TWIS#27- Google I/O coverage in depth

TWIS#27

  • Google I/O news- Google TV- is TV going to be the next cloud battleground and opportunity?
  • Google announces “enterprise” partnership with VMware- fails to put enterprise ready SLA’s into the mix but extends PaaS options
  • Google tries it’s hand at solving the perennial SaaS distribution problem- announcing the Chrome Web Store
  • Android in numbers- it’s growing FAST
  • Google launches S3 Competitor- Google Storage for Developers
  • Evernote continues to showcase their numbers and make the case for Freemium- new Video
  • API festival at Gluecon! How people are solving the problem of Glueing SaaS and Cloud together
  • But customers aren’t thinking about Glue says Information Week research…
  • Sinclair Schuller on Cloud Architecture
  • Reuven Cohen on the coming of Clouds from a historical hosting perspective
  • Bessemer CEO conference coverage- Great Design and User eXperience essential
  • In other news, Microsoft, Salesforce, Ray Wang, Xobni and Banks in the Cloud.

TWIS Events

Some of you might remember from last week that I’m talking on a SaaS panel at HostingCon July 19-21 in Austin, Texas – with Jeff Kaplan, Lincoln Murphy and others- for TWIS readers there is a discount code and a pass to give away :)

Because of the holidays- I’m going to extend the draw for a couple of weeks, and draw the pass on the 14th of June- so get your entries in! To enter- email me jp@justinpirie.com with the subject “HostingCon”

If you can’t wait until then, you can use the discount code “SaaSGroup2010″ which will provide an extra $60 off the current pricing of a full conference pass with lunch for all three days.

It looks like a great conference.

TWIS#27

I got a bit carried away last week with TWIS #26– David Skok’s post on Sales Complexity was absolutely amazing, and I didn’t have any room for anything else, notably Google I/O.

One of the major announcements at I/O was Google TV- via TechCrunch.

Today at Google I/O, the company made the announcement that everyone was waiting for — Google TV. While some glitches in the demo (with the Bluetooth keyboard) prevented it from being a “wow” moment, the implications are pretty clear what Google is going for. That is, the 4 billion TV users worldwide. Or rather, advertising to the 4 billion TV users worldwide.

Google noted that while computer usage is huge with 1 billion users, and mobile is even bigger with 2 billion users, TV is the real massive medium with 4 billion users around the world. Further, Google notes that people spend 5 hours a day on average in the U.S. watching TV — and that’s more than ever before. Then the real stat came out. 70 billion dollars. that’s the annual ad spend on television in U.S. alone.

Ignoring the Ad spend- because the majority of people in SaaS don’t care about that, this is potentially a new computing platform with a huge number of users and no storage- which basically means that everything delivered to it has to be SaaS / Cloud. And that’s why I’m covering it here in TWIS.

Lets look at those user figures:

That is an enormous user base to tap into. But the TV sector is littered with failures- why is Google going after it?

Video should be consumed on the biggest, best, and brightest screen in your house, Google says. And while they’re not the first to attempt this, Google thinks they can get it right. There are four things they’re focusing on:

  • With Google TV, you’ll spend less time finding, more time watching
  • We’ll also show you more ways to personalize content
  • We’ll make existing TV much more interesting
  • This is much more than a TV

“TV meets web. Web meets TV” is the slogan Google is going with for this new endeavor. It will work as a new box — you’ll just hook up your existing cable or satellite box to it. All the hardware will include a keyboard and a mouse — but it will work with Android phones too. And you can use multiple Android devices to control the same TV — no more fighting over the remote.

You can also use the Android devices to speak to your TV — voice search on the TV.

Google TV is built on Android (2.1 right now, but they’ll upgrade it later). It runs Google Chrome for the browser. And yes, it has Flash (10.1).

Also cool, since Google TV is Android-powered, Android apps will work on the TV. With the device, there will be two app frameworks: web apps and Android apps. A new SDK for the Google TV is coming as well. And YouTube has a new product they’re launching for Google TV: YouTube Leanback — this is an optimized way to use YouTube on a big screen.

