Before his first post is published here on SaaSBlogs.com, I want to introduce our new co-author Abe Sultan.  Abe is a frequent commenter here on SaaSBlogs and throughout the SaaS blogosphere.  I’m also happy to disclose that Abe holds the VP of Business Development position at our company, Apprenda. We’re very much looking forward to writing further articles with Abe as part of the SaaSBlogs team.

 - Matt Ammerman

• Software Engineer - SaaSGrid (disclosure: as mentioned previously, SaaSGrid is the platform that my company, Apprenda, will be releasing to beta soon.)
• User Interface Engineer

In the exciting world of software as a service, Apprenda’s development teams are hard at work inventing and perfecting techniques for cutting edge service delivery and the distributed hosting of web services.  If you, or your brilliant coworker/sibling/friend/ex (why not?), are interested in such endeavors and are comfortable working in a fast-paced and agile development environment, we’d love to hear from you.

At this point, there’s not even a support number to call and Jatol.com users aren’t even able to retrieve their stored data or web site files. As I read further down the discussion chain, I started thinking about how awful it would be if I were running a web-based business in a situation like this - the mere thought of surmounting catastrophic shutdown such as this is mind boggling.

While it may seem obvious to some, this story specifically highlights a very important part of what enterprise SaaS ISVs should look for in managed services: providers that can assert serious service level agreements and back them with real ramifications.  For instance: transparent multi-tiered redundancy, consistent and thorough backups and archives, potentially even software and hardware escrow services (see ‘catastrophic shutdown’ above). The bottom line is that hobbyist devs hosting websites or even working applications with reliable hosting companies count downtime in minutes, while enterprise count downtime in thousands of dollars.

The tricky thing about SaaS is that it fundamentally requires the ISV to at least purport to be the ‘provider’ of software.  While hosting may be outsourced and ISVs become at least the ‘P’ in ‘MSP’, it is vitally important that the backing ‘MS’ be up to par.  If you’ve dealt with an MSP (without naming names) and had service level ‘experiences’, what are your thoughts on MSP preparedness for SaaS?  Are MSPs ready to host enterprise SaaS applications that generate the aggregate load of potentially millions of ISVs’ users?

 Loading …

With advanced security, archiving, and message filtering in place, Google’s hopes are that this move will shine a new light on the Google Apps suite as a viable hosted business suite to enterprise users who often must conform to compliancy requirements in security and data archiving.  It’s a good move, and one that Google pretty much had to make in some form or another.  They’ve established over 100,000 Google Apps users who will speak for the suite’s usability and aid in productivity.  Now they’ve set their sights on converting the hordes of users who haven’t been convinced that usability benefits and frills outweigh security and compliancy concerns.

As always, Phil has an interesting piece that takes the news and goes another step… “What next for MessageLabs?”

CogHead made a statement in their early advertising that has stuck with me for awhile now - they said [paraphrasing] that “CogHead wasn’t designed for computational fluid dynamics calculations”, instead spotlighting ease of use for the business individual. The idea: an environment to quickly build business process applications, and it’s so easy that anybody in your business can do it.

The problem I have is not with the ingenuity or inventiveness of these types of environments. I think there is a ton of very cool, and applicable, things that can be done with them.  But I feel they alienate one crowd that, well, we owe pretty much everything to - software developers and engineers.  Those that have been schooled and trained in the complex sciences of computer programming and application engineering.  Believe it or not, but these folks are masters of an art - because there is a significant amount of expressiveness that goes into architecting an application, writing code, and optimizing it.  Furthermore, business to business SaaS includes applications and services that fundamentally require a powerful computational platform and languages expressive enough to harness the power of that platform.  I spoke with a vendor the other day who is looking for the right tools to develop an online service that provides genomic computation.  Yes, that’s right - genome sequencing for researchers, on demand.  

Some of the feedback I’ve read and heard from developers who’ve gotten their hands on languages such as Apex leads me to believe that developers’ hands are tied - even if they stretched the technology to its limits there’d be so much more they’d want to do with it that it’s almost not worth their time.  They’ve spent years honing skills in the .NET languages, in Java, PHP, Ruby, in name your favorite programming language - and now they’re being handed Javascript-based online IDEs and proprietary languages and told to deliver enterprise SaaS applications.  They’re being told by managers to port existing client\server code to an on-demand architecture using tools that simply don’t match up.

The tools exist, and developers have been using them for years.  They’re experts.  Perhaps SaaS enablers should focus on bringing the existing developer toolbet to the SaaS world, instead of enabling the rest of the business world around them with brand-spanking new tools that limit and eventually alienate developers.  Frankly, I think the novelty of so-easy-your-manager-could-do-it development tools will eventually wear off and the business world will turn back to developers looking for programmatic magic.  But, that’s a whole other post for another time.

