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24SevenOffice Acquisition Rumors

24SevenOffice, the European SaaS provider of an integrated, All-In-One system for small businesses may be in acquisition talks with a major US vendor. The news went almost unnoticed, partly because it leaked just before Christmas, partly because the company is largely unknown outside a few European countries – not for long if a deal comes through.

I covered 24SevenOffice, a very promising SaaS provider for the SMB (SME) market several times. Their system is modular but integrated with a breath of functionality I simply haven’t seen elsewhere: Accounting, CRM (Contacts, Lead Mgt, SFA), ERP (Supply Chain, Orders, Products, Inventory), Communication, Group Scheduling, HR, Project Management, Publishing, Intranet. Essentially a NetSuite+Communication and Collaboration.

About the only thing I did not like was the lack of availability for US customers – this might change soon. The news release and blog post mentions three names: Salesforce.com, WebEx and Google, but adds a somewhat cloudy remark: “the companies here are only examples of what the rumors have outlined.” It does not explicitly confirm one of these specific companies as the potential buyer. I should also add that while I had in the past been in touch with Management, at this time I have no information whatsoever from the company, so the ideas below are purely my speculation.

Salesforce.com as suitor: A well-integrated All-In-One product would come handy to Salesforce.com which could dramatically expand their customer base this way. However, they’ve gone a long way in the other direction, trying to become a platform and extending their reach via the ecosystem built around the AppExchange. Acquiring 24SevenOffice would be a huge about-face for Marc Benioff, and essentially would mean admitting that archrival Zach Nelson of NetSuite was right all this time about the superiority of the integrated All-In-One approach.

WebEx: Their original market, the web conferencing space is being commoditized, they clearly are looking for more lucrative markets, as evidenced by the recently launched WebEx Connect (their “AppExchange”). I haven’t heard about much activity since the announcement – certainly owning a product like 24SevenOffice (btw., it really should be called 24SevenBusiness) would allow WebEx a powerful entry into the SMB applications market.

Google: No way, you might say. Google and business process / transaction oriented software are lightyears apart – at least today.

Yet unlikely as it sounds the deal would make perfect sense. Google clearly aspires to be a significant player in the enterprise space, and the SMB market is a good stepping stone, in fact more than that, a lucrative market in itself. Bits and pieces in Google’s growing arsenal: Apps for Your Domain, JotSpot, Docs and Sheets …recently there was some speculation that Google might jump into another acquisition (Thinkfree? Zoho?) to be able to offer a more tightly integrated Office. Well, why stop at “Office”, why not go for a complete business solution, offering both the business/transactional system as well as an online office, complemented by a wiki? Such an offering combined with Google’s robust infrastructure could very well be the killer package for the SMB space catapulting Google to the position of dominant small business system provider. Who’d benefit from such a deal? Google, millions of small businesses, and of course 24SevenOffice.

I admit I would feel somewhat sorry for 24SevenOfice though, as I clearly think they could have a shot of becoming a billion-dollar business on their own – the next NetSuite. Either way, if they make it to the US market this year, they’ll likely see explosive growth. When they are a well -known brand, remember, you discovered them here.thumbs_up

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24SevenOffice is More than Just Office – Watch Demo

24SevenOffice is an innovative software company offering SaaS for the SMB / SME market that should really be called 24SevenBusiness smile_wink

Their system is modular but integrated with a breath of functionality I simply haven’t seen elsewhere: Accounting, CRM (Contacts, Lead Mgt, SFA), ERP (Supply Chain, Orders, Products, Inventory), Communication, Group Scheduling, HR, Project Management, Publishing, Intranet. Essentially a NetSuite+Communication and Collaboration.

They are innovators in many ways … had an AJAX system long before it was called AJAX and recently they created a “World’s First” by teaming up with a bank that becomes the SaaS provider offering its customers single sign-on Web solutions for banking and all other business software needs.