Google TV will be open sourced in both the Android and Chrome source trees.

Google has partnered with multiple device makers to bring the product to market. There will be three Google TV devices. Sony will have TVs and Blu-ray players with Google TV built in. Logitech will have a companion box. Intel will be powering all the devices with the Atom processor.

Nice. And from their demo:

httpv://www.youtube.com/watch?v=diTpeYoqAhc

CrunchGear follows with some excellent further analysis but essentially I think we are moving along a continuum in SaaS of Web-Mobile-TV.

Another big announcement at I/O is Google’s partnership with VMware:

Today, Google is taking it one step further. At Google I/O today, the search giant has announced that Google App Engine, a platform for building and hosting web applications in the cloud, will now include aBusiness version, catered towards enterprises. The new premium version allows customers to build their own business apps on Google’s cloud infrastructure. Google is also announcing a collaboration with VMware for deployment and development of apps on the new cloud infrastructure.

Announced two years ago, Google App Engine offers a full-stack, hosted, automatically scalable web application platform. Last year, Google added the ability to build Java applications off of the platform. With the newly launched Google App Engine for Business, Google is introducing new enterprise-level capabilities, including centralized administration, premium developer support and an uptime Service Level Agreement (SLA), flat monthly pricing, and soon, access to premium features like cloud-based SQL and SSL.

The new version included centralized administration, which is an administration console lets you manage all the applications in your domain. And Google promises reliability with a 99.9% uptime service level agreement, with premium developer support available. Also Google is addressing security by only allowing users from a Google Apps domain to access applications, with and administrator’s security preferences implemented on each individual app.

In terms of pricing for the new versions, each application costs $8 per user per month up to a maximum of $1000 a month. And Google is adding more enterprise-level functionality in the future, including hosted SQL databases, SSL on a company’s domain for secure communications, and access to advanced Google services.

Added to the mix of the announcement is a new collaboration with virtualization giant VMware, which just announced a partnership with Salesforce, to make it easy and fast to build apps and deploy them to either Google App Engine for Business, a VMware environment (On a vSphere infrastructure, vCloud partner, or on Salesforce’s VMforce) or other infrastructure such as Amazon EC2. The aim is to make it easy to create rich, muti-device web applications hosted in a Java-compatible hosting environment Users of Google App Engine for business can now use VMware’s SpringSource Tool Suite and Spring Roo which are integrated with Google Web Toolkit and Speed Tracer.

Google has added new data presentation widgets in Google Web Toolkit to speed development of traditional enterprise applications, increase performance and interactivity for enterprise users, and make it easier to create mobile apps. And Speed Tracer now helps developers identify and fix performance problems not only in the client and network portions of their apps, but also on the server thanks to the integration with VMware’s SpringSource tool suite.

This clearly represents Google’s big push to bring enterprise development to the cloud, by now offering a powerful and interoperable environment and toolset to developers. This should prove to be a more worthy competitor to Amazon Web Services, which is one of App Engine’s major competitors for hosting environments.

I have to say, that despite this announcement, Google App Engine is no more enticing- with only a 99.9 SLA. I really think it’s about time the PaaS providers put their money where their mouth is and provided decent SLA’s. What is interesting however is there is starting to be some cloud interoperability- by utilising SpringSource, you now have some choice over PaaS providers. I wonder how easy it is to distribute your appication between different SpringSource providers to improve your resilience?

I thought their image positioning their offerings was interesting:

Distribution or routes to market remains one of the biggest challenges to SaaS adoption- Google is trying to solve this too:

Today at the Google I/O conference in San Francisco, Google showed off a preview of a major new product: the Chrome Web Store. Yes, this is an app store for the web.

