SaaS for Very Small Businesses – Show Me the Money
Business, Enterprise Software, SMB / SME, SaaS, Software May 31st, 2006
Recently, in SME / SMB Have Become Obsolete Acronyms I discussed how now, that business software and services have become affordably available to small businesses, the SMB term has become inadequate to describe this market, especially from the software industry’s point of view. Simply because the needs of a $100M company, which SAP and Oracle consider a “small” business are not even comparable to a 6-10 person company – traditionally referred to as SOHO, while recently a new term is popping up: VSB – very small business, the absolute “S” part of SMB.
Innovators in the software business are increasingly focusing on this segment. The result of this change is that “Enterprise Software” is no longer the luxury of large corporations. This might sound like a shocking statement, since “Enterprise Software” typically means the world of SAP and Oracle, and the traditional heavyweight, expensive, pay-huge-license-fees-upfront, then try-to-implement-forever model that does not work anymore.
But there is another definition that is largely being overlooked:
Software that allows a company to conduct it’s everyday business, supporting most of the core, fairly standard business processes any company performs repeatedly.
With this definition, Enterprise Software has a whole new, largely unpenetrated market to enter: that of small businesses. Such business functionality has traditionally been beyond reach for a typical small business, for two major reasons:
- Cost (license, hardware, implementation, maintenance ..etc)
- Lack of IT resources (integrating applications, designing processes, dealing with multiple vendors ..etc)
SaaS is the right answer for both, since it allows the SMB user to start using the functionality without an upfront investment, does not require implementation, upgrades, maintenance, worrying about backups and security ..etc.
Of course several Open Source packages are available completely free, which is a perfect solution for the cost problem, but frankly most of these packages are by geeks for geeks; i.e. you really have to be quite IT-savy to implement, integrate, upgrade them, and as we stated most small businesses simply do not have that type of resource.
Stefan Topfer, Winweb’s Founder and CEO started an excellent mini-series on Saas Benefits detailing a lot of technical, delivery, usage aspects – now I am going to look at the changed economics from the other side, the software vendors’ point of view.
If SMB’s could not in the past afford Enterprise Software, the same held true for the Software Industry: they could not afford SMB’s, since there was just no way to profitable reach millions of small businesses. The cost of customer acquisition vs. the very low license fees made it an uneconomical model, whether via direct or channel sales. A common “dirty secret” of the industry is that about 80% of a an enterprise software company’s cost is Sales and Marketing. There’s a lot of “fat” in that sales process that needs to be cut out.
Once again, technology comes to the rescue: the Internet, and largely Search Engine Marketing changes everything. Joe Kraus, Founder of JotSpot and previously Excite sums it up:
“ Ten years ago to reach the market, we had to do expensive distribution deals. We advertised on television and radio and print. We spent a crap-load of money. There’s an old adage in television advertising “I know half my money is wasted. Trouble is, I don’t know what half”. That was us. It’s an obvious statement to say that search engine marketing changes everything. But the real revolution is the ability to affordably reach small markets. You can know what works and what doesn’t. And, search not only allows niche marketing, it’s global popularity allows mass marketing as well (if you can buy enough keywords). “
Another benefit of SEM (search engine marketing) is that while traditional advertising can pick the right demographic groups, it cannot pick the right time, only a fraction of the target audience is in “change mode”, looking for a solution. That’s the beauty of Search Engine Marketing: obviously if you are searching, you have a problem and are looking for a solution, which is half a win from the vendor’s point of view.
Small Business Trends published a survey on “Selling to Small Businesses”, which supports the increasing importance of SEM: “A full 73% of vendors attract small business customers through search engine results”
Joe has another excellent article worth reading; especially the last two bullet-points are relevant to our discussion here.
What we’re seeing is that the SaaS model changes not only the technology and the delivery of software to customers, but the marketing and sales process, too, which is perhaps where most of the excess “fat” can be cut from. Software companies can now directly and affordably reach millions of small customers. The entire marketing, sales, delivery, implementation, support, upgrade process is seamless, highly standardized, conducted via the Net, teleconferencing, Webex-like sharing in new low-cost ways.
