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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.

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Disgusting

This fart-fight is just disgusting.

And here’s what I really think of this monkey-business.

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Farting Our Way Through the Recession?

Global warming. The U.S. losing its edge in science and technology. A growing income gap. And what are the best and the brightest working on?

asked Tim O’Reilly, Father-of-all-things-Web-2.0 at the  Web 2.0 Expo in September.

Do you see a problem here?  You have to ask yourself, are we working on the right things?

Some of the negative examples he cited were the Facebook application Superpoke and the popular iPhone app "iBeer," which simulates chugging a pint of beer. Has anything changed since O’Reilly’s alert?  Let’s see:

The most popular of 50+ (!) fart applications, iFart Mobile generated $10,000 a day at 99c per download until it got written up just before Christmas, then it exploded, bringing in $27,249 on Christmas Day.  Dou think it’s jus a crazy name for a useful program?  Nope: all it does is to make farting noises.smile_speedy

Tapping into the Apple phone craze, accidental entrepreneurs rake in millions by creating popular applications.

-says the Washington Post in an aptly named article: The iPhone’s Golden Touch.   At least Smule, the showcased company does not make fart noises: they have applications like virtual lighter, a virtual firecracker, a voice changer, a virtual  wind instrument. They are on track to make $1 million this year, a buck a piece.

If this is not crazy, I don’t know what is… Brian Greenstone, who has been writing (real) games for Apple computers for 21 years agrees:

It’s crazy. It’s like lottery money. In the last four and a half months we’ve made as much money off the retail sales of iPhone apps as we’ve made with retail sales of all of the apps that we’ve made in the past 21 years — combined.

Spending 99c a time does not feel like a big decision – yet it all feels like a gigantic waste. An it will get written up as showcases of entrepreneurship. 

I would like to amend the definition of entrepreneurship to include the creation of something useful (yes, I know, I’ve just opened a Pandora’s box, but …). Let’s differentiate opportunity seekers (nothing wrong with that) from Entrepreneurs.  I’d like to stand on a soap box and yell: People, wake up!  Don’t you have anything better to do?

But my voice isn’t loud enough.  I thought Tim O’Reilly’s was … shall we heed his call to do something worthy?  Make it a New Year’s Resolution for 2009?

(Cross-posted from CloudAve)

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Is Tivo Selling Out Their Customers?

Zat’s Not Funny reports that Tivo is getting ready to push advertisements whenever you hit Pause on your remote.

Using the TiVo Pause Menu, advertisers can, for the first time, reach audiences with targeted product messages displayed within the pause screen of a Live or Timeshifted program. The feature provides an original solution for advertisers seeking to capture the fast-forwarding viewer. It’s another example of how TiVo offers unique and different solutions for advertisers looking to get viewers to watch advertisements.

Another example of offering solutions to whom?   Certainly not their customers. 

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Startups: Growth or Revenue First? The Case of Twitter and Yammer

The New York Times presents the perfect showcase for what I’ve been preaching in my recession / business models mini-series:

  • turn to businesses
  • stop poking around, create a valuable service
  • charge for it (yes, revenue is not a crime)

The showcase compares Twitter vs. Yammer and their categorically different approaches to business.

Twitter is the leading micro-blogging service – they have a strong brand with zero revenue.

Yammer , riding on Twitter’s coattails has followed the exact opposite model: focus on revenues from Day One.

Is one model better then the other?  Are they both sustainable, especially in a downturn?

Read more here

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Turn the Doom-talk into Constructive Business Model Ideas

Train wreck at Montparnasse Station, at Place ...

Image via Wikipedia

TechCrunch Turns Into F**kedCompany 2.0 – says Dare Obasanjo.

Really? Tell me something I don’t already know.   Have we all forgotten that TechCrunch acquired FuckedCompany.com over a year ago?   OK, that was just an April Fool’ s Joke , but you can really say TC is unprepared for a downturn – after all, they own FuckedCrunch.

OK, on a more serious note: I also said, way back in January 2007 that TechCrunch Did Not Build it; It Can’t Knock it Down Either:

TechCrunch did not build this boom. Yes, a well-timed review helps a startup gain initial traction, but Mike does not make those companies successful: whether they make it or not, they do so on their own. And when they fail, they fail own their own merits, too.  Failures are part of business reality, and reporting on them only makes TechCrunch balanced. Without it Mike would be just a biased cheerleader (something he was accused of in the past).

I still mean what I said there, except that in the downturn there will clearly be more failures, and it won’t always be on a startup’s “own merits”.  Reporting on them is part of reality.

