A Blog About Software As A Service
This blog is all about software as a service (SaaS) for business. If it is in the cloud, you will find it here.
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From Daily IT: The Three Waves of SaaS
Posted on May 26th, 2009 5 commentsJust caught this one in my RSS reader this morning: Daily IT News has an article this morning on the Three Waves of SaaS. From the article:
As SaaS matures, we’re seeing providers evolve through three "waves".
Wave 1: Replace mature, single tenant software applications – The early players in SaaS got started by finding applications ripe to be delivered as a turn-key business service in a multi-tenant environment. Most early success among SaaS providers was just that: Taking an existing piece of software and finding a better way to deliver it.
Wave 2: Apply SaaS model to solve new problems that were impractical for existing mature single tenant software applications — Once these firms created an initial foothold, many realized that the SaaS model itself had inherent advantages for solving problems that could not be tackled in a traditional software model. They leveraged a common, centrally hosted architecture to get multiple companies working together, often across the globe, to solve a common business process.
Wave 3: Leverage "by-products" of SaaS business to launch new, higher value services — Now SaaS companies are realizing their whole business model actually produces assets that are quite valuable. Providers have a clear picture of how their software is being used. Over time, they can aggregate data collected through these interactions and report back to customers, giving them unprecedented insights into their individual performance as well as industry-wide benchmarks.
I think that Wave 3 is the most important and most interesting, and not many articles about SaaS touch on it. In many cases, the "by-product" is a mass of aggregate community data that can provide an excellent comparison feature and can be sliced by any number of filters.
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Results from the 2009 SaaS Marketing Survey
Posted on May 22nd, 2009 2 commentsI’ve just recently started to read SaaS University, a site dedicated to SaaS business info, and today saw the results of the Softletter 2009 SaaS Marketing Survey. The survey covers the highest to lowest budgeted marketing programs at SaaS companies. Since I am a marketing guy at a SaaS company, these numbers were very interesting to me. So here goes.
Projected Marketing Budget Increases
Webinars took the top slot, as survey respondants also said they were the most effective marketing program. PPC campaigns took the second spot even though PPC efforts were rated last in effectiveness. SEO came in third, which makes sense as it has a high association with PPC campaigns.
Projected Decreases
Hmmm. I wonder why customer concern surveys are getting the axe. Are they just not producing results, or are they just easy to cut since they’re seen as a cost rather than a marketing tool. I’m really curious as to how many SaaS companies out there are really spending money on podcasts. Sure I’ve seen a few out there but not that many, and what are the costs? Additionally, what’s the cost of an official business blog? Unless these companies are associating a dollar figure with time spent by those producing the content, I’d be curious to see what they’re spending on.
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Clip: Why Do SaaS Companies Lose Money Hand Over Fist?
Posted on May 19th, 2009 1 commentJust saw this one in my RSS reader: there’s a blog from a stealth-mode SaaS company called Smoothspan, written by Robert W. Warfield that has a post today entitled "Why Do SaaS Companies Lose Money Hand Over Fist?"In the article, Warfield argues that SaaS companies spend far more on sales and marketing than their on-premise counterparts, and compares them in terms of how many sales and marketing cents are required for each company to earn a dollar in revenue. From the post:
Sales and Marketing
Let’s start here, because this is really the crux of the argument. It’s where SaaS companies spend the Lion’s share of their budgets, and where On-prem seemingly doesn’t spend much at all. Here’s what the numbers look like:t’s start here, because this is really the crux of the argument. It’s where SaaS companies spend the Lion’s share of their budgets, and where On-prem seemingly doesn’t spend much at all. Here’s what the numbers look like:
- SuccessFactors spends a ripping 56 cents for each dollar of revenue they bring in. Analysts expect about 85% growth in exchange.
- Salesforce is spending almost as much: 54 cents to bring in a dollar for which the analysts expect 44% growth.
- SAP has a much more frugal 29 cents per dollar brought in, but the analysts only expect them to grow 17.5% next year.
As a function of pure cost, SFDC and SFSF spend 2x what SAP does for an incremental dollar of revenue, which on the face of it looks highly inefficient. But, before we write the SaaS guys off, note that by spending so much, they manage to deliver 2.5X to nearly 5X the growth of SAP. Which one is more efficient? Not hard to make an argument for the SaaS guys when you look at S&M dollars as payment for growth.