The system is really comprehensive so it may not be that easy to figure out all features, therefore they released a cool flash demo that walks through the major business processes. (hat tip: Espen Antonsen)

What I really like about 24SevenOffice is that they are proof to my favorite theme, i.e. that small businesses can now have “enterprise” system functionality. My only complaint is that so far they onu cover several European countries; I wish they were faster entering the US market. smile_tongue But I’m hearing that may not be too far now …

Update (11/12): check out Dennis Howlett’s post on Interprise Suite, another integrated system for the SMB market.

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Redux: Will Google Enter the Business Applications Market?

I am dusting off an old post I wrote more than two years ago, and while it shows my lazyness, I am doing it in the belief that the ideas I raised back then may soon get an answer … albeit not exactly the way I imagined.  And interestingly enough, just about every company I mentioned may have a role in it.  Or not.  After all, it’s just speculation.  So here’s the old post:

Google’s next killer app will be an accounting system, speculates Read/WriteWeb. While I am doubtful, I enthusiastically agree, it could be the next killer app; in fact don’t stop there, why not add CRM, Procurement, Inventory, HR?

The though of Google moving into business process / transactional system is not entirely new: early this year Nick Carr speculated that Google should buy Intuit, soon to be followed by Phil Wainewright and others: Perhaps Google will buy Salesforce.com after all. My take was that it made sense for Google to enter this space, but it did not need to buy an overpriced heavyweight, rather acquire a small company with a good all-in-one product:

Yet unlikely as it sounds the deal would make perfect sense. Google clearly aspires to be a significant player in the enterprise space, and the SMB market is a good stepping stone, in fact more than that, a lucrative market in itself. Bits and pieces in Google’s growing arsenal: Apps for Your Domain, JotSpot, Docs and Sheets …recently there was some speculation that Google might jump into another acquisition (ThinkFree? Zoho?) to be able to offer a more tightly integrated Office. Well, why stop at “Office”, why not go for a complete business solution, offering both the business/transactional system as well as an online office, complemented by a wiki? Such an offering combined with Google’s robust infrastructure could very well be the killer package for the SMB space catapulting Google to the position of dominant small business system provider.

This is probably a good time to disclose that I am an Advisor to a Google competitor, Zoho, yet I am cheering for Google to enter this market. More than a year ago I wrote a highly speculative piece: From Office Suite to Business Suite:

How about transactional business systems? Zoho has a CRM solution – big deal, one might say, the market is saturated with CRM solutions. However, what Zoho has here goes way beyond the scope of traditional CRM: they support Sales Order Management, Procurement, Inventory Management, Invoicing – to this ex-ERP guy it appears Zoho has the makings of a CRM+ERP solution, under the disguise of the CRM label.

Think about it. All they need is the addition Accounting, and Zoho can come up with an unparalleled Small Business Suite, which includes the productivity suite (what we now consider the Office Suite) and all process-driven, transactional systems: something like NetSuite + Microsoft, targeted at SMB’s.

The difficulty for Zoho and other smaller players will be on the Marketing / Sales side. Many of us, SaaS-pundits believe the major shift SaaS brings about isn’t just in delivery/support, but in the way we can reach the “long tail of the market” cost-efficiently, via the Internet. The web-customer is informed, comes to you site, tries the products then buys – or leaves. There’s no room (or budget) for extended sales cycle, site visits, customer lunches, the typical dog-and-pony show. This pull-model seems to be working for smaller services, like Charlie Wood’s Spanning Sync:

So far the model looks to be working. We have yet to spend our first advertising dollar and yet we’re on track to have 10,000 paying subscribers by Thanksgiving.

It may also work for lightweight Enterprise Software:

It’s about customers wanting easy to use, practical, easy to install (or hosted) software that is far less expensive and that does not entail an arduous, painful purchasing process. It’s should be simple, straightforward and easy to buy.

The company, whose President I’ve just quoted, Atlassian, is the market leader in their space, listing the top Fortune 500 as their customers, yet they still have no sales force whatsoever.