But what I really hope for is that TechCrunch and other influential blogs that are a strong part of the startup ecosystem will take a constructive approach, and instead of becoming doom-reporters they start discussing ways of survival – i.e. how to tweak one’s business model to establish a healthy revenue stream.

I’ll have more on this soon.

Update: I’m often amazed at the image selection Zemanta proposes. The word “train” does not once occur in my post, yet it recommended this image of a train-wreck.

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Google Releases Zoho Mail with Offline Support

Yes, you read it right: the first announcement of Zoho Mail’s general availability, with Google Gears-based offline support did not come from Zoho, but from the Google Gears team, which released this video discussing Zoho’a use of Google Gears, synchronization, the Marketplace and  a lot more a bit prematurely:

Somewhat used to it (see TechCrunch Releases New Zoho Service: Invoice) the Zoho folks decided to play along and released their own announcement.

This announcement somewhat symbolizes the interesting dynamics between Zoho and Google: competitors, yet collaborators.   ReadWriteWeb is probably right:

But also Google probably sees Zoho less as a competitor at this point (even though Zoho does compete directly against Google Apps) and more as an evangelist for its technology – such as Google Gears.

First of all what’s in today’s announcement:

  • Zoho Mail has been in private beta for over a year now. As much as we like to switch to native collaboration using web-based tools, email is still where most productivity workers spend 80+% of their time.  Mail is the glue that brings it all together – so it’s important for Zoho to step out of background testing mode and make Mail publicly available. It’s also an integral part of the Zoho Business Suite.
  • Features: It’s an email service (everyone gets a user@zoho.com email account) and an email program that can consolidate several other email accounts, Outlook-style.  It combines old and new: supports hierarchical folders a’la Outlook as well as Gmail-style labels, chronological view as well as the threaded conversation views made popular by Gmail.
  • Access anywhere, any time: Offline access is provided via Google Gears (for now Firefox and IE only), and it’s also available on the iPhone.
  • Integrated Chat – this is another “glue” application within the Zoho Suite, and several other features listed here.

So with all that, why am I unhappy?  I’m a die-hard Gmail fan, mostly for its productivity boosting features:

  • Conversation threads
  • Labels
  • Search

Zoho Mail handles the latter two well, but I am not too happy with the way conversation threading works.  My business conversations last weeks, include dozens of emails, and on a traditional mail system the threads are basically a pain to put together before responding to someone.  Gmail handles it automagically, and as a side-effect, it presents a lot more information on it’s list screen – since the dozen individual emails are now compressed into one line.

But we all have different usage patterns. When debating the importance of threads, I looked at other Zoho Mail users whose conversations are typically one-off, so they won’t value threading feature at all.  In fact not everyone needs productivity.  Not everyone wants to go through a paradigm change.

AOL, YAHOO, Hotmail are the absolute web-mail market leaders,and they should do whatever it takes to keep their customers.  Their mainstream users are corporate employees who use Outlook in the Office, whether they like it or not is irrelevant, they are used to it. When they go home, they may not email a lot. Some will check their emails daily, once a week, or less. They want a personal email that resembles to what they already know.  For them familiarity is more important than productivity.

As much as I hate to admit it,  I am NOT the mainstream Zoho customer.  I am probably more a part of the TechCrunch 53,651 (even though it’s 1M now) than the mainstream customer base Zoho targets.   And if it wasn’t clear before, the current crisis brought home the message loud and clear: only businesses with real revenues survive.  Which probably means that for all my yelling and screaming, Zoho is quite right coming out with an email system that meets the needs of businesses who actually pay for it.  After all, this is what enables them to offer all the other apps I like for free.  And I like free. smile_wink

(Disclosure: I’ve been a long-time Advisor to Zoho and they are exclusive sponsor of my main gig, CloudAve. This article has been cross-posted there.)

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No, the Sky is Not Falling in Startup-land

Lot’s of noise today, RIP Good TimesIT’S OVER! POP GOES THE BUBBLE, Sorry, Startups: Party’s Over etc.   I think the panic is overdone.

Sure, a lot of startups will fall – and some of them would have done so without a recession anyway. Times are officially tough, but the truly strong businesses will survive, and some of the Web 2.0 whiz-kid baby-CEOs  will come out of this as battle-hardened Entrepreneurs.

Talk about Executives… some can wreck the business on their own, they don’t need a crisis: see Entellium wrecked by fraud.