As you can see in the images below, those big icons are all web apps. This is where the apps you choose in the store with reside. In the store itself, you will see a gallery full of these icons (much like the Chrome Extension gallery, or the Chrome Theme gallery). You can see ratings for the apps, as well as reviews. But perhaps most importantly, developers will be able to charge for these apps.

Developers care about monetization. But they need more than just advertising,” Google VP Product Sundar Pichai said on stage. With the Chrome Web Store, Google has simplified the process of buying apps on the web. Once you sign in to your Google account, apps are just one click away (presumably using Google Checkout). From there you can say, buy Plants & Zombies, the very popular game in Apple’s App Store. But this runs all on the web in Chrome, thanks to Flash. You can run the game full-screen as well.

Another game is Lego Star Wars. This game is run through Chrome’s use of native client (so developers can use native code to develop for the web). This is a full 3D game, built using rich HTML5 APIs.

There will also be apps in this store based around content. This means that magazines and periodicals will be coming to the store — and they’ll be able to charge for them. Sports Illustrated showed off its web app on stage.

As an example of pricing, Google showed that MugTug Darkroom (shown below) will be $4.99.

But this exciting new store comes with another cost: you have to be using Chrome to use this store. It will be built right into the Chrome browser starting soon — and yes, into Chrome OS when that is launches later this year. But these web apps will be able to work on other browsers, Google says. It’s just that you have to get them through the Chrome Web Store, apparently.

This store just made Chrome OS a lot more interesting — to be developers and users. Google is attempting to take the currently popular idea of one-click app purchasing and translated it to the web. This is a direct shot at both Apple and Microsoft.

Here’s some more info from Google:

Are applications in the Chrome Web Store different from other web apps?

No. Web apps listed in the Chrome Web Store are regular web applications that are built with standard web tools and technologies. The same web applications will run in other modern browsers that support these technologies.

What’s the advantage of “installing” an app from Chrome Web Store?

When Google Chrome users “install” a web application from the store, a convenient shortcut is added for quickly accessing the app. Installed web apps can also request advanced HTML5 permissions. For more information, read the preliminary documentation about installable web applications in Chrome.

How will I add my web application to the store?

We will invite developers to start adding their web apps later this year before the Chrome Web Store opens. To find out how to prepare your web app for the store, read our preliminary documentation and join our developer discussion group.

When is the Chrome Web Store opening?

The Chrome Web Store will be available for users and developers later this year. Subscribe to our developer discussion groupand the Chromium blog for updates.

And in pictures:

Here’s what tabs currently look like in Chrome (notice the TC favicon, Google is watching):

Here’s what installed apps will look like (on the left):

Here’s the app installation pop-up (notice that it informs you what it will need to access):

Here’s what the app launch page in Chrome will look like (the final icon is for the store itself):

Here’s one app, MugTug Darkroom, running in Chrome:

But don’t they already have an (Android) app store? TechCrunch again:

Today at Google I/O during the Chrome press session, one question seemed to come up over and over again: why build a new Chrome Web Store when there is already an Android Marketplace? This is the latest extension of the thought that two different areas within Google (Android and Chrome) are increasingly competing with one another as platforms. But Google has a different take. For them, it’s about natural selection for now. And eventually, it will be about a natural convergence.

Google VP of Product Sundar Pichai says that by investing in both platforms, the company will be well-positioned no matter what happens in the future. “We’re trying not to pre-judge,” he notes indicating they’re keeping an open mind about things. While the two teams largely operate as separate units, there is some code share, such as in Android web browser, Pichai notes. And he expects that sharing to keep growing going forward.

Google co-founder Sergey Brin went further. “These models are likely to converge in the future. And not the too distant future,” Brin says.

He notes that during the keynote today, we got a glimpse at how the HTML model is coming along. Web apps are now able to go offline, and they can have richer graphics thanks to HTML5. “It’s getting similar to app frameworks,” he says. He also notes that there are benefits to using web apps versus native apps, such as the lack of installation, and certain aspects of security. ”It’s headed in a positive direction, but these are fairly recent developments,” Brin says.

