Free internet calling on Facebook

A few months back i mused that Facebook was doing a Telco triple play. That is doing calling, content (movies) and gaming down the same channel.

That was a bit of a stretch because actually it was their ISV community doing the triple play.But my point was when you have a great deal of eyeballs and you offer disruptive technology (aka cheaper than the established offerings at a"good enough" quality) you have a good mix.

Today i saw this from Russell Shaw.  

Internet calling solutions provider  iotum has announced expanded availability  for its  FREE Conference Calls application on Facebook.

Internatinal in scope, the expansion fir the five-month-old service is being facilitated by  agreements with Internet communications partners Truphone in the U.K., Abbeynet in Italy and MOI Telecom in France

I find this quite amusing. Telco's are fixated by voip disruption and Skype being public enemy #1, but they seem to missing these web based, clientless competitive plays. I think something like this has legs. Its easy to see the application, you get a group of old flatmates or uni buddies to aggree to shoot the breeze on a fee voip conference call… next step is those same guys connect the dots and say, well hey customer X is on FB why not just use that Iotum thing…. 

 Update:  Looky  looky, content .

Facebook today launched two new Pages for music and film aimed at getting musical artists and film makers on the site.




What do Rod Drury & Eric Schmidt have in common?

The answer it seems is securing digital trade routes. The difference it seems is the depth of hte pocket.  Rod has discussed this come up with a bunch of options about this.

Google on the other hand just bought the damn thing… scale benefits anyone?

This quote from Google clearly parallels the thoughts of Rod. 

As more and more people conduct online searches and interact with applications like Gmail, Google Earth and YouTube, we’ve had to think outside the box to create a more scalable, affordable and easy to manage network that meets our users’ needs worldwide. One of the biggest challenges we face is staying ahead of our broadband capacity needs, especially across Asia


The impact of Scale & Economics on Broadband and SaaS

There have been a few posts recently about broadband in NZ, some well thought through, others not so. The crux of this issue is about scale & economics. This of course is massively applicable to SaaS too. So in the interests of clarifying things I thought I’d do a laymans explanation of scale the impacts of economies of scale & pricing.

First up, lets accept the premise that any company, public or private is in business to make money.  To that end they aren’t going to do things for ‘free’ just because people think they should have better services. Secondly lets clarify what we mean by ‘scale’. Scale as its used here means having a lot of use or users on a system, platform or service. The more scale you have, the larger you subscriber base.

Scale is very important when you are doing infrastructure based services because your capital investment is normally very large and directly affected by the amount of scale you have to build for. It also impacts the potential returns you will get and the price points you can charge.

Simply put, when you are preparing to invest or build some infrastructure like a broadband network or a SaaS application / platform you have to outlay enough to support scale while betting you actually will get that scale.

I’ll illustrate this with a couple of diagrams. Lucky enough in this example, the infrastructure can scale to well over 1 million usersLaughing.


In the first diagram the infrastructure provider has not achieved scale. What this means is that their only customer will effectively end up paying for the entire infrastructure bill. To keep it simple i’ll use round numbers. A $1m investment in infrastructure then gets transferred to that one customer (this ignores infrastructure running expenses, overheads, margins and other expenses which must also be covered). So the price is $ 1m and the market size/ opportunity small. Not many can afford it.


In the second diagram i am showing 10 customers subscribing to the service. This means that the price to them is only $100k. If you get 100 000 customers the price is $10. If you get a million customers and the price could be a dollar, but why would you? If the market is willing to pay $10 why wouldn’t you hold it at that level and aim for a million subscribers.  This illustrates pricing for infrastructure perfectly.

This is the power and paradox of scale. If you get it right you can make good profits which is economically reasonable because you are taking large risks initially.  Get it wrong then you’ve spent a huge sum on a piece of infrastructure and you don’t have the income to cover your costs.