However, when it comes to business process software, we’re just too damn conditioned to expect cajoling, hand-holding… the pull-model does not quite seem to work. Salesforce.com, the “granddaddy” of SaaS has a very traditional enterprise sales army, and even NetSuite, targeting the SMB market came to similar conclusions. Says CEO Zach Nelson:

NetSuite, which also offers free trials, takes, on average, 60 days to close a deal and might run three to five demonstrations of the program before customers are convinced.

European All-in-One SaaS provider 24SevenOffice, which caters for the VSB (Very Small Business) market also sees a hybrid model: automated web-sales for 1-5 employee businesses, but above that they often get involved in some pre-sales consulting, hand-holding. Of course I can quote the opposite: WinWeb’s service is bought, not sold, and so is Zoho CRM. But this model is far from universal.

What happens if Google enters this market? If anyone, they have the clout to create/expand market, change customer behavior. Critics of Google’s Enterprise plans cite their poor support level, and call on them to essentially change their DNA, or fail in the Enterprise market. Well, I say, Google, don’t try to change, take advantage of who you are, and cater for the right market. As consumers we all (?) use Google services – they are great, when they work, **** when they don’t. Service is non-existent – but we’re used to it. Google is a faceless algorithm, not people, and we know that – adjusted our expectations.

Whether it’s Search, Gmail, Docs, Spreadsheets, Wiki, Accounting, CRM, when it comes from Google, we’re conditioned to try-and-buy, without any babysitting. Small businesses don’t subscribe to Gartner, don’t hire Accenture for a feasibility study: their buying decision is very much a consumer-style process. Read a few reviews (ZDNet, not Gartner), test, decide and buy.

The way we’ll all consume software as a service some day.

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Is Going Green Good Marketing?

I’ve received an email from European SaaS All-in-One SMB provider 24SevenOffice (wow, that’s a mouthful, basically NetSuite+Office for really small businesses, see my earlier coverage):

2008 must be the year when we all act against the serious environmental threat that the world is facing. 24SevenOffice has developed “The Go Green Game”, a Flash-game that puts focus on the pollution caused by the millions of unnecessary server rooms and servers located in all companies.

In addition, 24SevenOffice will plant trees based on the number of players, in co-operation with Nobel Peace Prize winner Maathai’s Green Belt Movement. If you wish to make a direct contribution to the society, let yourself entertain at http://game.24SevenOffice.com/ or forward this e-mail to friends, colleagues and business partners who are committed to the environmental battle.

Thank you for showing responsibility for the environment! The game can be found here: http://game.24SevenOffice.com/

I had mixed thoughts at first reading: Obviously environmental consciousness is becoming fashionable. Companies rush to launch their green initiatives in order to look “responsible corporate citizens”. OK, that’s the cynical view, but after all, these are often useful initiatives, and I’ve already said you don’t have to be purely altruistic to do good.

Whatever this game may be, it’s just a “save the earth” message, it’s not a vehicle to push 24SevenOffice products…

But wait! Like Columbo, when you think he’s gone, but comes back and drops the gist of the conversation, there’s a footnote here:

NB! The products mentioned in this e-mail are not the environmental sinners in themselves.
The environmental problem is based on the fact that most businesses, unnecessarily, have their own
servers and server rooms. This is the issue that 24SevenOffice is addressing.

Ahh…so it is advertising after all. Oh, well, it still delivers a correct message .. let’s check out the game itself:

I need to practice my swing, I could barely smash a few servers, look how much they’ve already racked up! Even worse, I’m not good in reading instructions, totally missed option#2, which is…no, I can’t tell you, it’s too violent.smile_devil

Joke apart, 24SevenOffice clearly has a point: maintaining millions of servers for (small) businesses is wasteful, switching to Cloud Computing allows central servers to be more efficiently utilized, we’re all saving energy.

As a side-note, I’ve just looked at a web-based service that allows us, as individual consumers “go green” – will report about it when they are ready.

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Will Google Enter the Business Applications Market?

Google’s next killer app will be an accounting system, speculates Read/WriteWeb. While I am doubtful, I enthusiastically agree, it could be the next killer app; in fact don’t stop there, why not add CRM, Procurement, Inventory, HR?