Brin acknowledges that for now, the market is proving the need for native apps. The current generation of cellphones aren’t quite powerful enough, and HTML5 isn’t quite developed enough, he notes. Pichai also notes that screen sizes on mobile devices makes native apps more enticing as well.

But despite some of this cautious talk, the general vibe from Google’s top brass seems clear: the web will win in the end. Eventually, Android will morph into Chrome OS to create a unified web platform, if Google has its way.

Someone might want to tell Apple.

Plus with the announcement of Google TV this would make sense- too many platforms are bad for developers and bad for consumers. We’re then in an interesting deviation- apps for devices are a short term win but strategically the Web will win.

I/O coverage wouldn’t be complete without some Android- TechCrunch again:

Today at Google I/O Vic Gundotra made a big revelation. Last year, Google was activating 30,000 Android phones a day. The past February, that number jumped to 60,000. Today, Google is now activating over 100,000 Android phones a day.

Android was the second best-selling smartphone this quarter, Gundotra says. They are only behind RIM — and yes, ahead of that other rival. Gundotra also pointed out the stat from AdMob that Android was first in terms of web and app usage among smartphones.

And that’s not all. Gundotra also announced that there were now over 50,000 apps available for the platform. And there are some 180,000 developers working on the platform.

There are now over 60 compatible Android devices from 21 OEMs in 48 countries. The devices are spread across 59 carriers.

So to have some figures to back up your stat’s or market analysis:

Google-powered Android phones and iPhones are both gobbling up market share. The combined worldwide market share of both operating systems reached 25 percent in the first quarter, up from 12 percent the year before, according to Gartner. The iPhone still has a bigger share, at 15.4 percent (up 5 points), but Android is catching up fast with 9.6 percent (up 8 points). All other smartphones lost relative share during the quarter, even RIM Blackberries, although they still grew in absolute numbers

Methinks the Apple / Google gloves are officially off

Finally on the Google I/O front, they announced Google Storage for Developers which is:

a RESTful storage service for developers to store their data on the highly replicated Google infrastructure. In addition they also announced an open source command-line tool to store, share and manage data, called gsutil.

This seems to be the arrival of the famed G Drive- a direct competitor to Amazon S3. But there is more to it:

Apart from the impact of this announcement on the market and speculations about Google’s motives, there is something that is more interesting here and it has been highlighted by Mitch Garnaat in this blog post.

“What was even cooler to me personally was that gsutil leverages boto for API-level communication with S3 and GS.  In addition, Google engineers have extended boto with a higher-level abstraction of storage services that implements the URL-style identifiers.  The command line tools are then built on top of this layer.”

Interesting- could Google help lead the ability for people to store and manipulate the same files across multiple CDN’s?

Kudos to Evernote for continuing to share their Stats:

Last week at the Founder Showcase, a quarterly event put on by Adeo Ressi’sTheFundedEvernote CEO Phil Libingave a presentation discussing some of the startup’s key revenue numbers and strategy. During his talk, Libin outlined some of the ingredients in making the freemium model work, and how long-term users actually become more valuable over time.

Evernote, for those who haven’t used it, is a great service for quickly storing and organizing ideas, photos, documents and other information that you encounter both online and in the real world. This is actually one of the secrets to the service’s success — as people add more of their content to the site over time, it becomes increasingly valuable to them. Libin has previously shared similar information during his mentorship at Ressi’s incubator The Founder Institute

Founder Showcase – Phil Libin Keynote from Adeo Ressi on Vimeo.

