used via the Spring framework. Which is familiar territory to many developers. That’s it. That’s the VMforce announcement for all practical purposes from a user’s perspective. It’s a great step forward for force.com which was hampered by the non-standard nature of Apex, but it’s just a new runtime. All the other benefits that Anshu Sharma lists in his blog (search, reporting, mobile, integration, BPM, IdM, administration) are not new. They are the platform services that force.com offers to application writers, whether they use Apex or the new Java/Spring runtime.

It’s important to realize that there are two main parts to a full PaaS platform like force.com or Google App Engine. First there are application runtimes (Apex and now Java for force.com, Python and Java for GAE). They are language-dependent and you can have several of them to support different programming languages. Second are the platform services (reports, mobile, BPM, IdM etc for force.com as we saw above, mostly IdM for Google at this point) which are mostly language agnostic (beyond a library used to access them). I think of data storage (e.g. mySQL, force.com database, Google DataStore) as part of the runtime, but it’s on the edge of the grey zone. A third category is made of actual application services (e.g. the CRM web services out of SalesForce.com or the application services out of Google Apps) which I tend not to consider part of PaaS but again there are gray zones between application support services and application services. E.g. how domain-specific does your rule engine have to be before it moves from one category to the other?

I think it’s really disappointing that a) they made so much hype about adding Java and b) they’re not adding IaaS! I guess you’ve got to give the marketing machine credit…

William Vambenepe’s blog is brilliant at the moment- I really liked his post on How many flavours of PaaS do we need?

  • PaaS for business apps
  • PaaS for toy apps (simple form-based CRUD) and simple business front ends (e.g. restaurant web sites)
  • PaaS for games, mash-ups and social apps
  • PaaS for multimedia delivery and live streams
  • PaaS for high performance and scientific computing
  • PaaS for spamming, hacking and other illegal activities (Zombies as a Service)

He recognises that not all clouds are created equal and we need different clouds for different services which is why James Urqhart’s analysis of James Hamilton’s Mix10 presentation from TWIS#23 was interesting:

All of that being said, I would be remiss if I didn’t highlight a few things that Hamilton glossed over in this presentation:

  • “You can have any color you want, as long as it’s black.” That paraphrasing of a famous quote from Henry Ford in 1909 when discussing the Model “T” is reflected in a basic fact about today’s large-scale infrastructure and platform clouds: you can build any application you like, as long as it fits into the infrastructure architecture prescribed by the provider. Configuration of the infrastructure itself is extremely limited, if not nonexistant.For example, several users of Tomcat have had to rework that application server’s clustering mechanism to allow it to work in Amazon EC2. Why? Because Amazon does not allow multicasting, and has shown no indication that they will anytime soon.Another common example is the limited set of security configuration options, and the amount of “do-it-yourself” left for the users of large-scale IaaS offerings. I’m not saying that’s a deal breaker, as you may not need much more than is provided and you can get additional security capabilities through management platforms like enStratus, but risk mitigation is a key part of data center investment in the enterprise. It pays to be aware of what you will have to accept from the cloud in that regard.
  • Price isn’t everything. If computing was all about getting basic CPU, storage and networking capabilities at the lowest possible price, there would be no markets for such things as high-availability infrastructure, high-performance computing, and the wide plethora of data center security software and hardware. Driving to maximum economies of scale for those basic services without enabling support for more specialized needs means that those large-scale services won’t be right for all workloads.Now, let me be clear that I think Amazon knows that, and we will see some pretty significant innovation from them to address alternative architectures and configurations in the coming year.
  • Enterprise data centers aren’t going away overnight. Building new applications in the cloud is one thing, but transferring existing systems is something else entirely. Hamilton’s calculations is entirely from the perspective of operating a data center. The cost of re-architecting and moving applications and data is not factored in, and is cost is the “barrier-of-exit” that will keep many applications in internal data centers for some time to come. They may or may not move to private cloud infrastructures, but they’ll stay in house until replaced or savings justify the cost of rework.Joe Weinman, VP of Business Strategy at AT&T, has a great site discussing how you calculate the savings that public cloud computing brings to your applications.

One has to be impressed by the true disruption that infrastructure and platform services is having on data center economics. Both enterprise IT customers and vendors should pay close attention, and understand exactly how they will play in the changing data center landscape.

But he too is right- we need Clouds for different purposes! EC2 isn’t for everyone…

Positive news on SaaS adoption from interop this week:

A survey of network managers and other IT pros attending this week’s Interop Las Vegas business technology conference found that more than 40% have some form of public cloud resources available on their corporate systems.

Of the 104 respondents, 41% said their companies tapped the cloud for apps and services such as Google’s Google Apps productivity software and Salesforce.com’s online CRM tools.

29% of respondents to the survey, which was conducted Network Instruments, said their organizations have adopted private clouds, while 19% reported using some form of Infrastructure-as-a-Service (IaaS), like Amazon’s Elastic Compute Cloud (EC2).

33% indentified lower infrastructure costs as the primary reason their organization is adopting cloud computing services. Another 30% moved to cloud services to leverage the added flexibility it gave their IT departments to answer business changes. Just 3% said they didn’t see any benefits to cloud computing.

I’m really pleased that not only 41% say their using SaaS but 30% recognise that moving to SaaS and Cloud is about flexibility. IW went on:

Indeed, 22% percent said they lacked the tools necessary to monitor and manage cloud activities. 15% said they lacked sufficient knowledge to manage cloud issues, and 12% reported being unable to resolve delays caused by cloud service providers.

“It was significant to note the number of organizations without adequate monitoring technologies and network resources in place,” said Brown.