So how do software companies make money on small businesses? Ziff Davis has the answer: “Products for the long tail and SMB market, where 72 million businesses spend $5k or less each year, are a much easier play” Wow, I don’t know where those numbers come from, but if I were a SME-focused software vendor, I’d certainly like them … there’s a goldmine out there. 
AMI Partners confirm: U.S. SMBs to Spend $2.2 Billion on Software in 2006
(This article, with minor changes is cross-posted at The SME Blog, where I am a guest blogger)
Tags: Enterprise Software, Sales, Enterprise Sales, Demand Generation, SAP, Oracle, Jotspot, web20enterprise, business model, Open Source, SEM, Search Engine Marketing, SMB, SME, VSB, Small Business, Winweb, zoliblog
SVASE VC Breakfast with Diamondhead Ventures – Almost Sold Out
Bay Area, Business, Social Networking, Startups May 29th, 2006
The next SVASE VC Breakfast Club meeting is on Thursday, June 1st in Menlo Park – the VC Mecca, Sand Hill Road. As usual, it’s an informal round-table where up to 10 entrepreneurs get to deliver a pitch, then answer questions and get critiqued by a VC Partner. We’ve had VC’s from Draper Fisher, Hummer Winblad, Kleiner Perkins, Mayfield, Mohr Davidow, Emergence Capital …etc.
Thursday’s featured VC is Raman Khanna, Founding Managing Director, Diamondhead Ventures. The Zvents post has all the info and a map, and if you plan to attend, hurry to register - at the time I’m writing this there are 3 seats left of the 10 maximum.
These sessions are an incredible opportunity for Entrepreneurs, most of whom would probably have a hard time getting through the door to VC Partners. Since I’ve been through quite a few of these sessions, both as Entrepreneur and Moderator, let me share a few thoughts:
- It’s a pressure-free environment, with no Powerpoint presentations, Business Plans…etc, just casual conversation, but it does not mean you should come unprepared!
- Bring an Executive Summary, some VC’s like it, others don’t.
- Follow a structure, don’t just talk freely about what you would like to do, or even worse, spend all your time describing the problem, without addressing what your solution is.
- Don’t forget “small things” like the Team, Product, Market..etc.
- It would not hurt to mention how much you are looking for, and how you would use the funds…
- Write down and practice your pitch, and prepare to deliver a compelling story in 3 minutes. You will have about 5, but believe me, whatever your practice time was, when you are on the spot, you will likely take twice as long to deliver your story. The second half of your time-slot is Q&A with the VC.
- Last, but not least, please be on time! I am not kidding… some of you know why I even have to bring this up.
See you on Thursday! 
Update (5/30): Here’s a participating Entrepreneur’s feedback about a previous event.
Tags: Venture Capital, VC Breakfast, Funding, VC Funding, Startups, Entrepreneurship, SVASE, TiE, zoliblog
Turning Cow Manure into Horsepower
Misc May 29th, 2006
This is not BS .. rather CS 
A University group created the world’s first car powered by cow-manure.
“Every cow can produce enough manure in a day to make a car go about 15 miles. If you take 20 cows, you get 300 miles of gas in your car.”
The downside: “There are not enough cows in the United States to power every vehicle“ Oh, and there’s no mentioning of the .. hm… frangrance.
(Full article and video at ABC News)
Update (5/31): This is the real “Quick Fix for the Gas Addicts”
Update (6/1): Apparently for some, this car “smells”, so they put their bet – and money on electric cars: Tesla Motors, new electric sportscar company, raises $40M from Google guys, others
Tags: cars, hybrid, fuelefficiency, alternativefuel, cowmanure, horsepower, hybridcars, alternativecars, zoliblog
Hidden Comment Spam
Blogging May 28th, 2006
Here’s another innocent-looking comment I received today, to an old post (first suspicious sign!):
Re: M-listers and Down-linkers
by Anonymous on Sun 28 May 2006 02:33 PM PDT
Cool…Very useful article, thanks!
WTF? Typically these meaningless, generic comments indicate spam, but in this case the commenter remained anonymous, and there is no link back to any site, so who benefits?