Here are some of the main points Libin covered during his talk:

  • Sometimes people say “The best product doesn’t always win”, and are implying that you should focus on other areas, like marketing. In the Internet age, a good product can get the rest of that stuff (marketing, etc.) for free. So focus on that. And then charge for it.
  • A year ago Evernote was making most of its money from licensing its technology, but it focused on its premium plans ($5/month or $45/year) because that was more scalable. Now, premium subscriptions bring in around $300-400k a month, and licensing represents around $45k.
  • Evernote has 3.1 million cumulative users, and adds around 10k a day. Around 68k paying customers.
  • Users have grown more valuable over time. New users convert to premium at a rate of .5%.  But of the users that signed up two years ago and are still active, 20% have become paid customers.
  • This trend is important — most users quit quickly. But the ones that stay become much more likely to pay over time.
  • Evernote’s cost per user is around 9 cents per active user per month. It makes around 25 cents per user per month. The site reached break even a year and a half ago.
  • Entrepreneurs should aim to be making money on each new active user as soon as possible. Otherwise scaling just means you’re losing money faster, rather than earning it

We should note that Libin has previously discussed similar information, though the video provides more detail.

I’m more sceptical about freemium than ever before- I’d be interested to hear your perspective…

This week I wished I was at GlueCon because I think API’s are getting more interesting- how the Cloud and SaaS is stitched together is getting more and more important. RWW covers:

It’s like an API festival here at Gluecon. I tweeted that this afternoon. But it’s not just Gluecon, though – they’re one of the hottest topics in discussions about cloud computing.

In his presentation today at Gluecon, John Musser of Programmable Web illustrated how hot APIs have become and how they’ve matured.

Perhaps most illustrative is his “API Billionaire’s Club.”

Members of the club include Google and Facebook with 5 billion AP calls per day. Twitter has 3 billion per day. Ebay has 8 billion per month. NPR gets 1.1 billion calls per month for its API-delivered stories. Saleforce.com gets 50% of its traffic through its API.

PW_GlueCon_May2010 - _Google Docs_-1-1.jpg

According to Musser, it took eight years to get to 1,000 API’s but just 18 months to get to 2,000. This year, the number of API’s are double what they were last year on a month-per-month basis.

Internet/platform as a service (PaaS) API’s are now number one. That’s illustrative of the increased usage of services like Amazon S3 and all its competitors. Maps are the number three API, dropping from the number one spot last year. Social API’s are number two.

REST API’s are far surpassing SOAP.

PW_GlueCon_May2010 - _Google Docs_-3.jpg

There’s a real energy here at Gluecon around the discussions about APIs. The room was packed for the presentations on the topic.

As the space matures- the Glue is going to become more and more important- at the moment I don’t think people outside of the industry are thinking about it enough:

According to a recent InformationWeek Analytics 2010 survey, more than half of software-as-a-service users (59%) look on SaaS as a tactical point solution “for specific functionality.” That’s all well and good, given that SaaS started out that way, mostly in terms of specific applications (CRM, HR), and its primary appeal is still speed of implementation, which is a tactical maneuver.

But they need to be thinking about it in the wider context- without integration it’ll just become another dysfunctional silo…

Even SaaS should no longer be looked on as just a quick fix. In the InformationWeek Analytics survey, about a third of SaaS users (32%) say their “long-term vision [is] to primarily use SaaS applications.” That’s a significant chunk of true believers, and a (growing) cloud constituency that’s hard to ignore.

Still, you don’t have to throw everything over to embrace the cloud. As systems and business processes run their course, cloud services should be considered as replacements. The cloud, or even SaaS by itself, doesn’t have to be the whole of your IT strategy to be part of your IT strategy.

+1 from me.

Sinclair Schuller is thinking along similar lines to me at the moment:

Given that there is so much velocity, tumultuousness and general confusion (acronym hell coupled with taxonomical conflation – aka the “everything and everyone is a platform” syndrome), we’re bound to see some order evolve in the future where the evolution will be motivated by what people actually use and adopt rather than the current landscape which is driven by who can yell the loudest.

The big question is what will the future of cloud architecture look like: a stack of interchangeable layers that allow one to choose best of breed or a group of incompatible but highly specialized “holistic silos?”