The top concern (27%) among potential cloud users was the fear that network bandwidth costs would exceed estimates. “Cloud implementations can be fraught with challenges that consume troubleshooting time and bandwidth, jeopardizing the organization’s ability to realize cost savings promised by these services,” said Brown.

Still, cloud computing has many backers. Earlier Wednesday, IBM cloud CTO Kristof Kloeckner, said organizations that embrace cloud computing could cut IT labor costs by up to 50% and improve capital utilization by 75%.

Yet I’m surprised to see security not top the SaaS issues list- my week was certainly dominated defending them- OK, I was at infosec, but even still, the quantitative data doesn’t back this up- for example the Mimecast Cloud Adoption Survey which I help look after, last ran in October last year and found 46% of people surveyed were not moving to the cloud because of security (disclosure- I work at Mimecast).

I’m bringing some thoughts together on Cloud Security post infosec- but check out my interview with IDC security guru Eric Domage:

httpv://www.youtube.com/watch?v=7rUMmllMuQw&

Interesting thoughts, but I remain sore after being beaten up by those infosec people who don’t think anything is secure if it’s outside their data center! We as an industry need to sort the security issues out…

Gartner thinks SaaS is on the way up too this week:

More than 95% of organisations expect to maintain or increase their use of software as a service (SaaS), according to a survey by research firm Gartner.

Unrelated- but a brilliant rant- Coming up with a startup name (i.e. the 6th circle of hell) is a classic read! Naming a company is a total nightmare!

In other news:

Have a great week!

Justin

jp@justinpirie.com

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Comments

  1. Interesting – for me I guess value in a group “should be” the ability to share information, ideas, best practices with my peers. Unfortunately it has never worked out that way for long as you point out. And frankly, the overhead involved in keeping the “noise” down is just too much most of the time. So – groups, forums, etc – eventually devolve to become noisy and you either ignore them or drop off.

    I have to admit the addition of lists has been one of the greatest things Twitter has done. I think of it as a filter system where I can quickly check information from sources “I” trust and want to hear from and “I” selected. It isn't that I don't value what may come from other sources in my follower pool. It is a way to focus on a limited subset and participate with them separately.

    I think subgroups “could” work this way to some extent, but still they lack some of the simple features that make the Twitter lists so valuable. I don't have to repost anything for my tweets to be in the stream on the lists I appear on. I don't have to do anything to appear on a list other than contribute value to the list owner. <<period>>.

    Without a lot more moderation than anyone has time for – I don't know how that simple idea coulld be translated to LinkedIn in its existing form. So, we're left with a “community culture” that needs to guide things and honestly – culture is a hard thing to cultivate. All I can imagine is that we keep posting things about the culture and promoting it. It won't end with this article I'm sure.

    Reply
  2. Interesting – for me I guess value in a group “should be” the ability to share information, ideas, best practices with my peers. Unfortunately it has never worked out that way for long as you point out. And frankly, the overhead involved in keeping the “noise” down is just too much most of the time. So – groups, forums, etc – eventually devolve to become noisy and you either ignore them or drop off.

    I have to admit the addition of lists has been one of the greatest things Twitter has done. I think of it as a filter system where I can quickly check information from sources “I” trust and want to hear from and “I” selected. It isn't that I don't value what may come from other sources in my follower pool. It is a way to focus on a limited subset and participate with them separately. Think of it like bookmarking or RSS subscriptions. It is a personal choice of what I need/want to be able to access efficiently.

    I think subgroups “could” work this way to some extent, but still they lack some of the simple features that make the Twitter lists so valuable. I don't have to repost anything for my tweets to be in the stream on the lists I appear on. I don't have to do anything to appear on a list other than contribute value to the list owner. <<period>>.

    Without a lot more moderation than anyone has time for – I don't know how that simple idea coulld be translated to LinkedIn in its existing form. So, we're left with a “community culture” that needs to guide things and honestly – culture is a hard thing to cultivate. All I can imagine is that we keep posting things about the culture and promoting it. It won't end with this article I'm sure.

    Reply
  3. Hmmm – you didn't mention Google's announcement of the “cloud OS” – Chrome which is supposed to be aimed – as their new browser is – at web-enabled (SaaS) applications. It is a big shot across the bow of MS which is still mired desktop legacy, fighting off players like Salesforce who encroach on their enterprise offerings, and trying to sell Azure without their traditional channel buy-in.

    We live in very interesting times as they say….

    Reply
  4. Agreed- my feed reader has gone mental with all the chrome OS posts but I need a couple of days to gestate on it I think. Web only operating systems…

    Reply
  5. the Chrome story is a little more than “web only.” As some one pointed out – it allows a level of hybrid approaches we have mainly seen in apps based on things like Adobe Flash and Flex. Meaning – some client-side app that does some of the compute specific to a user and saves backend cycles. There are also hybrids coming for enterprise apps that layer on external apps while doing the heavy lifting locally.

    When this is fully exploited, it will greatly increase the move to interapp communication and lessen the need for every app to “do it all in isolation” …. Mash ups by any other name….

    Reply
    • I completely agree- I'm still computing the implications for enterprise (to excuse the pun) – when all apps are run in the cloud- what that'll do to Microsoft's business…

      I guess the first requirement is fast, reliable internet, second apps in the cloud- although I'm guessing you can use TS/VNC if you needed access to a fat app. To me that sounds ideal for offices and then fuller OS's on laptops.

      Thinking about the compute requirements also could dent hardware refreshes but less processing means less power consumed too. Plus, Google has a certain trust factor- I was talking about it this evening and I suggested to someone that hates computers that they might try a Google OS and they were really positive about it- since Google is one of the few things they understand…

      Reply
    • Hey Mike

      This is an interesting perspective- no skype as yet on Chrome OS.

