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SaaS Growth, Dogfood, and Images :-)

SaaS PlaneFellow Enterprise Irregular Evangelos Simoudis is definitely worth following.  As an active Venture Capitalist he often focuses on his portfolio experience – but through that micro-lense gives us an overview of the market, “The State of SaaS” per se, confirming / contradicting based on real life, real companies what many of us see as trends.

One such essay is Insight as a Service.  It’s about what I called the “hidden business model enabled by SaaS” in 2006: using aggregated data for benchmarking.  Four years later it’s no longer hidden, but a growing business with great future:

(Cross-posted @ CloudAve)

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MinTuit: What’s Next After the Intuit / Mint Deal

mintuit TechCrunch50 could not have asked for a better start:  they get to announce that personal finance startup Mint winner of the $50K grand prize @ TC50 two years ago just got acquired for $170M.

Great exit for a startup – not so sure about concerned users.   But the big question today is why it made sense for Intuit and what the future holds for Mint and its users.  The consensus is that first of all this has been a defensive move.  Mint started to bite into the Intuit / Quicken pie, and Intuit just had to stop it.

There is some irony in this deal: the playbook had been written by Microsoft, against Intuit.

Continue reading

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The Cat is Out of the Bag (Again): The Not-So-Hidden Business Model in SaaS

Forget software: it’s all about (your) data.

Hyper-growing Financial Management system  provider and Quicken / MS Money challenger Mint recently raised eyebrows announcing their plan to sell anonymized aggregate customer data.  Some reviewers were screaming, we saw bombastic titles like Personal Finance Startup Mint Wants To Sell Your Money Trail – but in reality the news wasn’t earth shattering. You don’t really believe your spending patterns are not dissected – aggregated – analyzed in every possible way and sold by your bank and credit card company, do you? 

So nothing new – but a good opportunity to discuss the role of user data in SaaS business models – and there is more than outright sale of data.

Read more

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CloudAve Launched – and Thank You, Harry

(OK, I sinned. Mea Culpa.  I’ve just cross-posted an entire article, which is not the best behavior. But it’s not every day that I launch a new group blog – so consider this my shameless self-plug, and please subscribe to the feed.smile_wink)

We must be a crazy bunch on a suicide mission.  Why else would we launch a new blog focused on Cloud Computing and Business, when it’s just a fad that will collapse in two years?

Harry Debes, CEO of Lawson Software is a respected Enterprise Software industry veteran, but I’m afraid for all his achievements he’ll go down in history as the man who grabbed headlines with a fatally wrong call.  Of course not all wrong calls hurt one’s reputation: IBM’s Thomas Watson is still an industry legend despite the famous quote incorrectly attributed to him:

” I think there is a world market for maybe five computers“

The small difference is that what Thomas Watson could not fathom in 1943 ended up putting IBM on an amazing growth trajectory,  while Harry Debes’s view may just turn out to be fatal for Lawson – or to quote my Enterprise Irregular friend, Vinnie Mirchandani:

“That’s what American and Delta said about SW. And GM and Ford said about Japanese cars. And Sears and Wards said about WalMart.”

Another quote by Vinnie, closer to our industry:

“Dun & Bradstreet, which GEAC acquired for a song, was one of the most spectacular slides in the software market. In less than 5 years it went from dominant position to a distress sale as it missed the client/server wave in early 90s.”

I’ve seen that one close, fortunately for me from SAP’s side – the winner in that round.  We’re witnessing another tidal wave now, the shift to Cloud Computing.  It won’t happen overnight, but those who completely ignore it will vanish.  Some of my fellow Enterprise Irregulars elaborate more:

  • Vinnie Mirchandani points out that SaaS is what more and more customers want, and those who stop listening to customers inevitably hit the wall sooner or later.  Need proof?  How about this 100% SaaS customer, showcased at the recent Office 2.0 conference?
  • Jim Berkowitz  of CRM Mastery fame agrees,  adding that calling people, potential customers “stupid” never leads to any good.
  • Bob Warfield makes the case that even if we ignore what customers want and only consider profitabilty, Debes is wrong, Salesforce.com is almost as profitable as Lawson, but grows much faster, while Conquer, another SaaS success story is actually more profitable than Lawson is.
  • Jason Corsello adds that Lawson actually launched a SaaS offering last year, but experienced lackluster customer response largely to pricing and deployment issues … so now that they couldn’t pull it off, the declare the entire market doomed.
  • Josh Greenbaum concludes: “SaaS isn’t collapsing, it’s only just getting started“.

