Connecting the dots ...
SAP held major internal announcements and demos of its A1S product, tailored for the mid-market, the future growth sector now that the top end of the ERP market is saturated.
The demos were top-secret, attendees had to sign an NDA – and since I am not one of them, I’m left wondering whether they’ve seen the original flavor or the Zesty one 
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.
(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:
The “bigger picture” is that IE gained market share vs. Firefox (something that as a FFox user I’m not happy with 
). 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.
(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 return
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 …. (?)
24SevenOffice is an innovative software company offering SaaS for the SMB / SME market that should really be called 24SevenBusiness 
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. 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.
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:
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.
Stowe 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:
“…the larger question — whether the enterprise would be more agile, more adaptive, and more of a survivor is it could somehow break away from the need for slow-to-change applications that span the needs of many departments, beholden to many but satisfying none — has not really been addressed by Ben or the others I am interviewing on the on ramp to CTC 2006….
My gut says yes. Enterprises would be better off if their IT departments could move to small, low cost, web-based apps that satisfy local needs — a project group, one campus in Denver, the marketing department in Japan — without having to subordinate local needs to corporate controls. The benefits of enterprise standardization are measured in the IT budget, but the true costs are distributed thoughout the enterprise: less collaboration in the research team leads to slower innovation, a less-thatn-intuitive UI for the sale staff in France leads to lowered sale numbers, and a heavyweight finance solution that slows down invoicing costs serious bank in collection time.”
Oh, boy.
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.
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
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:
(Updated)
This post is a continuation of Web 2.0 in the Enterprise – Round 2 in which I reflected on some thoughts brought up by Stephen Bryant in Five Reasons Web 2.0 and Enterprises Don’t Mix.
The Web 2.0 in the Enterprise TIE event I previously referred to was hectic, trying to cover way too many subjects in 90 minutes, with one common underlying assumption: Enterprise means large corporations. The theme of the night was how these Web 2.0 technologies and business/communication approaches will “seep in” to the large enterprise from the bottom up.
What is then Enterprise Software? Typically SAP, Oracle et al come to mind, and I can hear the roar “Enterprise Software is Dead” – well, is it?
If we define Enterprise Software as the traditional heavyweight, expensive, pay-huge-license-fees-upfront, then try-to-implement-forever model it is certainly challenged from two ends, by Open Source and the SaaS model. 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, referred to as the SMB or SME segment. Such enterprise functionality has traditionally been beyond reach for a typical small business, for two major reasons:
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 I think 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. Yes, that means the Silicon Valley tech-startups are not a true representation of the SMB world 
Likewise, I don’t believe SOA, best-of-breed packages working together are an option for the SMB market, for the same reason. They will play an increasingly critical role in larger enterprises with a professional IT organization, but for a few more years SMB’s are far better off with integrated, All-In-One type On-Demand solutions.
Of the Web 2.0 companies Stephen mentions in Five Reasons Web 2.0 and Enterprises Don’t Mix two are offering Integrated On-Demand solutions:
Back to the economics: 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 make the numbers work. The cost of customer acquisition vs. the very low license fees made it an uneconomical model, whether via direct or channel sales.
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 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 recently 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”
Finally a quote from Ziff Davis again: “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 SMB-focused software vendor, I’d certainly like them … there’s a goldmine out there. 
Update (2/22): Perfect timing for this report to come out just now: U.S. SMBs to Spend $2.2 Billion on Software in 2006, Says AMI-Partners
Update (4/17): Interprise Suite (recently debuted at Demo 2006) claims to be “The FIRST Accounting / ERP / CRM Solution to Bring the Power of the Internet to Small and Mid-sized Business“. While I take issue withe the claim to be “first”, considering the breadth of functionality it’s definitely an option to consider for SMB’s .
Related posts:
(Updated)
Ad-supported content? Yes. Personal Productivity tools? Yes. Enterprise Software? No way. (IMHO)
There’s an interesting, Microsoft-induced debate at ZDNet re. the possibiliy of funding free On-Demand software via advertising:
It all started with Microsof app’s but from there it’s just a step to arrive to Gerge Colony of Forrester: “ I foresee a world in which even enterprise applications like financials, ERP (enterprise resource planning), and supply chain software will be advertising-funded.”
My take: that we have a lot of web-based content supported by ads is already a fact. Consumer software, personal productivity tools? Quite possible.
Enterprise Software is a different animal. Why? It is used by businesses, who have their own business processes and workflow. Clicking on ads would be a distraction from that business process, I can’t possibly see why companies would support it. True, there will be major changes in the delivery/ pricing model for enterprise software. When prices come down from the stratospheric heights set by Oracle, SAP et al and become more reasonable, a’la Salesforce, NetSuite, SugarCRM, 24SevenOffice, SmartCompany ..etc, my bet is companies would rather pay those prices then accept the productivity-loss caused by their employees clicking around the Net for hours a day…
Update (11/29) : SAP’s Jeff Nolan on Ad-supported Business Apps.
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