      Chrome OS only supports flash at the moment (no silverlight) and apparently skype won't run in flash… so no skype support on Chrome OS…

      hmmmm

      Reply
  6. Hey Mike

    This is an interesting perspective- no skype as yet on Chrome OS.

    Chrome OS only supports flash at the moment (no silverlight) and apparently skype won't run in flash… so no skype support on Chrome OS…

    hmmmm

    Reply
  7. Justin, good post, especially with all the links. I think we're all discovering that selling to ISVs is hard work and not for those without legs in terms of sustaining cashflow. Leave education to the bigger guys, except the bigger guys are almost all in the same boat of not knowing what they don't know. Is the answer that more ISVs will have to fail in their attempts to transition to SaaS before there will be a market for such consulting services, or ??? Walter Adamson @g2m http://xeesm.com/walter

    Reply
  8. Justin, good post, especially with all the links. I think we're all discovering that selling to ISVs is hard work and not for those without legs in terms of sustaining cashflow. Leave education to the bigger guys, except the bigger guys are almost all in the same boat of not knowing what they don't know. Is the answer that more ISVs will have to fail in their attempts to transition to SaaS before there will be a market for such consulting services, or ??? Walter Adamson @g2m http://xeesm.com/walter

    Reply
  9. Justin,
    great post – you cover a lot of topics. I truly think that we're seeing a sea change in how marketers think about buyers, driven by:
    – the change in the way buyers find information
    – the collapse in the difference between “brand promise” and “brand reality” driven by social media
    – the shift in many industries to recurring (or equivlent) revenue, rather than upfront, which necessitates a focus on account satisfaction/renewal/growth

    As this happens, it's driving a changing set of skills of marketers, from copy/creative skills to customer analysis, operations, and process – in order to understand buyers and deliver the right message at the right time.

    Great post, let's hope 2010 is the year we all think it will be.

    Steve

    Reply
  10. Hi Justin,
    Actually I was the one at the EuroCloud meeting that you couldn't identify. Whereas the Cloud term isn't well liked by the average CIO, the average SME business person “gets” the Cloud concept much more quickly than having to explain Software as a Service (or ASP or other alphabet soup). It's not perfect, and there is an argument to avoid the Cloud term too and just talk about online or web based solutions, but focus on the business benefits in simple terms – cheaper, more flexible, 24/7 acccess, removes IT headaches, faclitates collaboration etc. One of the continuing failiings of our industry is we are just too full of jargon when we sell this stuff.

    Reply
  11. Hi Justin,
    Actually I was the one at the EuroCloud meeting that you couldn't identify. Whereas the Cloud term isn't well liked by the average CIO, the average SME business person “gets” the Cloud concept much more quickly than having to explain Software as a Service (or ASP or other alphabet soup). It's not perfect, and there is an argument to avoid the Cloud term too and just talk about online or web based solutions, but focus on the business benefits in simple terms – cheaper, more flexible, 24/7 acccess, removes IT headaches, faclitates collaboration etc. One of the continuing failiings of our industry is we are just too full of jargon when we sell this stuff.

    Reply
    • Sean Ellis is superb- a blog well worth following…

      Just checked link traffic- 50% more clicks on Fridays than Mondays means people probably have more time to read stuff…

      Reply
  12. Justin, Thanks for another useful issue.

    I agree that, for most SaaS companies, controlling customer acquisition costs (CAC) and matching them to the lifetime revenue stream will be the key determinant of success. I would include “retention” in the equation (“CARC?”), in that companies typically cannot afford the cost to acquire customers more than once.

    The comment from Oracle SVP Anthony Lye that “Customers no longer trust vendors,” is disturbing. I would maintain that SaaS solution vendors unable to gain customers' “trust” are likely to fail. Vendors must convince prospective customers that they'll deliver the service and a stream of enhancements over the lifetime of the subscription. In other words, SaaS vendors are selling “promises,” not products. People typically don't believe – nor pay for – promises from people they don't trust. (I wrote more about trust and relationships here: http://saasmarketingstrategy.blogspot.com/2009/…)

    Reply
    • My Pleasure Peter- I'm just in the process of writing #5…

      I agree with you wholeheartedly about the importance of retention- that's why it has it's own measurement in the Bessemer Laws….

      Where it says “Customers don't trust vendors” shouldn't apply to SaaS vendors as their churn will be shocking and they'll be out of business very quickly. That rule hasn't applied in traditional software however….

      Cheers,

      Justin

      Reply
  13. Justin, Thanks for another useful issue.

    I agree that, for most SaaS companies, controlling customer acquisition costs (CAC) and matching them to the lifetime revenue stream will be the key determinant of success. I would include “retention” in the equation (“CARC?”), in that companies typically cannot afford the cost to acquire customers more than once.

    The comment from Oracle SVP Anthony Lye that “Customers no longer trust vendors,” is disturbing. I would maintain that SaaS solution vendors unable to gain customers' “trust” are likely to fail. Vendors must convince prospective customers that they'll deliver the service and a stream of enhancements over the lifetime of the subscription. In other words, SaaS vendors are selling “promises,” not products. People typically don't believe – nor pay for – promises from people they don't trust. (I wrote more about trust and relationships here: http://saasmarketingstrategy.blogspot.com/2009/…)

    Reply
  14. My Pleasure Peter- I'm just in the process of writing #5…

    I agree with you wholeheartedly about the importance of retention- that's why it has it's own measurement in the Bessemer Laws….

    Where it says “Customers don't trust vendors” shouldn't apply to SaaS vendors as their churn will be shocking and they'll be out of business very quickly. That rule hasn't applied in traditional software however….

    Cheers,

    Justin

    Reply
  15. Justin,

    Your “Startup Pyramid 2.0” is worth a longer discussion, perhaps in a future issue of TWIS.