Looking at the history of infrastructure middleware, the answer seems to be quite clear. Typically, the trend has been that layering functional best of breeds into stacks provides the best combination of “lowest common denominator” coupled with the necessary functional value to “get things done” and keep risk minimal. For example, I can choose servers made by HP, a Windows OS, Java and JBoss, and build a killer enterprise app. If I so decided, I could have swapped Windows for Linux and essentially had a compatible stack experience.  Why, then, are silos cropping up in the market?

Silos like Force.com have their appeal. They promise a world where all your needs, ranging from hosting and execution runtimes in the cloud all the way through development frameworks and distribution channels. The problem, however, is that the software market cannot be addressed as a broad stroke.

The needs of software companies vary wildly: ISVs in the healthcare space may care more about hosting certifications than someone in the CRM space, while those in business intelligence need low latency, high compute availability and the others who altogether care very little about the hosting and it’s all about what middleware they are going to use. The number of needs permutations is staggering.

To think that Platform as a Service vendors that own the full stack, from hosting through runtime and even UI components, can ever optimize for each of these scenarios is ludicrous.  Furthermore, the silo providers ask for something huge in return for a suboptimal solution:  control of the ISVs destiny in all regards. That’s a high price to pay for a promise that can’t be fulfilled.

Which is why specialised clouds are emerging. Reuven Cohen puts this into perspective from the hosting business going towards cloud:

One of the biggest transitions in the hosting space over the last decade has been that of Virtual Private Servers (VPS)– a market controlled effectively by one company, Parallels. A critical problem with the Virtuozzo Containers product line and approach has been that there is effectively no difference between any VPS hosting company. The lack of differentiation among the various VPS hosting firms has meant that the only real way to set your service apart from that of the other guys is based purely on price. This price centric approach to product/service differentiation creates a commodity market for all the providers. Basically they’re sales pitch is “We’re cheaper”. This means you’re now competing based on a low margin, high volume business, not on any real value proposition. Effectively the VPS space has become a race to zero. So in this market you’ll find that most VPS hosting companies are now charging roughly the same low price, a few dollars a month, with the same low margins for same basic service. The only one making any real margin is Parallels at the expensive of their customers.

What’s interesting about the emerging cloud service provider segment is the opportunity to differentiate based on the value you provide to your customers. It’s not that you’re cheaper than the other guy, but instead that you have an actual solution to a problem they have — today. Maybe your platform can scale more easiliy, or you’re in a specific region or city, you possibly you have a particular application deployment focus.

Great to see that from another perspective- and I really buy into that, because not all customers are the same.

Bessemer’s CEO summit was last week, and for those of you that don’t know, they have a Designer In Residence, Jason Putorti. Design, or User eXperience (UX) is becoming more and more important in the way businesses and consumers choose which products to buy- so it’s essential to get to grips with it. To quote Bessemer’s Cloud Laws- people expect software not to suck anymore. Never before in the history of software have developers had the ability to analyse and adjust in real time their software to iterate quickly- there are no more excuses!

Jason’s presentation was focused on the “10 Things Every CEO Needs to Know About Product Design and User Experience”. The full presentation is available at the bottom of the post but here are the key highlights:

  1. Design can change businesses: little things can have a great impact. A simple example: the difference between “I am on Twitter” and “You should follow me on Twitter here” increased the registration rate by 173%!
  2. Design is more than pretty picture: it is all about the user experience and the brand you are trying to build
  3. Talk benefits not features: It is much better to write “Understand your money” than “20 colorful configurable charts and graphs”. Another way to think about it is Microsoft vs. Apple packaging :+)
  4. Think in flows, not screens
  5. Do not make the user think: Make obvious what is clickable, minimize noise, omit needless words
  6. Start with a great story: Make the value obvious and present it first in the user flow
  7. User design as a lever: The best marketing tool you can have is a well designed application
  8. Get out of the office: Watch people experience your product or service
  9. Have your bible: Synthesize your design guidelines in a company style guide
  10. Repeat & refine: Allot product cycles to improvement

In other news:

Have a great week.

Justin

jp@justinpirie.com

Also read...

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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