I can live with that… it’s only starting… so we’re not a suicidal bunch, after all.smile_wink But thank you, Harry Debes, for sparking a great discussion.

If you read just the few articles I’ve quoted above, you get a fairly good picture of the many benefits the Software as a Service model offers.  Let me add a few of my personal favorites:

  • Extended reach – small businesses can now have business functionality previously only available and affordable for large enterprises.
  • Commoditization of the software market – commoditization hurts most companies, except the few who drive it, but guess what – it’s great for customers.
  • End of Bloatware  – for the first time SaaS vendors can run stats and observe what features are actually used by customers, so they can cut out the fat and enhance the in-demand features.
  • New Business Models, like benchmarking – based on anonym aggregate data provide your customers with performance metrics.  Even newer business models we have not even imagined yet.
  • Dramatically changed Sales and Marketing model: pull vs. push.  Instead of the traditional sales model it’s all about transparency, information, letting informed customers find you.  The Product sells itself and your Customers are your Marketing team.

We’ll be writing about these and more. I’m a “business application guy”, so I mostly talk about SaaS – but our name is Cloud Avenue, not SaaS Avenue, for good reason: fellow blogger Krish will talk about it soon.  By the way, Krish and I got to know each other through our blogs – just like my fellow Editor, Ben Kepes, and just about all other contributors. We also have our CloudLab – for product / service reviews.  Yes, we will report on products, but do not strive to be a mini-TechCrunch: we have no intention to report about everything new.  We’re not a news-blog.  We’d rather sit back, analyze a market, find key players, then produce a series of reviews / comparative analysis.  Quality before quantity or urgency.

We’re believers in Cloud Computing, but  not over-zealous cheerleaders.  Just as I’m finishing this post, another SaaS debate erupted, which prompted Anshu Sharma to note: “there must be a Sky is Falling Support Group“.  The really notable part of the Cloud-Filled Debate @Forbes is Nick Carr’s responses: not because of the Big Switch author’s unquestionable “cloud-bias”, but because of how realistic he is:

Forbes.com: Is cloud computing over-hyped?
Nicholas Carr: At the moment, yes, and that’s typical for technological advances.

What’s your imagined time line of the adoption of cloud computing? Will it take years? Decades?
If you’re talking about big companies, I would say it will be a slow, steady process lasting maybe 15 to 20 years.

On what Gartner Research analysts call “the cycle of hype and gloom,” where do you think cloud computing is currently positioned?
It’s definitely near the peak of its hype. The doom period, when the media and IT managers realize the challenges ahead, is likely coming soon. But regardless of hype or gloom, the technology will only keep progressing.

Overhyped, slow process, doom is coming… has Nick Carr switched sides?  No, he is just being realistic – and that’s what we need to do here  @CloudAve, too. We will talk about integration problems, security issues, privacy concerns, even legal ramifications – many of these I don’t claim to know much about, which is why it’s great to have a diverse team of authors with complementary areas of expertise. And our door is never closed: we welcome guest posts, and who knows, you may feel inclined to join us as as a regular writer…

Finally, we could not afford to bring you CloudAve without sponsorship.  My regular readers know I’ve been an advisor to Zoho for years now – I’ve found them to be a showcase for a lot of my ideals.  Zoho stepped up as exclusive sponsor of CloudAve.  This does not make us a Zoho PR outlet, in fact they can expect less coverage here than they got on my personal blog.  We enjoy complete editorial independence.

What we do not have, and will not have is any form of advertising.  None of those flashy banners, boxes, making the site close to unreadable. Just pure content.  And since we are not dependent on page views, we can afford to offer our content under a Creative Commons licence.  Yes, it’s all yours, take it – just don’t forget attribution.

So here we are – welcome to CloudAve. We hope you will follow us.   And once again, thank you, Harry, for all the attention to Cloud Computing.smile_wink

P.S.  The CloudAve platform  is not exactly in nice order yet. It’s work-in-progress.

So for now, all I can do is apologize for the shabby appearance, like I did at a previous move – that one turned out quite well, didn’t it?