    I'd agree that “Economics” deserves its own layer if it refers to a start-up's need to match costs to lifetime revenues. For SaaS companies, building a product that matches the product's capabilities with the market's needs is just the start. The more difficult challenge is delivering, marketing, and selling it for less than the revenue it will generate.

    Happy holidays to you as well,

    Peter

    Peter Cohen
    SaaS Marketing Strategy Advisors
    http://www.saasmarketingstrategy.com

    Reply
  16. Happy new year to you too, Justin. Your dedication to TWIS, even on New Year's Day, is impressive!

    The note on customer acquisition metrics used by Matt Breznia and Xobni is evidence that a company's engineers aren't only to found in the development group. Some have migrated over to marketing! In the more successful SaaS companies, I often see better connections between groups – marketing, sales, support, product management, development – and a greater understanding of each others' role in acquiring and retaining customers.

    Reply
  17. Much of what you are talking about here is customer experience satisfaction. Not only are the numbers important but finding out why the product is or is not selling is key. Monitoring the channels is important but at the end of the day what are customers expecting to find in your product. I think one big thing that we can take away from great market research as a SaaS vendor is our competition. What do they have what don't they have. And, for our target consumer which matters most.

    One thing I've never seen on a Web app which I think would be great if you are indeed the leader in the product line is a comparison chart against your vendors. Allow your user the transparency to see who you are competing with and why they should buy from you. You control the entire sale at that point, apples-to-apples.

    Reply
    • Yes- product / market fit is key. That pmarca post I mentioned midweek is inspirational- http://bit.ly/7FU5Tk if you haven't seen it.

      I have seen comparisons before- but it is a key takeaway from this post- you've got to help your customers understand where you're positioning your product. I saw this recently: http://bit.ly/6s8uRX comparing themselves against their competitors.

      Reply
  18. Justin thanks for mentioning GetApp.com. I agree that product management excellence is the most scarce resource and you have a lot to offer in this space. To any good SaaS company reading this comment: HIRE HIM!

    Reply
  19. Excellent interview and assessment from Lincoln Murphy. We risk a second dot com bubble if Freemium is the business model. And user organisations need to do a risk assessment in case an application they increasingly rely on starts to get flaky. Back-up strategy? Disaster recovery? PS. Is it just me experiencing capacity problems on Twitter this week?

    Reply
  20. Thanks for such an excellent interview!, I'm looking forward to reading the other blog posts on Freemium.

    My favourite quote: “Sure, now they have only half of the pie, but in the long run it will likely be a pie that actually gets out of the oven and makes some money!” — that one was completely priceless :-)

    Reply
  21. Great interview, important topic.

    Reflecting on this interview and the paper I sense that the 'sample set' of product startups must operate without substantial input from business end-users and buyers… Surely, the start-up's alpha and beta users can provide feedback not only on product features but also on questions of sales and marketing strategy.

    Reply
    • I agree- but I guess that's why they're buying Lincoln's talent…

      Personally, I'm a practitioner of Lean Startup and Customer Development methodologies which avert the need for these problems if done properly… If the product / market fit is good then you shouldn't have to give it away for free. Just like Marc Andressen calls it “market pull”.

      Reply
  22. Justin,

    I think you are spot on about the iPad affecting SaaS. I wrote a post about that this week http://bit.ly/doEd7x . I see the iPad and the upcoming Google Chrome OS tablet (rumored) as changing things dramatically. These device have less disk space than even a netbook and will take advantage of the cloud for applications and storage. This also helps us with all the devices we have everywhere. Why sync things, when you can just point to the cloud. This way you can use the device you need, when you need it. I forsee a lot of cool applications being served up through SaaS for these new tablets.

    Reply
    • Ron- great post!

      I wasn't aware of the Android tablet- thanks for giving me the heads up on that one…

      Talked about here: http://bit.ly/cINbU9

      Killed off??? :http://bit.ly/a9ZNki

      As I've said before, open beats closed every time and I can't wait for Google to bring out a tablet, especially if there as obsessed with the detail like they were on the nexus one. This brings the best of both worlds- attention to detail in the device and an open platform for innovation.

      It Makes No Business Sense Unless You Are Google: Oh wait! Google simply makes more money when more people go online, thanks to adsense. Whoa, what a coincidence! The only thing a web tablet would do is get people online.

      http://bit.ly/bKJrrS

      Thoughts?

      Reply
  23. I agree the “vision” of the iPad is in the right direction for device usability – but… This is first generation and we are missing a few things. First, it doesn't multitask – at all. Y0u can't receive email and takes notes during a meeting at the same time. Yes, there is push notification, but that isn't going to solve the basic problem that for most “knowledge workers” this is the equivalent of being disconnected – one app, one SaaS, one thing at a time.

    Second – as good as I expect the device “user experience” to be – I really don't believe most SaaS vendors have themselves reached an understanding of what an excellent online user experience means and what this type of device itself will enable. As we all know, this is just the tip of the iceburg – Goggle's aim is to enable their Chrome OS in tablets. In a lot of ways, Chrome OS is better suited to the types of tasks this environment will find a home in. I don't expect Apple to sit on its hands in this regard, but right now, the iPhone platform has some limitations that make it somewhat limited as a target device for SaaS. Limitations aren't bad though, as we all know, limitations spawn innovations quite well.

    Reply
    • Fundamentally I agree Mike- but what it represents is a major step forward for situational devices, just as the iPhone was for phones. Yes it lacks “critical” features, but yet I still love my iPhone and it does a better job for me than any phone EVER!

      I think we need to forget about it's shortcomings and focus on the value it'll be able to deliver to mobile workers and as a situational device. I certainly want one, if only to read blogs!