Tags: comments, blogs, blogging, comment-spam, spomment
End Cable Monopoly
Bay Area, Business, Politics May 28th, 2006
Are you sick of being squeezed by your cable company? There’s nothing you can do as long as they have a monopoly.
If you are in California, check here’s where you can take action
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This gem from Good Morning Silicon Valley is the sequel to Technical Support: Upgrade Nightmares (hat tip: Mike Cannon-Brookes)
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Last year a friend of mine upgraded from GirlFriend 6.0 to Wife 1.0 and found that it’s a memory hog leaving very little system resources available for other applications. He is now noticing that Wife 1.0 is also spawning Child Processes which are further consuming valuable resources. No mention of this particular phenomena was included in the product brochure or the documentation, though other users have informed him that this is to be expected due to the nature of the application.
Web 2.0 in the Enterprise – Round …n.. (I can’t keep track)Business, Collaboration, ERP / CRM, Enterprise Software, Software May 26th, 2006Stowe Boyd picks up where Ben Metcalfe left off in Web 2.0 doesn’t work in the mothership, but… essentially recommending that Web 2.0 is best introduced in the Enterprise “in a satellite operation at arms length from the rest of your operation” While this is often the easy solution, I think a case can be made for the seamless mashup of process- and workflow-centric enterprise applications and the more creative, unstructured, collaborative tools like wikis. Case in point is JotSpot’s integration with Salesforce.com based on the Appexhange. Granted their target is not the largest of enterprises, but another example I heard of at SAP’s annual conference is the SAP Help Desk wiki by Socialtext targeting the entire SAP ecosystem. In any case, I agree that spontaneous, project-focused use is how wikis will become adopted in the Enterprise, but at the same time I believe they should be a logical extension of any Enterprise system – SAP, Salesforce.com are starting to recognize, and I think the day when we’ll have both top-down (enterprise sale as part of the large package) and bottom-up (departmental initiative) penetration is not that far. But then Stowe goes one step further, and this is where the trouble starts:
Oh, boy. As a matter of fact, prior to standardizing on SAP the individual plants operated exactly according to Stowe’s ideal model: each doing whatever they wanted, picking their own systems that simply did not talk to each other. Web 2.0, collaboration is great, it has it’s place in the Enterprise, but so do those “ugly complex” transactional systems. Don’t try to run your supply chain on a wiki Update , more than three years later: Would You Manage CRM with a Wiki? Tags: web2.0, enterprise, sap, sapphire06, erp, crm, salesforce.com, jotspot, socialtext, supplychain, standardization, integration, systemintegration, zoliblog Tags: crm, Enterprise, erp, Integration, Jotspot, salesforce.com, sap, SAPPHIRE06, socialtext, standardization, Supply Chain, system integration, web2.0 Zoho – the “Safer Office”Business, Collaboration, Software May 26th, 2006
But what’s Office 2.0? First of all, terminology: some call it Office 2.0, others Web Office: the point is to have web-based applications that are accessible via a browser, without any download, that will store the data files on the web, too (sorry AjaxWrite, you are out), thus making all my stuff accessible from any computer, any time (as long as I have Internet access). I’ve been using Writely for a while, so when I first found The only problem is, when I am not on my own PC, sometimes I forget what’s where… and of course my data files reside with the various service providers, and I am not completely at ease with my digital life being so fragmented. See where I am heading? This move to the Web is liberating, but the plethora of different services causes a bit of chaos. There are two basic concepts to deal with the chaos:
The Zoho guys also promise integration between these applications, and I have reason to believe they will be able to pull it off – after all, they already have the Zoho leverages a good deal between the different product offerings: some parts of Virtual Office make it into the individual applications, and vice versa, some of the standalone products become part of Virtual Office. For example 1G storage is now an implicit part of using the applications, but Zoho Drive will soon be available as a standalone service, too. Ah, and let’s not forget about Zoho Creator, which is exactly what the name suggests: an easy web-application creator. They even go beyond traditional Office functionality, into the transactional world buy providing Listening and responding to customers is an area a lot of companies fail nowadays – Zoho seems to excel here, too. As part of research for this post I looked at earlier reviews, and