The though of Google moving into business process / transactional system is not entirely new: early this year Nick Carr speculated that Google should buy Intuit, soon to be followed by Phil Wainewright and others: Perhaps Google will buy Salesforce.com after all. My take was that it made sense for Google to enter this space, but it did not need to buy an overpriced heavyweight, rather acquire a small company with a good all-in-one product:

Yet unlikely as it sounds the deal would make perfect sense. Google clearly aspires to be a significant player in the enterprise space, and the SMB market is a good stepping stone, in fact more than that, a lucrative market in itself. Bits and pieces in Google’s growing arsenal: Apps for Your Domain, JotSpot, Docs and Sheets …recently there was some speculation that Google might jump into another acquisition (ThinkFree? Zoho?) to be able to offer a more tightly integrated Office. Well, why stop at “Office”, why not go for a complete business solution, offering both the business/transactional system as well as an online office, complemented by a wiki? Such an offering combined with Google’s robust infrastructure could very well be the killer package for the SMB space catapulting Google to the position of dominant small business system provider.

This is probably a good time to disclose that I am an Advisor to a Google competitor, Zoho, yet I am cheering for Google to enter this market. More than a year ago I wrote a highly speculative piece: From Office Suite to Business Suite:

How about transactional business systems? Zoho has a CRM solution – big deal, one might say, the market is saturated with CRM solutions. However, what Zoho has here goes way beyond the scope of traditional CRM: they support Sales Order Management, Procurement, Inventory Management, Invoicing – to this ex-ERP guy it appears Zoho has the makings of a CRM+ERP solution, under the disguise of the CRM label.

Think about it. All they need is the addition Accounting, and Zoho can come up with an unparalleled Small Business Suite, which includes the productivity suite (what we now consider the Office Suite) and all process-driven, transactional systems: something like NetSuite + Microsoft, targeted at SMB’s.

The difficulty for Zoho and other smaller players will be on the Marketing / Sales side. Many of us, SaaS-pundits believe the major shift SaaS brings about isn’t just in delivery/support, but in the way we can reach the “long tail of the market” cost-efficiently, via the Internet. The web-customer is informed, comes to you site, tries the products then buys – or leaves. There’s no room (or budget) for extended sales cycle, site visits, customer lunches, the typical dog-and-pony show. This pull-model seems to be working for smaller services, like Charlie Wood’s Spanning Sync:

So far the model looks to be working. We have yet to spend our first advertising dollar and yet we’re on track to have 10,000 paying subscribers by Thanksgiving.

It may also work for lightweight Enterprise Software:

It’s about customers wanting easy to use, practical, easy to install (or hosted) software that is far less expensive and that does not entail an arduous, painful purchasing process. It’s should be simple, straightforward and easy to buy.

The company, whose President I’ve just quoted, Atlassian, is the market leader in their space, listing the top Fortune 500 as their customers, yet they still have no sales force whatsoever.

However, when it comes to business process software, we’re just too damn conditioned to expect cajoling, hand-holding… the pull-model does not quite seem to work. Salesforce.com, the “granddaddy” of SaaS has a very traditional enterprise sales army, and even NetSuite, targeting the SMB market came to similar conclusions. Says CEO Zach Nelson:

NetSuite, which also offers free trials, takes, on average, 60 days to close a deal and might run three to five demonstrations of the program before customers are convinced.

European All-in-One SaaS provider 24SevenOffice, which caters for the VSB (Very Small Business) market also sees a hybrid model: automated web-sales for 1-5 employee businesses, but above that they often get involved in some pre-sales consulting, hand-holding. Of course I can quote the opposite: WinWeb’s service is bought, not sold, and so is Zoho CRM. But this model is far from universal.

What happens if Google enters this market? If anyone, they have the clout to create/expand market, change customer behavior. Critics of Google’s Enterprise plans cite their poor support level, and call on them to essentially change their DNA, or fail in the Enterprise market. Well, I say, Google, don’t try to change, take advantage of who you are, and cater for the right market. As consumers we all (?) use Google services – they are great, when they work, **** when they don’t. Service is non-existent – but we’re used to it. Google is a faceless algorithm, not people, and we know that – adjusted our expectations.