      JP

      Reply
    • Marc –

      I don't know exactly how much Plex is charging their customers, but it's not trivial. The basic idea is that if a customer wants a specific feature or function, Plex gives them a quote for it and then they decide if they want to pay for it or not. The interesting thing is that once the feature is done, it's available to all of their other customers as well (for no additional charge).

      It's a great model if you can get your customers to buy into it, and Plex clearly has. I don't think it would work in a broader market, but it does appear to work in their tight vertical and I can see why.

      Robert

      Reply
      • So to clarify- I think it clearly depends on your vertical, but it's a clever way to add functionality for no cost or a profit, while not forking your codebase (key to SaaS).

        By definition, not forking the code means the feature can be available to everyone if you so choose.

        There are however some pitfalls with this approach- it could feel like you're in the custom software business and lose focus on product / market fit if you're not careful.

        But if you're a small SaaS company, working in a tight vertical, design the new functionality carefully so to enhance your product/market fit, there is little downside to this approach, especially as the customer is tied in even more to your system…

        Reply
  24. Hi. This is Rick Chapman of Softletter, and I just thought I'd chime in here with a couple of observations.

    First, I'd like to thank Robert for his kind comments about SaaS University; we work hard to put on a very content filled event. Also, I'd like to remind readers of this blog that our early bird pricing for our events is $795; also, at every event, we give away to all the attendees a free copy of one our research reports and we charge for these. At Chicago every attendee received a copy of our massive SaaS Marketing Report, which breaks out 22 separate marketing activities as carried out by SaaS firms. We charge $449 for it. At Dallas, we gave away our direct sales compensation guide, which has a $400 price tag. These items are not loss leaders and are sold on a regular basis. Our events are designed to be very content rich and we think we're offering excellent value for the money.

    Also, we videotape the entire proceedings and make them available online to the attendees, so, for example while Robert wasn't able to see all of Ted's channel discussion at the event, he will be able to when the video is posted online.

    Now, as the issue of customer service. We have had speakers at past events discuss, specifically, SaaS customer service issues. For example, at Chicago, we had Matthew Gonnering of Widen address this topic specifically and in Atlanta and Boston Tom Appleton of DreamFactory.

    rick chapman
    http://www.softletter.com
    http://www.saasuniversity.com

    However, at Dallas, we decided to focus on the topic of understanding that your SaaS customer base needs to be thought of as a community of users based on the inherent nature of the SaaS model. Patrick's presentation went way beyond the issue of having customers pay for new features and discussed the community of users concept in greater detail.

    Once you understand the power of this concept (and implement it), you should also begin to think about how you provide customer support in different ways. For example, Patrick discussed how the Plex community has “taken over” the management of Plex's documentation and FAQs. Ultimately, your community becomes a highly self supporting, and self managing entity that a SaaS company truly “reports” to.

    Reply
  25. @justinpirie – correction – Citrix Online acquired Paglo and not Cisco.
    The blog post by Marc Benioff is an exact transcription of his Dreamforce speech – almost to the word. Chatter is an interesting spin. My personal belief – Professional collaboration is going to be more social, but I do not think feeds like Twitter are going to make much sense. But there is a tremendous opportunity for SaaS to be part of the professional conversations. How it evolves remains to be seen.
    Btw, Chatter is not a good name to use for professional conversations 😉

    Reply
    • Again- you're totally right and I'll correct it right away.

      I agree with you about chatter- I guess my point was Salesforce is the leader- and it's leading with network effects, so we should take note.

      Plus you're right- it's a rubbish name- almost as bad as the iPad 😉

      Reply
  26. I don't necessarily agree that you have to be able to sell direct over the web. If you look at the majority of the public SaaS companies that sell B2B, they enable you to have a free 30 day demo account but in order to buy they want you to talk with someone live. The web site serves as a critical lead gen engine to fuel direct sales motion.

    With that said, I agree with a lot in this post, especially the compensation issue. If you want channels to participate, I believe you need to give them a cut of the subscription business, not just in the first year but in subsequent years as well.

    Reply
    • You're right- and as I wrote that I wondered whether I'd be called out on that one… My example was a little bit wonky but I think the point remains valid for most people- public SaaS companies get away with it because they led the transition from Enterprise to SaaS and they had to have the salespeople. Now, they're tied into public company reporting and they can't possibly change those processes. I think the next generation of public SaaS companies will be different.

      Thinking about that point- what about Amazon and Google???

      As I said before, I think the public SaaS companies have trained some bad habits into everyone, just because they were able to spend so much money. They in particular are responsible for the “low TCO client-server application shoved through a browser” issues that instigated the change to SaaS but no longer works.

      Reply
  27. To pile on Lincoln's comment – a service-based channel that embeds the SaaS app in what they deliver is really a match made in heaven for a SaaS company. It takes real thinking to make it happen – but when that works, it becomes a leveraged model. The channel is then incented to both sell the SaaS application and to feed back what would make it even more beneficial to their service offering and their customers.

    On the other side, a pure sales channel play is very hard to make work. The incremental cash in a SaaS sale just doesn't have a lot of pull for a sales channel. Netsuite is trying to solve that problem by rewarding their SaaS sales channel in much the same way they do their normal licenses – but the problem comes with insuring the total lifetime value doesn't exceed the customer acquistion cost or you're bleeding cash everytime you acquire a cusstomer (as you point out). This can happen if the channel is selling but not to a profile that will actually get enough value to keep their subscription over the long run.

    Reply
    • Spot on Mike!