Finally some startups think they can keep on re-architecting forever – see NetBooks, ViewPath (the latter just came out with a new product though.)  Good luck to them… wonder if their market runs away…

These are some of the thoughts I’m discussing on CloudAve today – read more here.  Even better, grab the feed here.

Update:  Want to get off the “Sky is falling” treadmill? Need inspiration?  Find it here.

Even better, get really inspired at Defrag.  Use discount code zoli1 to get $300 off.

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How Software Can Be Resilient to Recession

Are we heading into Recession?  The “Big R” talk of early this year quickly subsided, economic growth returned, the markets appeared to vindicate the optimists.  US Presidential Candidate John McCain repeatedly said the economy was fundamentally strong… until just days ago, when he quickly switched to declaring a crisis.  The Wall Street Journal says we’re in the Worst Crisis Since ’30s, With No End Yet in Sight.

I don’t claim to be an expert economist, so whether the Big R is looming is not my call – but if you believe we’re in a strong economy, I have a bridge to sell you.  Let’s just focus this discussion on how Software businesses can survive in a financial crisis, which is undeniably here.

Not all will survive, and it’s probably healthy they won’t.  Tim O’Reilly, Father-of-all-things-Web-2.0, asked the question at the Web 2.0 Expo last week:

Global warming. The U.S. losing its edge in science and technology. A growing income gap. “And what are the best and the brightest working on?” O’Reilly asked, displaying a slide of the popular Facebook application SuperPoke, which invites you to, among other things, “throw sheep” at your friends.

“Do you see a problem here?” he posed, showing another slide of the popular iPhone app “iBeer,” which simulates chugging a pint. “You have to ask yourself, are we working on the right things?”

The poster-child of the Web 2.0 boom may very well become the symbol of what went wrong:

  • useless
  • consumer-only
  • ad-driven

Actually, the problem is not what they do, but how seriously they were taken.  Will Price, a very smart VC said long ago:

It may well be that Slide raising $55m from mutual fund companies at $500m+ pre-money will be the “what were we thinking” moment of the current cycle.

I’m glad they did not go public, at least not a lot of people will get hurt holding the bag.   But enough of what’s wrong, here’s what works:

  • go where the money is, and that’s businesses (“Enterprise” vs. consumer, even if it means small business)
  • deliver value – useful functionality that improves business
  • charge for it – companies actually prefer to pay for reliable, good service.

The last point brings up the price issue.  Credit will dry up. Whether we’ll officially declare Recession or not, the fear of the Big R is enough for corporate budget cuts, the disappearance of any CAPEX spending. Even worse, an entire sector almost disappeared as IT buyers.  Did you know that Lehman Brothers spent over $300M on IT in just the last quarter, right before declaring bankruptcy?   How do you sell in this environment?

The after-bubble nuclear period of “no IT spending at all” found me at a startup in 2001-2003. We did not exactly hit it big, but did not go under, either, and that’s because our model allowed us to get in the door way below the threshold that would have required higher authorization. Not classic SaaS, rather SES (Software Enabled Service), we were essentially data providers and often got into an “enterprise” account at $3k for the first month … eventually ramping up to annual $60-$100K.   Anyone familiar with Enterprise Sales knows the term Economic Buyer:  typically getting involved later at the sales cycle, approving or nuking the deal.  Well, we saw no Economic Buyer: being under the threshold, we sold to the User directly.

Of course my little business is not the only proof: Salesforce.com & WebEx thrived during the last recession. The secret is the business model: pay-as-you-go.  SaaS offers lower risk to enter, no initial cash layout, the subscription fees come out of OPEX vs. CAPEX, and is often approved by the User, not the mysterious Economic Buyer.  The barrier of entry is much lower: once you’re in, it’s up to you to grow.

In fact I suspect the looming downturn will accelerate the structural changes in the software industry: SaaS players will thrive,  traditional on-premise vendors will shrink, many will disappear.

That leaves a final point to discuss: financial solvency.  For startups, it will be increasingly hard to find investors.  For larger businesses the lack of late-stage investment, the credit crunch may be a serious impediment to expansion.   Discover the beauty of bootstrapping – you actually get to do what you believe is right for your business, not what your Board tells you.  Do less, take small steps.  Frugality is key to survival.  Small is beautiful will get a new meaning.

In summary, Software businesses that combine good old business sense: frugality, spending wisely, delivering value to businesses and getting paid for it, with a new business model, SaaS are likely winners in the downturn.  The rest are playing musical chairs. (Oh, and the bridge is still available)

(This post originally appeared on CloudAve.  Keep informed by grabbing our feed here.)

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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.