And talk about move – I am not abandoning this blog either, so I hope you continue to follow me both here and on CloudAve.

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Benchmarking the Benchmarkers

I’ve repeatedly praised Web-based Invoicing service FreshBooks for being innovators, unveiling the hidden business model enabled by SaaS: benchmarking.   But who’s benchmarking the benchmarkers?

Competitor Xero has just issued a call looking for benchmarking partners comparing metrics like:

  • Customer acquisition rates
  • Teaming model and allocation of spend
  • Sales and marketing spend
  • Sales quotas
  • Google spend
  • Pipeline conversion

CEO Rod Drury is looking for 5-10 partners, communicating either directly, or through a trusted third party.  Either way, its quite a challenge, as unlike the aggregate anonymous data Freshbooks provides to their customers, this level of sharing requires quite a level of trust.

Interestingly I contemplated similar ideas just a few days ago when Zoho CEO Sridhar Vembu published his margin analysis of Google, SAP, Oracle, Microsoft and a few others.  He drew a conclusion that since Google’s current revenue and profit per employee metrics were much higher than even the best players in the application space, Google has little incentive to move into this space forcefully. (He then followed up with a What’s in it for Zoho? post)

Specific conclusions aside, I thought it would really be interesting to expand this spreadsheet buy including Zoho and comparable companies as well as additional metrics.  Needless to say I ran into a similar dilemma that Xero is facing now: these are private companies that don’t typically publish their financial results, to get them participate we would need a relatively larger sample and it would still require a leap of faith.

Rest assured I’ll be watching Xero’s experiment with great interest.

Related posts:

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Benchmarking: No Longer the Hidden Business Model in SaaS

The cat is out of the bag – was my first reaction when FreshBooks announced the launch of their new benchmarking service in October 2006.  Then, and later I called it the hidden business model in SaaS:

He basically announced the hidden value proposition enabled by SaaS: competitive benchmarking. All previous benchmarking efforts were hampered by the quality of source data, which, with all systems behind firewalls was at least questionable. SaaS providers will have access to the most authentic data ever, aggregation if which leads to the most reliable industry metrics and benchmarking.

With Google’s entry today, benchmarking is no longer the hidden business model: it has just gone mainstream.  Potentially great value added service, a new revenue source for the provider, which may even allow them to give the core service away for free.

Give away?  Do you think I’m smoking something?   Read Jeremiah Owyang who predicted that storage companies will (?) eventually pay for your data. smile_shades

 

Related post:  Dennis @ AccMan Pro,

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SaaS Will Never Be the Same – Again

The first time I said SaaS would never be the same was referring to Freshbook’s launch of their benchmarking service:

It’s *the* hidden business model enabled by SaaS. An opportunity not talked about, but so obvious it has to be on the back of all SaaS CEO’s mind. Benchmarking is a huge business, practiced by research firms like Forrester, Hoovers, Dunn and Bradstreet, as well as by specialized shops like the Hackett group – none of which are affordable to small businesses. More importantly, all previous benchmarking efforts were hampered by the quality of source data, which, with systems behind firewalls was at least questionable. SaaS providers will have access to the most authentic data ever, aggregation if which leads to the most reliable industry metrics and benchmarking.

Hosting customer data offers a lot more opportunities, beyond benchmarking. Tomorrow CRM provider Salesforce.com will launch a new service called Salesforce to Salesforce (S2S) that facilitates the sharing of data between customers -reports TechCrunch. I believe, just like Freshbook’s move, the ramifications of this new Salesforce service will go way beyond the immediate opportunities it brings to customers ( not that those are negligible: see first reaction by Echosign CEO Jason Lemkin, another business innovator in my book.)

This is a first step in a paradigm-shift: while current concerns about SaaS mostly focus on the security, privacy, and consequently isolation of business data, eventually a culture of controlled sharing for business benefits will develop. Forget CRM; think of more complete business suites, like NetSuite, or when it really kicks in, SAP’s Business ByDesign, the most comprehensive SaaS business suite ever. Procurement, manufacturing, inventory, resources…etc data – can you envision the improvements in Supply Chain visibility? SaaS will never be the same – again.