      I saw the Netsuite announcement after I posted this… That's a really interesting approach- my guess is that they're Customer Life Time Value is about 5 years and they win over the long term but are cash positive after about 14 months. Possibly worth a post on it's own…

      Reply
  28. disagree. People wrongly seems to put all SaaS offerings into the same bucket just because they are delivered from the cloud vs. purchased and installed on in-house servers. The truth is, all SaaS apps are NOT the same. some require professional services (integration, migration, customization, etc) and some don't. Those that do are particularly interesting to the channel. if its interesting, they'll invest in skills development and be proficient in selling it. Also, if that SaaS app integrates with an on-prem app that this VAR is also selling, you've got a winning Channel opportunity. Their differentiation in these cases is their professional services expertise.

    You compare the web with the channel as sales vehicles. I don't know why you'd do that. One has a salesperson and the other doesn't. You ask “How can we expect a channel to sell it when we can't get it sold on the Web?” I disagree with the premise of that question. Hence, the answer is simple. You can expect different results from the channels because they have salespeople, and the web doesn't.

    Reply
    • Kent

      You're right- some apps do require professional services, and for that there will always need to be people. But the newer, better designed apps require less and less of this- they automate and make intuitive what used to be delivered by pro services and only deliver high value adding pro services now.

      The problem I have with your assertion is that you work at an established vendor with a very established channel- which is not the case for most of the readers… You might be able to get this model to work but I can tell you from experience that most SaaS companies cant… SaaS companies shouldn't be told that they can move into that sort of position either… that's your competitive advantage and you're not going to give it up easily!

      On-prem / SaaS integration is less of an issue at the low end as it is at the high. In the middle the water is muddy at the moment but I think that will change as more apps get migrated to the cloud. Channel partners have to shift their focus from installing/ integrating/migrating to adding value. Focusing on that keeps them at the bottom of the value chain where they will die.

      So in answer to your last question- the web is the primary channel for 99% of SaaS companies. Because you were part of the first wave, selling low TCO software delivered through the browser, you've got used to selling like enterprise software and now you're owned by a public company, you're tied to their reporting and revenue expectations. This is not what the majority of SaaS companies can and should expect- most often their problem is having poor product/market fit and then expecting the channel to cover up their mistakes…

      Reply
      • Justin, There are a couple different areas of value-add oppty for partners. One is indeed integration/migration/customization. That may be limited with SaaS, agreed. I'm happy to report that at Cisco, our SaaS apps will require that hands-on work. Enterprise I/M, Email, to name a couple.
        The other value-add is in adding expertise to facilitate the business processes change that the app creates. This is the business consultant work rather than the Engineer work, and I think this is where we have agreement if I'm reading your comments correctly. I also think that this work is the most lucrative. As Technologies become more capable of drastic process change– and collaboration technologies do this– there will be growing opportunities to channel partners who can add the consultants to accelerate these changes. This is a huge step for the traditional channel partner.

        Its ALL about business outcomes. Those who can facilitate it– manufacturers and channel partners alike– will be the winners.

        Reply
        • I think we're definitely on the same page there- those who can transition away from being commodity providers to business value adders will win.

          I have to say I'm somewhat disappointed that you happily report your SaaS apps require that sort of work, as I think that'll put you and your partners at a disadvantage in the future, when this sort of function is automated.

          Reply
  29. Yep, SaaS is tough. Yep, building it thru the channel is a real challenge. However, the SaaS wave is too big to ignore and think that suddenly all of this software is going to be sold and supported by the developer of the app.
    At end of the day, contracts are messy. With SaaS, there's not a sku in sight– its all contracts, which means customization at the deal level….a mess as compared to a buy-for-9-sell-for-10-add-the-services-get-on-down-the-road model that comes with on premise, sku-based apps.

    The way I look at it, Service Providers have had channels forever, right? They might not be SaaS providers, but their XaaS offer is similar enough to take a page out of their channel playbook, which is primarily the page with the word “AGENCY” at the top. There are other ways to do it, mostly dependent on IT support mechanisms that nobody has built yet. IT development cycles, however, are long, and companies are assessing if channels will work, and hence if the IT investment is one worth making.
    SaaS and channels will work, because it has to. Last one to the finish line is a rotten egg.

    Reply
  30. I think Justin is dead on in these comments and they mirror our own experience at LeveragePoint. Of course mschvimmer is also correct, the lead is generated from the web but the sale is closed personnally. The comment by Michael Dunham about servies and SaaS being a good match also mirrors our experience, but with a twist. We believe in using our SaaS application as a channel to deliver services – the services flow through the application rather than being wrapped around it. In our case this means that service providers that build customer value models or who provide the data that drives them do so through our SaaS application. I feel that in the long-term this is the most powerful model.

    Reply
    • Yes and it's non-traditional channels that are benefiting most from that approach, not the VAR's and SI's who traditionally installed, migrated, customised and maintained. That value is disappearing and new channel partners who benefit from the core value of your product will help SaaS vendors win big.

      Reply
  31. Justin… great stuff, as always.

    I just wanted to comment on the excerpt from Sachin's post on “Scale Pricing with Customer Success.”

    Since B2B (Enterprise & SMB) SaaS is our specialty at Sixteen Ventures, we have a lot of experience in versioning, bundling, etc.. First, we work with our clients to ensure that they are solving a business problem for their target market. By doing that, we also help our clients realize that when they solve a real business problem, there is a real value put on that by the clients. This means it is very unlikely that SaaS vendors we work with are going to be in the game of competing on price… we don't want them to be the low-price leader.

    One of the main things we always tell our clients in an effort to ensure they are positioned in the minds of their target market correctly is to do what Sachin suggests; reward their growth and success. The SaaS vendor doesn't want to punish the client's growth. They don't want to give the client any reason not to continue to use the product as their business grows. In fact, by showing the client that they understand their business and the increasing complexities as they grow, the SaaS vendor further cements in the client's mind that they are the subject matter experts.