He then goes into administrative costs:
General and Administrative
This is a category everyone loves to hate. It’s overhead that delivers no value. Surely the SaaS companies must be wasting a lot of money here? Large organizations benefit from economies of scale on G&A, don’t they?
- SFSF spends 21 cents on this for every $1 of revenue.
- CRM spends 16 cents for every $1.
- SAP spends 17 cents.
And R&D:
Research and Development
- SFSF spends 16%
- CRM spends just 10%
- SAP spends 21%
Finally, he tallies cost of revenue:
This is one of my favorites. Keeping the cost to deliver the service low is essential for SaaS companies. The fact SAP says they lose money on every sale of BBD is a direct reflection on this number. SaaS companies use a variety of technologies like multi-tenancy to keep costs lower, and it seems likely SAP has missed these tricks. We can’t get the numbers for BBD, but we can compare SAP’s cost to deliver software (largely cost to deliver maintenance, which is Tech Support) to the costs of a SaaS company:
- SFSF spends 24% to deliver their service.
- CRM spends just 13%
- SAP spends 22%
His conclusion is that SaaS companies could be just as profitable as SAP if they were to sacrifice growth for profit, but since SaaS as a delivery model is still young, companies are in the "land grab" process. They’re more interested in growth than profit in this stage, so it makes more sense to spend when spending equals growth.
Now, obviously this post is basing its information on SaaS specifically on CRM SaaS products, but I wonder if the same strategy extends to all SaaS players vs. their on-premise counterparts.
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This Weekend In SaaS- A Roundup of SaaS stories
Posted on May 18th, 2009 2 commentsYou know, I knew that SaaS as a topic of blog posts was really starting to heat up, but wow. I’m gone for two days and my RSS reader and inbox are jammed with new articles. So I thought I’d do a quick roundup of the posts that were most relevant. Here goes.
The Widening Gap Between SaaS Demand And Supply- At Avigdor Luttinger’s Blog, the post talks about the growing demand for SaaS-based software and the slow growth in supply. From the post:
So at present we have a growing demand for SaaS, and a stagnant supply of some 40 successful SaaS solutions that has little chance to grow and match the demand for more variety, due to the technical and financial barriers mentioned above. Consequently, we could expect some M&A activity as successful SaaS vendors would acquire failing traditional vendors with good IP, and then start porting that IP to their platforms. But that would take a few years – until new solutions become available in quantity.
Which means that we have a growing vacuum – on one hand stagnant supply, and on the other growing demand.
Over on Technocratica, Dr. Jim Butler has a great SaaS design checklist. His post describes the security, SLA, Subscription Servicing, External Services, Resource Sharing, and Flexibility/Extensibility. I had the pleasure of working with the good doctor at a previous company and can say with 100% confidence that the guy knows his stuff. Awesome post.
At edd blog online, Jeffery Fehrman has a post entitled Cloud Computing - Who’s Watching Your Back? Mr. Fehrman seems to really dislike the idea of having data hosted by a third party, and at the end of the post, he invokes the "police can search your data without a warrant" argument. From the post:
Oh yeah, and the courts have ruled that the police can search your data without a warrant, as long as others hold that data. If the police want to read the e-mail on your computer, they need a warrant; but they don’t need one to read it from the backup tapes at your cloud provider.
Another emerging trend this weekend was the "Google went down for a couple of hours, so that’s proof that SaaS and cloud computing cannot be trusted" theme.
Google Outages Raise Questions About Cloud Future- this article, by Nicholas Kolakowski asks whether cloud-based services are really ready for the enterprise. From the article:
The downtime experienced by Google on 14 May, the latest in a series of temporary shutdowns experienced by cloud-based service companies throughout 2009, evokes one of those questions of burning importance to the enterprise: Are cloud-based services truly ready to meet business needs that require virtually continuous uptime?
Google’s occasional shutdowns reliably bring a great deal of media attention, as with the February incident that took down Gmail in the United States and the United Kingdom for about 2.5 hours. A few months before that, in August 2008, Google Gmail and Google Apps underwent 15 hours of downtime.
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"If your revenue is based on being able to stay in contact with people, and you have an outage, it can build to significant levels of damage quickly, so your tolerances are tight," Rob Enderle, an analyst with the Enderle Group, said in an interview.