Whether it’s Search, Gmail, Docs, Spreadsheets, Wiki, Accounting, CRM, when it comes from Google, we’re conditioned to try-and-buy, without any babysitting. Small businesses don’t subscribe to Gartner, don’t hire Accenture for a feasibility study: their buying decision is very much a consumer-style process. Read a few reviews (ZDNet, not Gartner), test, decide and buy.

The way we’ll all consume software as a service some day.

Update: As an aside, the Read/WriteWeb article that inspired this post demonstrates the “enterprise software sexiness” issue, which was started by Robert Scoble and became a Firestorm, per Nick Carr. I really think it’s a very thoughtful post, which, quite unusually for Read/WriteWeb sat alone at the bottom of TechMeme, then dropped off quickly. Now, has this not been about Accounting (yeah, I know, boring) software by Google, but, say adding colors to Gmail labels, in the next half an hour all the usual suspects would have piled on, and this would have taken up the top half of TechMeme. smile_sarcastic

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Betting on the NetSuite IPO

(Updated)

Phil Wainewright at ZDNet is running a poll on whether NetSuite will have a chance to go ahead with the long-awaited IPO or it will get folded back into the Empire.

I’m somewhat surprised by the above results, but since this is an early snapshot, please check the live poll for the current vote count.

Surprise or not, acquisition by Oracle is a realistic scenario, considering Larry Ellison’s close to 60% stake in NetSuite. This is certainly fellow Enterprise Irregular Jason Wood’s take.

I tend to believe that NetSuite is better off being an independent business; there are just too many differences for a merger to work well, and I don’t mean only technical, product-related differences. NetSuite is still largely a small business (SMB) player, and that’s a market that requires an entirely different Sales and Marketing approach, amongst others, and Oracle with it’s current “legacy” salesforce just can’t reach this market profitably. If your products are different, your target market is different, your organization, corporate culture are different, where’s the synergy? Big behemoth Oracle would kill NetSuite – Larry is better off with a portfolio approach, cashing in a 10-digit returnsmile_tongue

Talk about the SMB market – there really is no such thing. “SMB” was sufficient to describe the market to avoid, but now that the software industry is getting ready to actually address the needs of this segment, it’s too heterogeneous to be lumped together.A $100M business is just as different from a ten-person startup as it is from a Fortune 1000 company. When analysts talk about SMB, they really have the mid-market in mind; when SAP is announcing new SMB initiatives, it targets $100-$200M companies.

The forgotten “long tail” represents a huge untapped opportunity: millions of (very) small businesses that can now directly be reached, sold to, serviced inexpensively over the Net – classic SaaS style. Different markets require different organizations – NetSuite serves this segment much better than Oracle (or SAP, for that matter) ever could. In fact SAP would be wise to copy this chapter from Ellison’s book: it should get it’s own “NetSuite” by investing in (not acquiring) an up-and-coming small-business focused All-in-One SaaS provider, like European 24SevenOffice. The next NetSuite.

Update (12/11): NetSuite Gets Ready For Its Close-Up by BusinessWeek.
Update (12/19): TechCrunch is running a story titled NetSuite’s Going Public, Looking for $1 Billion Valuation. I don’t know if it’s based on new information or …. (?)


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Your Neighborhood Bank Becomes Your Trusted SaaS Provider

If you’re like me, you haven’t talked to a bank teller for years, in fact haven’t set foot inside a branch for a long time. Why should you? You do all your banking online. (?) But you probably wouldn’t think of your bank as *The* Software as a Service provider to run your entire small business…

That’s exactly what Fokus bank pulled off in Norway, in cooperation with 24SevenOffice and Bluegarden. The new, innovative bundle is probably the first of its kind in the World: single sign-on Web solution for your banking and all other business software needs. (hat tip: Espen Antonsen)

Let me reiterate: it’s not just online banking, but a full hosted business system. Given all the trouble I had just getting Quicken / Microsoft Money to work with several major US banks, I have a hard time imagining them come forward with such revolutionary offering. Key benefits to:

  • Customers
    • Trust, security. SaaS is not as widely accepted in Europe as in the US, and certainly the key issue is that flexible new products come from lesser known smaller providers, which SMB’s see as a major risk. Having the bank manage your data is a reassuring solution.
  • The Bank
    • Customer retention, in fact competitive advantage to attract businesses away from other banks. In a world when it’s easy to switch banks for the sake of higher interest, Fokus will have a virtual lock on its customers: that of convenience.
  • 24SevenOffice
    • Access to Fokus banks 200,000 customers; prospectively using it as a vehicle to penetrate the Danish Market since Fokus is owned by Danske Bank. Marketing/PR value of launching a “World First”

This is not the first innovative deal coming from 24SevenOffice: previously they teamed up with Telenor, a leading Scandinavian telco to create a 3G “Mobile Office“.

I’ve been following 24SevenOffice for quite a while (and have received occasional updates from Staale Risa, COO), largely due to my obsession with “Enterprise” functionality to small businesses. I can count on a single hand (two fingers?) the number of All-in-One SaaS providers with comparable breadth of functionality: CRM + ERP + Office .

My only wish is that the company entered the US market sooner. Recently they launched an International version, accessible to US customers, but frankly, that’s about the one thing coming from 24SevenOffice that I am unimpressed with. It removes the key value proposition of being a full-rounded, integrated solution ( a’la NetSuite but more) and positions the system as a lower-cost CRM competing head-on with SalesForce.com. Well, I have news for my European friends: this version does not compete with Salesforce, but with the dozens of other challengers. Personally, I think it’s a marketing blunder.

That said I know the company is working on porting their full system (think accounting, HR ..etc) to US requirements and a full blown US launch is in the works …. stay tuned.

Update (9/8): To access the full 24SevenOffice site, trick the system by selecting a European country, e.g. the UK. You still have to do some digging, a lot of logistic functions are hidden under Financials.
There’s also a neat demo here.


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Using AdWords to “Badmouth” the Competition

Espen talks about how Google’s AdWords is used against 24SevenOffice. Here’s one of the ads displayed for the keyword “24SevenOffice” :

24SevenOffice – Great system for doctors, quick service, low costs!

The only problem is, 24SevenOffice does not do any of it. It’s a CRM+ERP+Communication+ .. + SaaS provider.

Whoever put up the ad, will likely pay very little, as few who specifically search for the company will click through. They manage, however, to clobber their competitor’s image, confuse and drive away potential customers, or disappoint the few who actually might be looking for a doctors’s solution, click through and feel “bait and switched”.

(somewhat) related post:


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Software 2006: Questioning the McKinsey Study

(Updated)
McKinsey and Company in collaboration with the Sand Hill Group, organizer of the Software 2006 Conference released their Industry Study (pdf) that I have to take issue with. (yes, I know, who am I to disagree with McKinsey?)

“Business Model Discontinuity: Software as a Service (SaaS) and Open Source. Two major business models are vying for an growing share of software spend: Software as a Service and Open Source. …SaaS has already gained traction in number of application areas – such as payroll, human capital management, CRM, conferencing, procurement, logistics, information services, and e-commerce) – and should make gains across a much broader cross-section of applications over the next 3 years. Out of 34 application areas we have examined, only nine are unlikely to see some SaaS adoption over through 2008”

Apparently McKinsey tells us that Financial Applications are the back-office function most unlikely to see SaaS adoption for years to come. Hm … I know the trendy app now is CRM, but there were widely-used web-based packages long before CRM. Intuit, NetSuite (originally NetLedger), Intacct, 24SevenOffice, WinWeb ..just to name a few.

Perhaps these companies can jump in here, and tell us what they think of McKinsey’s prediction that SaaS will not take off for financial apps?