The point is, handing an enterprise software developer some of these enablement tools and asking for a business-to-business SaaS application is like handing Mario Batali an EasyBake™ oven and asking for a six-course Italian dinner.  No matter the amount of genius and talent involved, there’s only so much you can do with a 100-watt lightbulb.

The word somehow snuck its way into the plethora of Web 2.0 buzzwords. 

• GMail and Google Calendar!…beta. 
• Windows Live Alerts, Gallery, QnA, Soapbox, Office, and Mail!…beta. 
• Flickr!…gamma. (?) 

These services have hundreds of thousands (if not millions) of users and yet they still wear the beta badge.  Some have done so for nearly 2 years.  Clearly, there is an understanding and acceptance amongst the Web 2.0 user base that these services provide service ‘as is’ with little guarantee of anything.  We’ve heard stories of Gmail accounts being wiped, for instance.  And despite this, people are banking their entire business on Office 2.0 services.

I wonder to what extent this will fly in the enterprise SaaS world, where SLAs and guarantees make or break deals on a daily basis. From the consumer standpoint, trust is everything in SaaS.  From the provider standpoint, adoption is everything.  So the question is: Would consumers trust enterprise SaaS applications that wear the beta stamp?  Is it wise for providers to open up public betas of enterprise SaaS applications, or does the trust issue become prohibitive?  Obviously a major difference here is that the services listed above are ‘free’, while enterprise SaaS applications will presumably require subscription fees right out of the gate.  I’m just looking to get a handle on the psychological aspects of using beta software in the enterprise and how that translates to the SaaS model.

 Loading …

We’ve established that the pursuit of SaaS is on the minds of *almost* everyone, but what is it about SaaS that gives us all the warm and fuzzies?  For the most part, SaaS is still a nascent industry.  It wasn’t long ago the purveyors of SaaS applications or enablement technologies were referred to as the tech industry’s “lunatic fringe”.  Strangely, the benefits of SaaS have emerged and shown a bright light on the future of all those involved in delivering software functionality to businesses.  So, what are these benefits? This may read like a SaaS 101 laundry list… but to see where SaaS is going, it might be best to take another look at the fundamentals.

For the Consumer:

• No client/server software installation or maintenance - that’s right, no more 800-page planning and implementation guides.
• Shorter deployment time - potentially minutes as opposed to a phased implementation that could take months (see item #1)
• Global availability - sure the technology exists to make on-premise software available outside of the premises, but we’re talking about functionality that is available from anywhere on the internet natively.
• Service Level Agreement (SLA) adherence - reported bugs can be fixed minus any rollout overhead.  Sure the provider actually has to fix the issue, but assuming they’ve deployed a moderately efficient SaaS application the rollout of a patch or fix should happen in the blink of an eye.
• Constant, Smaller, Upgrades - when you use a SaaS application, it is in the best interest of the provider to keep you happy and they can do so by constantly improving the application experience.  With SaaS this can come in the form of consistent miniscule changes that add up over time instead of monster patch and upgrades that cost you time and money to implement. 
• Ease Your Internal IT Pains - This is a big one. Most of the last several points here highlight that SaaS offloads a great deal of IT pains incurred by software consumers in the traditional client/server model.  This leaves IT personnel to focus on improving the day-to-day technical operations of your company instead of being called upon to troubleshoot 3rd party software or maintain aging infrastructure.  Which leads to…
• Redistribute IT Budget - by outsourcing software functionality to a provider, the enterprise realizes a cost savings in infrastructure requirements and IT personnel knowledge requirements.  This allows the enterprise to focus on core competencies.  It also means that the cost savings from using SaaS applications can be flat out saved, or reallocated to boost productivity through other services.

For the Provider:

• Aggregate operating environment - as a provider, you own your domain.  No longer are you sending technicians to fix or customize your software because it doesn’t fit into a customer’s highly-specialized (or horribly outdated) infrastructure.  You have complete control to optimize an infrastructure to your SaaS application’s specific requirements.  This is synergy at its best, and leads to financial savings as well as less headaches.
• Predictable Revenue Stream - the subscription model associated with SaaS means that your customers will pay you on a recurring schedule.  If you make this cycle flexible enough, you can get a real handle on forecasting revenues.  The payment may be tied to your product (think cell phone plans) where everybody pays according to the same term, or tied to your individual subscribers where some may pay monthly, some yearly, and some quarterly.  In my opinion, the more flexible you are with this piece of the offering the better.  Either way, because of the scheduled nature of cash inflow, revenue modeling becomes more reliable.
• Predictable Growth - Same as above, but here we’re talking about sheer volume of subscribership.  The fact that users hit your site to access the application means that with the right tools you can monitor their usage pretty closely - something that’s not so easy with all your customers running the application on premise.
• Focus On Smaller Upgrades Instead of Monster Patch Rollouts - and while you’re at it, don’t worry about rollout logistics across all of your customer sites either.  Your development teams can focus on fixing core application functionality, tackling bugs and enhancing features in smaller incremental rollouts because it’s just easier to do so.
• Sales Becomes Customer Relationship Management - When you are selling a subscribable service, the game of gaining subscribership becomes one of balancing user retention vs. attrition more than a game of landing the ‘big deals’.  Sure, it’s important to have a team out there pounding the pavement to sell your application - i.e. getting subscribers in the door - but the real thrust of the new sales and marketing in SaaS is customer relationship management.  The equation becomes quite simple - keep retention rates higher than attrition rates and focus on bringing in new customers. 