Update (12/5): Larry Dignan at Between the Lines sees the same opportunity:

Today, the service is predictably focused on sharing sales lead and CRM-type information. But as Salesforce.com grabs more large customers its possible that the latest service could be used to exchange supply chain information and link other business processes.

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Freshbooks Launches Benchmarking Service: SaaS Will Never Be the Same

Way back at the Office 2.0 conference FreshBooks CEO Mike McDerment dropped a bomb in the last 20 seconds in his presentation: being software as as service, they can aggregate customers’ data, categorize it by industry, size ..etc, and once they do that, why not turn it into a service, providing customers with their own performance metrics as well as benchmarking them against their peers.

A few months later, the Small Business Report Card service will launch tomorrow at the Web 2.0 Expo as well as online. The service will be free to all Freshbooks customers, who will:

  • all receive their own performance metrics, and
  • if they select their peer group based on (currently) 80 types of business / professions, geography and several other business criteria, they will also receive their relative position, “score-card” within that group.

The sample below is a mock-up of the actual Report Card, but is shows the initial metrics reported. Clearly, as they further enhance the program, there will be more and more criteria, and FreshBooks customers will have a say in what performance metrics they find valuable.

Remember, FreshBooks’ customers are mostly small businesses who don’t have an army of MBA-types crunch the numbers and look for business (in)efficiencies. In fact it’s probably fair to say some would not even know how to interpret the numbers, until they are put in prospective – hence the value of relative benchmarking.

But why will SaaS never be the same? This isn’t just about FreshBooks and its customers.

It’s *the* hidden business model enabled by SaaS. An opportunity not talked about, but so obvious it has to be on the back of all SaaS CEO’s mind. Benchmarking is a huge business, practiced by research firms like Forrester, Hoovers, Dunn and Bradstreet, as well as by specialized shops like the Hackett group – none of which are affordable to small businesses. More importantly, all previous benchmarking efforts were hampered by the quality of source data, which, with systems behind firewalls was at least questionable. SaaS providers will have access to the most authentic data ever, aggregation if which leads to the most reliable industry metrics and benchmarking.

Being pioneers always carries a risk, and clearly, Freshbooks will have to keep an eye on their customers feedback. There may be a backlash due to data privacy/ownership concerns; some customers will not opt in, they may even lose some customers entirely. But I believe the majority will see the light and benefit from the service. If Mike’s blog post on the subject is any indication, the feedback there was overwhelmingly positive, with 13 comments for, 3 against.

I suspect a year or two from now benchmarking based on aggregate customer data will be standard industry practice, and little (?) FreshBooks will be looked upon as the pioneers who opened up the floodgate of opportunities.

Last, but not least a word on the creative launch – or a lesson on how to launch from a conference you don’t officially participate atsmile_wink:

Yugma is a web-conferencing company and an exhibitor at Web 2.0 Expo. What better way to demo a web-conferencing product than by showing real-live use… without Yugma having to move a finger to create content. They created Stage 2, a platform for companies to showcase their products remotely at the Yugma booth and simultaneously to the World through a Net broadcast. Both the presenters and Yugma win – congrat’s, and my personal Creativity Award to Yugma thumbs_up

Update (4/19): read Jeff Nolan’s comments.

Update (10/8/2008):  Congrat’s to Freshbooks for getting on  Fox Business.

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The "Hidden" Business Model in SaaS: Benchmarking

(Updated)

While we saw a lot of exciting products at the Office 2.0 Conference, the biggest “surprise” was not a product announcement, but FreshBooks CEO Mike McDerment letting the cat out of the bag:

“He basically announced the hidden value proposition enabled by SaaS: competitive benchmarking. All previous benchmarking efforts were hampered by the quality of source data, which, with all systems behind firewalls was at least questionable. SaaS providers will have access to the most authentic data ever, aggregation if which leads to the most reliable industry metrics and benchmarking.

Two months later FreshBooks published the first set of raw data. It includes stats on payment methods, invoicing by email vs. regular mail, browser an operating system usage. It’s a rather limited set, and only covers two months, but it’s a start, certainly to be followed with more business-critical data. CEO Mike McDerment also takes a first cut at analyzing the data, for example:

“Browser Usage

– Internet Explorer 7 – October 5.02%, November 9.68%

– IE 6 – October 37.64%, November 36.77%

– Firefox 2.0 – October 6.61%, November 24.51%

– Firefox 1.5 – October 44.26%, November 22.07%

Analysis

Both IE and Firefox have new versions out. Clearly the Firefox community is quicker to switch to new versions. Remarkably quick in fact.”