Update (4/7): Dennis Howlett has a really good point bringing up Document Management, the other “unlikely” area per McKinsey. As to confidentiality concerns: the numbers in the financial apps are the result of real business activity that may very well have been in other hosted systems, e.g. CRM, Procurement..etc. Document Management? Oh, well, our external interaction is often on hosted platforms (email), sales contracts are largely in hosted systems (CRM)… I could go on.
Interestingly enough businesses lost more confidential data stored “safely” inside the firewall due to disgruntled ex-employees than due to “exposure” to SaaS providers.

But the point I made about Accounting systems, that this isn’t subject to predictions, it’s already happening, or has happened largely: accounting was available On-Demand before CRM was “born”.

Update (5/31): New McKinsey paper bullish about SaaS model. (hat tip: Nick Carr. Free registration required to read).

Update (8/17): Dennis points us at Gartner’s Hype Cycle for Software as a Service.

On-Demand Financial Management Applications and On-Demand Sales Force Automation are said to be at the peak.”

Interesting. McKinsey says it’s not coming for years, Gartner says it’s already at the peak. Go figure …

Related posts:


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SaaS vs. Open Source for SMB’s? A No-Brainer.

(Update)
I have to take issue with Paul Gillin’s approach as he discusses whether SMB’s are better off with SaaS or Open Source Applications. If we equate Open Source to downloadable, on-premise installed software, I have no doubt, and have stated it before that the only good answer is SaaS. But, hold on, a few minutes later we’ll see these two options may not be mutually exclusive for long.

Paul analyzes several criteria:

  • cost
  • speed of deployment
  • customization
  • reliability
  • data ownership
  • vendor viability

These are all issues well-discussed on the web, and although Paul does not explicitly say, my reading is that he also leans towards the SaaS conclusion. The problem is that this criteria-by-criteria approach works well with a typical (mid-size) company where some level of IT expertise is present. Small Business America is very different from the web-savy geeky software startups; the majority are more traditional businesses with no CIO, IT department, in fact often without any IT support whatsoever. While the two main obstacles SMB’s face with any on-premise implementation are cost and (lack of) IT expertise, you can’t just translate the latter into cost – i.e. the cost of hiring full-time IT support. The opportunity cost of Management venturing into IT hiring and project decisions instead of focusing on their primary business makes this an impractical approach, leaving us with only one choice: SaaS.

Another issue not discussed in the article is integration. Open Source or SaaS, getting several packages work together requires IT and business process expertise, which typically means hiring expensive consultants. Therefore, I would go one step further: not only SaaS is the best choice for most SMB’s but they should seek to minimize the number of providers, i.e. the best choice is to use integrated All-In-One solutions.

The current undisputed leader in this field is NetSuite, but as they follow Salesforce.com’s footsteps and move upstream chasing midsize businesses, they leave an opening for up-and-coming challenger 24SevenOffice, which focuses solely on SMB’s, and covers a wider range of business functionality than the incumbent.

This is the situation today. Now, let’s revisit the original question: SaaS or Open Source? A tiny startup named SQLFusion is working on making that question obsolete. The dilemma with Open Source: a lot of good applications are available, but they are written by geeks for geeks… you really have to be quite knowledgeable to download and implement them. Example: at one of the startups I am advising I use SugarCRM over the internet. Starting to use it was a no-brainer, but when I looked at the prerequisites and the process of installing it myself, my head started spinning. No way, this is not for me! Open Source Fusion, which I hear is within days of opening for a limited beta will bridge the gap between availability and usability of Open Source Programs, by offering such apps to be used over the Internet. In true On-Demand fashion, maintenance, upgrades all happen in the background, one can start using the programs without implementing them. So it will no longer be SaaS or Open Source, but SaaS and Open Source.

The first incarnation of Open Source Fusion will provide access to individual applications, still leaving the integration dilemma for SMB’s, but the technology under the hood enables the company to later offer an integration layer between the key applications it serves up.

So the future is Open Source Software as a Service. Hm, here’s an ugly acronym: OSSaaS (?)

Update (3/6). Releated posts:

Update (5/23): Stefan over at The Small Business Blog discusses the issue; his company, WinWeb is expected to offer Open Source apps as a service soon.