    So, while I agree in principal with what he said, we go a step further and that is to have our clients differentiate the pricing bundles or versions based on value-added features, services, etc. and to avoid “commodity” items like storage, CPU, or even users. Sometimes, for example, users are the key metric that is most aligned with the needs of the client, so it would be foolish to not use that, but often, metrics with little perceived value are used.

    By aligning the “step-up” between bundles or versions with the value perceived by the client, the SaaS vendor is in a great position and the client feels great about moving up. They don't feel forced or bullied which could cause them to churn out and churn is the bitter enemy of revenue. Also, being value-based allows vendors to charge more in many circumstances.

    Great stuff Justin…

    – Lincoln

    Reply
  32. Just had a great chat with Thomas, one of the founders of Onelogin- I'm really impressed with him and what he's achieved in such a short space of time. I was delighted to hear that they're well aware of the issues raised and they're firmly on the roadmap.

    Reply
  33. For an early stage enterprise SaaS company starting their channel strat early is important to build up sales and marketing capacity and insight into customer needs and value proposition.

    That's assuming that partnering with one or two companies early on can be called starting your channel strat. I think it can as it gives you the experience of working with partners, their expectations, necessary processes and responsibilities.

    And we partner with companies who are the trusted advisors of the clients. Accountants and lawyers in our case. As so many aspects of doing business is changing due to increased regulations (E.g. climate change) and better use of technology in typical business processes (E.g. RFID) businesses purchasing SaaS solutions in these spaces require the inclusion of prof services simply because they don't have the expertise in-house.

    Reply
  34. Justin,

    Great write up! It'll be interesting to see which legacy players will still be standing by 2020.

    In a piece I wrote on, “The End of IT 1.0 As We Know It Has Begun”, I arrived at similar conclusions. Lets see if they play out over this decade.

    For those with the resources, this is a great time to launch a new business using this paradigm shift. The legacy companies have been caught flat footed and they're still out to lunch!

    Keep up the good work!

    Reply
  35. Hey Justin, great reporting on the Google Marketplace. It is an interesting move and like Salesforce.com will help promote SaaS and further the mission of the cloud.

    As a B2B SaaS provider, the tough question I have is what size businesses are buying Google Apps? We target the Middle Market and I am not seeing much traction for the current cloud offerings from Google…I am not sure this marketplace will reach that audience.

    Don't you think it is targeted more at the SMB market?

    Jeff

    Reply
  36. Well done! And you´ve been picky. Great choice. I´ve been in Mimecast´s space before and they are clearly setting the pace. BTW, we´ve just launched a Q&A site dedicated to business apps, Cloud and SaaS: http://answers.getapp.com/. No doubt you´ll soon become an expert there 😉
    Very happy for you.
    Christophe

    Reply
  37. Justin,
    very thorough round up of the industry happenenings this week. I especially enjoyed the interview with Eric Domage on cloud security aspects. My eyes usually glaze over when the topic of security comes up because I find it very technical, but Eric put his points forward in a way that is easy to understand and make a lot of sense.

    Reply
  38. Interesting The examples show high CAC costs (referred to d.skoks) for an SaaS but what do you recommend doing if a startup’s CAC is high due to x reason a direct sales force for example? Aside from the above mentioned within the examples on how to drive CAC down or LTV upnnWhat would you or anyone following advise or strategically adjust to obtain the same objectives ( sales/rev etc) there needs to be some constructive comments around these half examples, for instance recommending not using a direct sales force is not really constructive because it might deter away from the sales/rev objectives, but a strategy, substitution to lower the CAC associated with the force could be something we could all discuss and benefit from

    Reply
    • Have you checked out TWIS#26?nn http://www.justinpirie.com/2010/05/twis26-this-could-change-your-life-understanding-sales-complexity-in-saas/ nnThe first question to ask- is there enough pain (value) to justify the high selling point of a direct sales force?nnIf there’s not- then you might need to reconsider… I’ve had this question posed so many times over the years- so I don’t wish to take assumptions based on your email- but they hint at the same underlying issues.nnSaaS is really an upside down business, distribution and user experience are much more important than the software. If you can’t nail those two- then you’re going to struggle to acquire customers…nnMarketing and Sales is almost more important than anything else

      Reply
  39. Interesting The examples show high CAC costs (referred to d.skoks) for an SaaS but what do you recommend doing if a startup’s CAC is high due to x reason a direct sales force for example? Aside from the above mentioned within the examples on how to drive CAC down or LTV up

    What would you or anyone following advise or strategically adjust to obtain the same objectives ( sales/rev etc) there needs to be some constructive comments around these half examples, for instance recommending not using a direct sales force is not really constructive because it might deter away from the sales/rev objectives, but a strategy, substitution to lower the CAC associated with the force could be something we could all discuss and benefit from

    Reply
    • Have you checked out TWIS#26?

      http://www.justinpirie.com/2010/05/twis26-this-could-change-your-life-understanding-sales-complexity-in-saas/

      The first question to ask- is there enough pain (value) to justify the high selling point of a direct sales force?

      If there’s not- then you might need to reconsider… I’ve had this question posed so many times over the years- so I don’t wish to take assumptions based on your email- but they hint at the same underlying issues.

      SaaS is really an upside down business, distribution and user experience are much more important than the software. If you can’t nail those two- then you’re going to struggle to acquire customers…

      Marketing and Sales is almost more important than anything else

      Reply
  40. Excellent blog Justin, very insightful. I think your 10 point plan is exactly what Partners should be doing. The GB Olympic committee did something similar about 6 years ago, taking someone else’s model (business plan/services/product – it applies across the board I think), in this case Australia’s, and put their own spin on it to offer their athletes (customers) a better chance of succeeding, fast forward 4 years to Beijing 2008 and GB surged past Australia in the Gold Medals department and now they look to GB as a model to follow despite it being an upgraded version of their own idea!nPartners can certainly retain their clients with a smart implementation of some or all of your points……. as you say, it’s not all doom and gloom!