How does this affect broadband & SaaS in NZ? Having a small population definitely impacts our chances of getting scale. Having huge cities like Tokyo and LA where there are circa 30 million people living in the nearly the same geographical area as Auckland's 1 million simply means that the Telco’s and SaaS providers there can get scale benefits easier. Added to that, these providers don’t have to worry about providing services the length and breadth of the country to get that scale, in fact they either ignore them or use the huge metropolitan based scale to fund the rural program. NZ doesn’t have that benefit. This isn't a "tired old excuse", just economics at work.  

SaaS  does have one potential key scale advantage over broadband. The internet isn’t geographically limited, so we could sell to these larger populations. In this respect Xero has it spot on, going after AU and the UK markets. The reason for this is scale, pure and simple.

Thoughts on SaaS aquisitions

Over on Smoothspan, Bob asks the question “when do the SaaS acquisition games begin?”. This got me thinking, about the why, who’s, how and impact of acquisition on SaaS.

Firstly, I agree with Bob, the market is young & fragmented. The impact of this on acquisition is quite profound. People will acquire for position rather than to consolidate because the market is still growing. In a new growing market there are only two strategy plays that really matter. A race strategy (get the most customers as first as possible). is doing this with its PaaS play. If you win the race you can turn the strategy into a position strategy (we dominate, have the most customers, are the most attractive to partners, new entrants, or have deep pockets for acquisition etc, have the most differentiation because of this is hence retain the position). Microsoft runs a position strategy for desktop apps.

Back to acquisition.  If you are already in the SaaS game, you are probably in a race strategy. Therefore if you have achieved a lead (to some degree) you may be looking to acquire to get further in the lead. Effectively buying customers or technology that will give you more customers (has a wow factor or fills out your stack & removes an objection). buying Kieden is an example.

If you are a SaaS player & haven’t got a lead, then you should be looking to be bought or you need to think about specialisation. You are loosing the mass market horizontal race so stop trying.

If you aren’t in the SaaS game, otherwise known as ‘being disrupted’, then you are looking to acquire a horse already in the race. The rumoured Oracle tie up is a good example of this.

If you subscribe to my two strategic views above, none of the acquisition moves are surprising. 

To me the most interesting part of the acquisition trend is what the acquirers do with the acquiree when they’ve got them. That is how well do they use the new asset to deliver on the strategy.  Both have they’re challenges.

If you are a SaaS provider on your own infrastructure (platform) then you are going to be forced with the challenge of integration. This is different from ’making them work together’ which should be fairly easy given that AJAX & webservices are cornerstones of SaaS & there are many instances of this around. But integrating two applications & databases onto the same platform is a big challenge to me. Identity management, billing, reporting, management ,  the DNA of the code itself make this a challenging task.

If you are a SaaS provider on a platform like Apprenda or then the integration task is easier, markedly easier. All (ok most) of those technical details go away because you are already integrated in the backend.These two plays also have the benefit of culturally being aligned behind SaaS, having a channel & billing model that is optimised for SaaS perhaps most importantly management. & remuneration models that support SaaS.

Legacy providers have a different set of challenges once they have acquired. Do they integrate it into the they’re legacy product like the S+S by Microsoft play? how do they run the business, how do they sell it , how do they manage the cannibalisation or disruption of the legacy business if they’ve bought an app in they’re existing space (Siebel & for instance). Perhaps even more importantly, how do they maintain focus on SaaS while running a legacy business.

Those who read my blog will know that I’m very hot on this. In my opinion if you don’t run the startup separate from the legacy, then the mothership will negativity impact the new entity.

Here is the analogy. Farming. Farmers know that the game is cyclical, that the tree’s that provide the most produce now are only good for a limited time and that they need continuously have new crops or replacement tree’s coming on board.  Those tied to cash crops for survival understand that they are in big trouble. Over farming means that eventually the tree will wither. If you continue with this behaviour, you will turn your land into a dessert (the Sahara is an example). Continuing on with this analogy. Those farmers that do have replacement tree’s usually grow them in a separate paddock. They do this so that the new plants have the best chance to thrive. The seedlings get the appropriate attention and aren’t shaded by the large trees.