I’m not sure I’d agree with the analysis: certainly Mike is right, the Firefox community appears to be quicker in switching to new versions, but aren’t we missing a bigger picture? I’ve dropped the data into Zoho Sheet, the web-base spreadsheet app which generated this chart:

Browser Usage - http://sheet.zoho.com

The “bigger picture” is that IE gained market share vs. Firefox (something that as a FFox user I’m not happy with smile_omg). Clearly, the majority of new IE7 users are not IE6 upgraders, they came from the Firefox camp.

But I’m not here to discuss browser use, nor do I intend to ridicule Mike’s analysis. I picked this example to make a point: the same data set may carry different meaning to you and me. The art isn’t so much in the accumulation of data, but the proper aggregation and analysis allowing customers to benchmark themselves against industry peers – that’s where the real value is, not in raw data. So much so, that I probably wouldn’t entirely give it away; rather market it as a for-fee premium service.

SaaS providers may become the benchmark specialists themselves, but think about it: businesses will likely end up using a few systems from different providers, and if your purchasing, sales, invoicing, service ..etc data are all in different systems (and consequently aggregated by the different providers), wouldn’t you have a better competitive picture benchmarking yourself based on all those aspects? Does this mean we’ll have independent benchmarking consultants in the SaaS world? If so, will there be a secondary market for raw aggregate data?

But wait … whose data is it anyway? Trust in your data being secure, not lost, published, traded with is the cornerstone of the SaaS model’s viability. But we’re not talking about original customer data, rather its derivative – does that change the picture? There’s a potentially huge market opportunity here, yet SaaS veterans like Salesforce.com, NetSuite, RightNow …etc haven’t explored it yet. Why? I suspect for this very trust/ownership issue, which can be a potential mine-field. In the early days of SaaS it simply would not have been appropriate to address it, but now with mainstream SaaS acceptance (MicKinsey predicts 61% of $1B+ corporations will adopt one or more SaaS applications over the next year) it’s high time the industry starts addressing these issues.

Kudos to FreshBooks for being a pioneer in building the service as well as bringing a major industry dilemma to the forefront.

Update (01/04): Jeremiah is thinking along the same lines, discussing how storage companies will (?) eventually pay for your data. Yes, he talks about storage while I talk about applications, he talks about advertising while I talk about benchmarking, but in the end it’s the same: user data being processed to deliever business services.

Update (9/28/2008): Here’s another showcase of benchmarking turned into action messages on CloudAve.

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SaaS: The Cat is Out of the Bag

I’m sitting at the Office 2.0 conference watching a barrage of 5-minute product demos. FreshBooks‘s CEO just dropped a bomb at the last 20 seconds in his presentation: being software as as service, they can aggregate customers’ data, categorize it by industry, size ..etc, and once they do that, why not turn it into a product?

Customers can receive generalized metrics as well as benchmark themselves against their peers.

Stop here. Think about it. This is big. It’s not about FreshBooks. It’s *the* hidden business model enabled by SaaS. It is so logical, we all had to know it would be coming – but carefully avoids talking about it. No wonder… SaaS adoption is growing but still at an early stage, and security, trust concerns are huge. The last thing software vendors want is to feed those concerns, i.e get their customers worried about the competition accessing their data.

The benefits are obvious: all previous benchmarking efforts were hampered by the quality of source data, which, with all systems behind firewalls was at least questionable. SaaS providers will have access to the most authentic data ever, aggregation if which leads to the most reliable industry metrics and benchmarking. Yet it raises a number of serious questions: How far can they go? What are the security / confidentiality / privacy implications? Are they reselling data that the customer owns in the first place? If the customer owned the core data, who owns the aggregate?

The business of metrics, benchmarking is potentially huge, but it can’t take off until the industry, along with customers, can answer these questions – and more.

Update (10/16): I’ve just checked who else talks about this Unheralded SaaS benefit, and voila! Two posts from fellow Enterprise Irregulars, ex-Gartner Vinnie Mirchandani and Yankee Group’s Jason Costello.

Update (10/30): Read Dennis on Valuing Data and on Freshbooks.