Adoption of the model has been growing at well over 20% year over year, Nick Carr says (paraphrased) that SaaS adoption is set to explode and reports that McKinsey & Co. will release a survey showing that 61 percent of CIOs at North American companies with sales over $1 billion are already planning to adopt one or more SaaS application.  Additionally he says that Deutsche Bank projected that the SaaS market will account for half of the application software spend by 2013, Gartner predicts that SaaS will triple in size by 2011 from 2006, Jeff Kaplan thinks SaaS adoption is underrated and the success of companies like SalesForce.com should be enough to convince even the most skeptical, but if all of this is still not enough and you are having trouble convincing your customers, your boss or yourself into adopting SaaS, here is a list of benefits to consider.

What do you think? Have you experienced other benefits already? On the contrary, have you experienced major drawbacks? We would love to know what’s holding you back or what has pushed you forward!

As always, the proof is in the proverbial pudding:

Warren Weis from Foundation Capital says “Software as a service is clearly a very interesting area because of the ease of selling into these types of environments where users can use it without a big IT implementation … We have about 11 of these types of (SaaS) investments and they’re doing very well… we’re looking for new investments in that area.”

Jeff Horing from Insight Venture Partners says ”SaaS offers a more predictable revenue stream and lower research and development expenses to software vendors than packaged software products.”  He continues, “Overall, if you can build a successful company it’s a much better business model than license sales.”

Horing says he and other investors at his firm are skeptical about growth for companies looking to make their mark by selling enterprise software applications, as opposed to those that market the SaaS model.

VCs have had time to watch the progress of early SaaS companies.  They’ve seen stability and better yet, growth.  Evidence is found in the performance of these four SaaS companies over the past two years (CRM, RNOW, VOCS, and SVVS):

 
(bigger)

It’s no wonder SaaS companies whet the VC community’s collective appetite. IPO valuations of SaaS companies such as SalesForce.com, NetSuite and RightNow Technologies have come in as high as 10X revenue (although not the general case)!  Now there’s a nice exit.

Obviously, SaaS investments come with considerations, both positive and negative.

The Pros

• Demand from the enterprise IT community
• Predictable and stable revenue
• Predictable cashflow and growth
• The market for SaaS is expected to grow to 25% of all new business software by 2011 (Gartner)
• SaaS is an easier sell than traditional packaged software
• See Wainewright’s article for more.

The Cons

• A longer time to achieve cashflow positive (longer development times and amortized revenue model)
• Higher startup capital requirements

What do you think? Are you looking to invest in SaaS companies? Are you planning any SaaS deployments within your organization? What’s holding your back? We would love to know your thoughts, share them though comments!

Adventurista - SaaSCon recap

Marty’s Blog - Death By A Thousand Duck Bites

Dave Terrar (Business Two Zero)

(Note that in Dave’s post, he expresses a disappointment with the lack of blogging coming from the actualy event.  Dave, I agree.  And I’m sorry.)

Jeff Kaplan gives probably the most thorough roundup of SaaSCon on his blog.

Lee Thé from Application Development Trends provides a great analysis of some of the core offerings that were on display at SaaSCon, including Apprenda’s SaaSGrid platform.

These are a few of the interesting recaps from SaaSCon 2007.  There sure was a lot of information packed into a two day conference.  Perhaps too much (SaaSCon organizers - 3 days next time maybe?).  If you were there, and have written about the event please feel free to post links in the comments.  Do the same if you’ve found more blogging out of SaaSCon that I haven’t linked to here.  Thanks!

 *UPDATE* - Eric from Marty’s Blog wrote a great article yesterday that is born out of some of the concerns that smaller ISVs may have when exploring the larger enablement platform technologies.  These concerns - such as platform companies that introduce functionality that threatens their own ecosystem players - came up at SaaSCon frequently.