several features reported “missing” from Writer are already included in the current product. There is a direct feedback link from the applications, and the longest response time I experienced was a few hours – sometimes it’s just minutes. In comparison, a question I posted on the Writely forum over two weeks ago is still unanswered – I guess those guys are busy finding their place in Google. Summing it up: Zoho pumps out new applications at an amazing rate (check the site for a few more I haven’t even mentioned). While one by one most of their applications are comparable to at least another web-based application, I am not aware of any other company offering such a complete suite, with that level of support and the realistic prospect of integrating the applications soon. For me the choice is obvious: Zoho is my Office 2.0 Suite. I’d like to touch on another issue, namely the value of being first, “original” vs. doing something better the second time – but for the sake of readability I’ll break it out to another post – soon. Update (5/27): Assaf, who made blog conversations really trackable by bringing us co.mment read my post and gave the Zoho Virtual Office a try. His overall impression is positvie, but he also includes some criticism – just as he should. One thing I learned is that Zoho listens and moves fast. Another obeservation (of mine) is that they seem to move in iterations:
Update (6/6 -yes, the famous 666!): Google Spreadsheet is out, the blogosphere is abuzz, and I won’t have the time to write today, but at least I wanted to point to Ismael’s article, since he arrives to the same conclusions I did… Tags: box.net, excel, ms office, office2.0, Omnidrive, openomy, Outlook, thumbstack, virtual office, web office, Web20, word, Writely, zoho, zoho creator, zoho crm, zoho office, zoho sheet, zoho show, zoho writer Screw the Trademark, Move on to Web 4.0Blogging, Business, Collaboration, Software May 25th, 2006From Tom Raftery’s IT Views:
“IT@Cork is a not-for-profit networking organisation for IT professionals. IT@Cork organises regular information and networking events which are free for its members. One of these events – the upcoming Web 2.0 half-day conference is the target of a cease and desist letter (below) from the legal team of O’Reilly publishers. Basically O’Reilly are claiming to have applied for a trademark for the term “Web 2.0″ and therefore IT@Cork can’t use the term for its conference. Apparantly use of the term “Web 2.0″ is a “flagrant violation” of their trademark rights! Ironically I invited Tim O’Reilly to speak at this conference last February and his response (which I received on 15th of February) was:
So Tim was aware of the event in February but decided to wait until 2 weeks before the conference to set the lawyers on us. As I mentioned, IT@Cork is a not-for-profit organisation and doesn’t have the resources available to O’Reilly – what do people suggest we do?” This is absolutely ridicoulous, but I know what to do.
Related posts:
Update (5/29): Isn’t it fun to watch mainstream media pick up on a subject days after bloggers have already forgotten it? Tags: web2.0, web3.0, oreilly, o’reilly, trademark, web4.0, unconference, zoliblog Creative Way to Fight SpamMarketing / PR, Misc May 25th, 2006
Please note, I’ve only said it’s a creative way, as a theoretical approach, I have no clue about legal ramifications, so am not recommending you follow this method. Perhaps a lawyer-reader can jump in here (?) Thanks to Panda software for providing the inspiration. (scroll down to updates). Tags: spam, antispam, autofilter, email, spamfilter, panda, pandasoftware, bluefrog, bluesecurity, zoliblog
CategoriesWP Cumulus Flash tag cloud by Roy Tanck and Luke Morton requires Flash Player 9 or better.
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When we’re talking about large multinational corporations, as Stowe does in his example, the primary benefit of standardization and integration is NOT measured in the IT budget. The key benefit is competitiveness, simply being able to conduct business. Here’s a case study from my “previous life” when I was implementing SAP systems in exactly these types of companies: The Client, a major test and measurement equipment manufacturer had no real-time visibility of their available-to-promise inventory throughout their own plants accross the US and several countries in Asia and Europe. It typically took them 3 weeks to be able to promise a delivery date to customers. Needless to stay they started to lose business. After the SAP implementation customers could receive the promised delivery date in real-time. For this company the implementation of the standard system was not an option, or driven by IT savings, it was the only way to stay in business.
(Updated)
and it really doesn’t matter what we call it. 
Now that the Blue Frog is 
Zoli Erdos
Blogware’s email comment-notification helped: for some reason it messes up html comments, so this is what I received:
How tricky…