"The outages that Google experiences [don't] happen in a well-run enterprise," Enderle added. "I’m not sure Google gets the enterprise; even with Microsoft, it took them bringing in employees from places like IBM before they understood it. Google has not yet gone through that process, even with a CEO coming out of Sun—it requires a fairly large infusion of people who get the enterprise."
The Industry Standard has two posts, Cloud computing: Pros and cons and 10 cloud computing companies to watch.
VM times has an article on IT Management In The Clouds With SaaS, which talks about the evolution of IT Service Management from local storage to the cloud. From that post:
This IT Management evolution was all made possible due the maturity of SAAS, (Software as a Service), going main stream. Over the last years we have experienced an escalation of applications migrating from the desktop to the Internet. Apparently, the physical conditions of both the Internet and network infrastructure have matured enough and made the economic option of SAAS the obvious solution.
First of all, it’s always about the numbers. Now, organizations can question whether it is sensible to purchase, configure, host, maintain, air condition, and backup. Suddenly, worrying about application software and hardware is optional. Alternatively, for a fraction of the cost, a company can “rent” applications remotely using a PC browser or a cellular browser and they can do this anywhere and any time, 24×7.
All right, that’s all for today.
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Is SaaS Consolidation Inevitable?
Posted on May 15th, 2009 2 commentsSramana Mitra has an article on Forbes.com today predicting that SaaS consolidation is highly likely, and wonders whether that’s a good thing. From the post:
The global recession, which has forced companies to cut operating costs and streamline information technology operations, has been something of a boon for the software-as-a-service sector, with major companies turning to cloud computing. Thus, I expect to see acquisitions in the SaaS space this year. SaaS companies like NetSuite, SuccessFactors and Citrix, which all recently reported solid quarters, are likely targets. Let’s take a closer look.
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My concern remains that we may be moving towards yet another "too big to fail" industry structure. If HP, IBM, Cisco, Microsoft and Oracle go around acquiring everybody and their mother, we’re in for stagnation in innovation, a precarious concentration of industry power and leverage at the very tip of the pyramid, and an overall undesirable structural evolution.
SaaS is an opportunity for smaller companies to accumulate their own muscle, roll up their own smaller kingdoms and create an alternative power structure. I would much rather see that happen, than an accumulation of everything that matters into one of the five largest players!
Interesting article, and I understand this is really an opinion piece. She would rather see smaller companies in the SaaS sector. I get it. But when it comes to consolidation, remember, it’s a choice. Small SaaS companies don’t have to agree to be acquired by the big dogs. While some companies will choose to sell to a bigger company, others out there will stick it out on their own. I agree with her outlook: with SaaS taking off, there will definitely be a wave of acquisitions. It just makes sense. But this, like any other trend in tech, will be a self-fulfilling cycle. People see that SaaS is hot right now and form a SaaS business. Bigger companies acknowledge that the trend is hot and start acquiring SaaS companies. Other people see that SaaS companies are being acquired and decide to start their own SaaS startup.
It reminds me of the time of internet company acquisitions when "we’ll build something, get users for free, then Google will buy us" was a viable business strategy. Seems like a crazy idea now, right? The reason people tried that strategy is that it was working for others. Bigger, more established companies were acquiring tiny startups just because they had users. This led to a new wave of companies that counted on the acquisition trend to keep on going. When it stopped, companies were faced with a difficult challenge: find a way to make money with all these users. Those that were able to find a way to do that survived. The rest vanished.
I think the same thing is going to happen in SaaS. There will be a wave of acquistion followed by a wave of new SaaS companies looking to be bought out simply because they’re SaaS based. The big guys will stop buying them out just on the basis of SaaS, and the small SaaS companies will have to figure out how to make it on their own.
But hey, I could be wrong. It happens.
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Clip: SaaS’s Spring Fling: Venture Community Bets Heavily on SaaS
Posted on May 14th, 2009 1 commentChristopher W. Cabrera, founder of Xactly has a post entitled "SaaS’s Spring Fling: Venture Community Bets Heavily on SaaS" which talks about the huge VC interest in SaaS vendors recently. From the post:
The latest cases in point are SaaS vendors Workday, which closed a $75 million venture round, and ExactTarget, which just last week attracted $70 million in venture funding. ExactTarget had to forgo an IPO late last year because of the economic downturn, but that hasn’t kept the VC community from regarding the company as a prime investment opportunity. Meanwhile, Workday has now raised a total of more than $150 million from investors who clearly believe in CEO (and PeopleSoft founder) David Duffield’s vision for SaaS.