    Reply
  41. Excellent blog Justin, very insightful. I think your 10 point plan is exactly what Partners should be doing. The GB Olympic committee did something similar about 6 years ago, taking someone else’s model (business plan/services/product – it applies across the board I think), in this case Australia’s, and put their own spin on it to offer their athletes (customers) a better chance of succeeding, fast forward 4 years to Beijing 2008 and GB surged past Australia in the Gold Medals department and now they look to GB as a model to follow despite it being an upgraded version of their own idea!
    Partners can certainly retain their clients with a smart implementation of some or all of your points……. as you say, it’s not all doom and gloom!

    Reply
  42. Justin, I think you’re on the right track… I recently wrote about this topic on my blog http://bit.ly/fAkVpf, Here’s the intro to that post:nnThe reseller channel generally does not work for SaaS companies, especially at the early stages (sub-$20M in revenue). This is driven by two things: n1. SaaS solutions generally don’t require an intermediary. They are easy to find (online), easy to deploy (nothing to deploy), and easy to use. This is obviously not the case with SaaS solutions that require a significant process change on the customer’s side, but more on that below.n2. SaaS license revenue stream in the first year (where the reseller needs to make the most of his money) is a fraction of what perpetual license products receive. So the reseller either has to settle for a fraction of the revenue he expects from his perpetual license vendors, or he needs to get a cut of subsequent year subscriptions (which would be a waste of your money).nnThe only way to engage an indirect channel in an SaaS delivery model is around the professional services that need to encompass your solution. In effect, the only indirect channel I’ve seen work for SaaS companies is the value-added service provider partner. This is where a partner delivers the business process re-engineering required to successfully implement your solution at a customer site. In that case, the service provider derives his revenue from the services billed directly to the customer… while deriving less revenue from the SaaS license margin you would provide on top of that.nn

    Reply
    • Great post Firas! I really like your thinking on channels.nnAs a counterpoint to your blog post, I would argue there are some cases where building a channel early can benefit, where I work we have a very successful channel model that started way before your suggested revenue target- but then the channel wanted to sell our type of solution. So the only exception to your rule is if the channel are actively seeking that product to sell, then I think it would be foolish to turn them away.nnHowever, I don’t think that’s a normal use case… The majority of SaaS apps are disruptive and are taking complexity away from the end user, an as such don’t need as many services to install and maintain. Being disruptive isn’t always a good thing if you want to build a channel…nnBut in essence you’re right, if you want a channel, you need to create what I call “channel pull”. Essentially you have to create direct demand in the marketplace before channel will start selling. If you don’t do that, the channel won’t sell anything…nnAnd your remarks on what it takes to make a successful channel work are absolutely spot on. We have a dedicated channel team supporting them.nnIn essence- from a SaaS vendor perspective, building a channel is not something that should be taken lightly. For me- “we’ll create a channel” should go in the same bucket as “it’ll go viral”…

      Reply
  43. Justin, I think you’re on the right track… I recently wrote about this topic on my blog http://bit.ly/fAkVpf, Here’s the intro to that post:

    The reseller channel generally does not work for SaaS companies, especially at the early stages (sub-$20M in revenue). This is driven by two things:
    1. SaaS solutions generally don’t require an intermediary. They are easy to find (online), easy to deploy (nothing to deploy), and easy to use. This is obviously not the case with SaaS solutions that require a significant process change on the customer’s side, but more on that below.
    2. SaaS license revenue stream in the first year (where the reseller needs to make the most of his money) is a fraction of what perpetual license products receive. So the reseller either has to settle for a fraction of the revenue he expects from his perpetual license vendors, or he needs to get a cut of subsequent year subscriptions (which would be a waste of your money).

    The only way to engage an indirect channel in an SaaS delivery model is around the professional services that need to encompass your solution. In effect, the only indirect channel I’ve seen work for SaaS companies is the value-added service provider partner. This is where a partner delivers the business process re-engineering required to successfully implement your solution at a customer site. In that case, the service provider derives his revenue from the services billed directly to the customer… while deriving less revenue from the SaaS license margin you would provide on top of that.

    Reply
    • Great post Firas! I really like your thinking on channels.

      As a counterpoint to your blog post, I would argue there are some cases where building a channel early can benefit, where I work we have a very successful channel model that started way before your suggested revenue target- but then the channel wanted to sell our type of solution. So the only exception to your rule is if the channel are actively seeking that product to sell, then I think it would be foolish to turn them away.

      However, I don’t think that’s a normal use case… The majority of SaaS apps are disruptive and are taking complexity away from the end user, an as such don’t need as many services to install and maintain. Being disruptive isn’t always a good thing if you want to build a channel…

      But in essence you’re right, if you want a channel, you need to create what I call “channel pull”. Essentially you have to create direct demand in the marketplace before channel will start selling. If you don’t do that, the channel won’t sell anything…

      And your remarks on what it takes to make a successful channel work are absolutely spot on. We have a dedicated channel team supporting them.

      In essence- from a SaaS vendor perspective, building a channel is not something that should be taken lightly. For me- “we’ll create a channel” should go in the same bucket as “it’ll go viral”…

      Reply
  44. I completely agree with Justin’s comment that “The good times, as we knew it in the IT channel are gone.” In fact, I would go so far as to say that the entire “channel” itself is in the process of becoming extinct. Most resellers were little more than order takers in the first place and in the world of SaaS there is little for them to do. The channel is just the latest link in the chain to be eliminated by the disintermediation of the Internet.

    Reply

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