The Right Tools for the Job

May 29, 2007 by Matt Ammerman

Are today’s SaaS enablement technologies robust enough to support business to business SaaS?  It’s a question I ask myself everytime I am introduced to a new ‘mashup engine’ or ‘online SaaS IDE’.  Granted, there are some very impressive products out there right now, Bungee Labs’ BungeeConnect and CogHead for example.  But initial impressions aside – are these whole product enablement environments robust enough to support extremely high levels of customization? Multi-tiered integration? Legacy integration? Complex computation and data types, and the myriad other requirements of the world’s most powerful business software? Even Salesforce’s proprietary Apex language born from Java seems a bit limiting in terms of programming expressiveness.  Or so I’ve heard.

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.

 

 

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Will ‘Beta’ Fly in B2B SaaS?

May 9, 2007 by Matt Ammerman

“Beta”

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.

[poll=5]

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The SaaS Investment Landscape

Apr 27, 2007 by Matt Ammerman

Although many in the SaaS-choir have long since been sold on SaaS, it seems that venture capitalists are finally joining us.  Existing firms are padding their portfolios with SaaS companies.  More interesting, though, is the fact that firms are forming with core strategies focused on SaaS investment.  Why is this?  Perhaps the most definitive evidence comes from market research as illustrated in Phil Wainewright’s most recent article “Resistance fades as SaaS goes mainstream”.  Bullet points like ‘Adoption is surging‘, ‘Resistance is fading‘, and ‘Deployments are multiplying‘ instill great confidence in the minds of financiers. That’s right, as investors see more research from sources such as Gartner and Saugatuck indicating that SaaS is viable and sustainable, it becomes a much prettier investment picture.

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):

 
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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!

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SaaSCon Recap

Apr 23, 2007 by Matt Ammerman

Last week was SaaSCon 2007, the definitive conference for B2B Software as a Service (not to be confused with Web 2.0, or Enterprise 2.0, or Office 2.0).  The conference was at the Santa Clara Convention Center Tuesday and Wednesday.  For those that attended, the conference offered a wide spectrum of keynotes and workshops revolving around all aspects of SaaS – from SaaS revenue modeling to application architecture.  Sinclair has already mentioned an interesting analogy conjured up by Treb Ryan from OpSource.  Gianpaolo Carraro and Eugenio Pace from Microsoft’s SaaS team gave a detailed architecture overview of their Litware HR sample SaaS application.  Also of note, Apprenda unveiled details about its forthcoming SaaS platform, SaaSGrid.  Because we were busy at the Apprenda booth meeting hundreds of SaaSCon attendees, we had trouble finding the wherewithall to blog during the event in any consistent fashion.  Therefore, for those of you that were not in attendance, I’d like to offer an aggregation of others’ blog content about SaaSCon 2007:

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.

 

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Build vs. Buy and Economies of Scale

Apr 19, 2007 by Matt Ammerman

When formulating the architectural foundation for a SaaS application, ISVs will inevitably encounter the age old build vs. buy decision.  SaaS enablement is hot right now, giving vendors a plethora of options on the buy side. 

Nick Carr has an interesting argument in support of the buy scenario – specifically urging vendors to buy into a horizontally aligned platform serving multiple vendor-instigated verticals because issues arising with subscriber usage and economies of scale.  The example Nick gives is Intuit’s TurboTax online, explaining how the service from this system ground to a snail’s pace because of the mad rush of Americans filing taxes earlier this week. 

A similar example would be the usage peaks that a CRM application will experience at the end of each quarter as sales are tied up at a frenzied pace.

As an ISV, if you need to provide high availability service but that service is prone to suffer unusual high peak times, having ‘anticipatory’ hardware lying in wait can be quite cost prohibitive.  So what’s the solution?  As in most cases, aggregation of resources leads to economies of scale.  Platforms provide that aggregation, normalizing the usage spikes across many vertically-aligned vendor applications.  As Nick puts it, the only way to do this is by sharing the resources with other companies that also need high availability service but whose peak times are different than yours.  It is simply a matter of economies of scale, and platforms are able to achieve these economies through mass aggregation of requirements and management of resources.

Platforms like Apex and SaaSGrid aggregate infrastructure requirements, and taking the solution a step further by providing guarantees of service at any point in time without ISVs explicitly having to build out an infrastructure or request a larger slice of the computing pie during high volume times (unlike an MSP scenario).

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