My favorite part of the post, however, is in the beginning:
The SaaS battle continues to rage in some quarters, with traditional on-premise software vendors still fighting a vociferous rearguard action, even as some are slowly moving to test the SaaS waters for themselves.
Vociferous rearguard action? I love it.
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Making a Case for SaaS: A Look At Costs
Posted on May 12th, 2009 No commentsJeff Hassemer, vice president, product management, of software provider Entiera has a post up on multichannelmerchant.com entitled "Making a Case for SaaS". The article details the ROI implications of Software as a Service:
SaaS applications have been in the market for quite a while now. Most online marketing software companies—those that provide functions such as e-mail, Web analytics, ad serving or behavioral targeting—operate in this model.
What this means is the vendor who developed the software also supplies the infrastructure to manage the software. The customer then pays a fee for its particular usage of the software. This is done either as a monthly commitment or possibly a variable cost based on volume.
Contrast that with a standard software license purchase. After an initial upfront fee and implementation fee, the customer also needs to:
- Purchase and set up a server to install the software (sometimes several)
- Buy any necessary ancillary software licenses (database system, operating system, middle ware, etc.)
- Pay ongoing support costs for the hardware (electricity, security systems, IT staff), plus an annual license and maintenance fee (a percentage of the list price of the software)
- Handle all system upgrades and ongoing maintenance
- In many cases, pay upgrade fees for new versions of the softwareAll of these costs can add up over time. One thing often overlooked in a traditional software purchase is the ongoing expense of upgrading the systems to support the core application itself.
Have a look at the article.
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Bloggista: 10 Reasons To Consider Using SaaS
Posted on May 12th, 2009 No commentsJust saw this excellent post at Bloggista, entitled 10 Reasons Why Companies Should Seriously Consider SaaS Software Now. The article goes through all the benefits of software as a service. Rather than ripping off the article, I encourage you to go check it out. A little preview:
Software as a Service, or SaaS is a model where software is rented instead of buying it. Applications are delivered via the internet, accessed using a pc with internet connection and a browser.
The model has been implemented for quite some time now, but its popularity was exponential lately when businesses started to look for better yet cheaper alternatives to traditional, often costly and hard to implement business softwares.
However, in my almost 3 years of actively advocating for SaaS and Open Source technologies, I found that many business owners are still not aware of this model.
The article then goes on to detail the 10 reasons why companies should take a look at SaaS. Tags: SaaS
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Gartner Revises SaaS Forecast
Posted on May 8th, 2009 No commentsOver at Daily IT News (a blog that really does a good job at covering SaaS and IT), there’s a post stating that Gartner has revised its 2009 forecast for global SaaS revenues. From the article:
Global revenues from software-as-a-service (SaaS) products will increase by 22 per cent this year, according to a leading technology analyst.
Revising its forecasts for the year, Gartner Research has predicted that applications delivered via a hosted server will generate sales worth $9.6 billion in 2009, compared to $6.6 billion last year.
Specifically, the market intelligence firm claimed that customer relationship management programs will account for $2.1 billion of this sum, while enterprise resource planning software will experience revenues of $1.3 billion.
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Article: SaaS gaining mindshare over license model
Posted on May 5th, 2009 No commentsJust saw this on ZDNet Asia by Victoria Ho. The article is entitled "SaaS gaining mindshare over license model", and it goes on to show that the adoption rate of SaaS is starting to heat up in the Asian-Pacific region. From the article:
"[Online distribution] has been growing well and reflects strong customer preference…it is widely accepted and considered an effective mode of interaction," he said.
Dickens added, however, that a different online distribution model, SaaS, is picking up in adoption rate due to its touted benefits such as lower total cost of ownership, quick deployment and lowered risk of implementation.
Different from software sold online, which is, downloaded or activated online but still installed on-premise, SaaS provides software accessible as a service over the Internet, with no installation of it on customers’ hardware.
Stable broadband connectivity in the region is also helping boost interest in SaaS for HP, he said.
And SaaS lifts the burden of managing customer licenses and delivering software maintenance from vendors’ shoulders too, said Dickens.
The article goes on to say that it is the "customer interest in SaaS’ "greater value proposition" that is pulling vendors to answering this demand." Additionally, widespread piracy of download-and-install software is making vendors make the move to the SaaS model.