Not rocket science and yet business continuously fail to adhere to this most basic wisdom. They often throw their innovation centre in with the rest of the business and expect it to survive (read the innovators dilemma for examples). When the harvest comes due (i.e. reporting season), these companies  run to the big revenue levers and neglect the startup, so it fails to hit its numbers and disappoints. Why? The people who know how to look after big tree’s often don’t know how to look after seedlings, or even worse see the seedling as a threat and actively work to stunt its growth.

All of this points to the obvious decision not to integrate the new SaaS acquisition into the legacy business. If the legacy business is serious about winning the race in the SaaS game, leave it alone. Let the SaaS business come to you with they’re requirements & give your legacy business targets & remuneration models that support this race.

Anonymity. The web and SaaS.

Ben Kepes and I recently locked horns over this topic. As you can tell I like having anonymity on the web. There are various reasons for this, but my primary concern is security and keeping some clear demarcation between my private and business life. I don’t blog in the weekends or evenings, nor do I work unless absolutely essential. I made some lifestyle decisions a few years back & have never regretted them.

It is my assertion that in my private life I can be web 1.0 or even (gasp) bricks & mortar,  while in my business life I can be 2.0 & think SaaS is the bees knees.

Ben conversely thought this paradox not only odd, but it represented a doomsday scenario for SaaS.

Let me start by pointing out various posts which hopefully will go some way to explaining my security fears. Steve Borsch does a great job of explaining the Google ‘threat’ and expands on this with some insights into data mining. Then there is the growing infringement of governments on ‘our’ data and viola, I feel vindicated. I know that the ability exists for people to piece it all together, but that doesn’t mean I have to make it easy for them. Shel at thinks this is being anonymous is lame, but I would suggest that anonymity is not only a right but a desired state for some (look at 2nd life).

So how does this affect SaaS? Well to me not at all. I am completely comfortable with cloud services in a work environment. I would love it if by some AJAX phenomenon someone matched my revenue with products that could aid me I or did something funky with my search patterns. I would love a tool that examined my calling patterns & suggested ways to save money. Or something that monitored where I & my Staff go on the internet to manage cyber-slacking etc……I just don’t want any of it in my personal life. I don’t want MS money analysing my spend patterns,  knowing how much I earn & doing any product matching based on their knowledge of my search & surfing behaviour.  That is too intrusive to me, that kind of scenario opens up the world painted by Fake Steve Job’s here.


It will make the old Bell System crooks look like amateurs. The guys running the cloud will control everything: phone, data, video, television, movies, music.

That’s ok in my business space which is open to compliance & monitoring & all those things. But in my world, it’s not ok in my personal life. And like I said, I think I can make these two work quite happily.

This is outrageous

I normally refrain from commenting on New Zealand politics but i'm sorry, todays article quoting our moronic Finance minister has gone to far.

Finance Minister Michael Cullen yesterday put the acid on employers to do better in closing the wage gap with Australia rather than expecting tax cuts to do it.

"Yes, we should aim to close the wage gap with Australia but we should do more than talk about cutting taxes to help us get there. The Government can only do so much – business must also pick up the challenge."

Excuse me? Now I am and employee and even i can't stand the hypocrisy of this statement.

In the last year hasn't this same Government 1) had a massive tax gain on petroleum? 2) Increased employee holidays by 33% (and hence costs) 3) Added a time in lieu overhead 4) increased compliance costs 5) Pushed our lack of savings onto employers by making them contribute to their employees Kiwisaver funds 6) Let our economy get so out of control that our interests rates (for borrowing) and international buying rates (against the USD in particular) mean profits are way down? And now they have the audacity to push their poor record of holding onto our talent here in NZ onto the employee….



Is SaaS more than just the app?

I’ve been thinking a bit about the trends going in the SaaS world and I can’t help thinking that we are all missing a trick or two.

Firstly lets get the rough tends out of the way.1) SaaS is becoming more mainstream and is being adopted all along the company sire continuum. 2) platforms and PasS are increasingly important. 3) Big players in software and Telco are moving into this space. 4) SOA isn’t separate but intrinsic to SaaS 5) market consolidation


My problem is that all of this activity is focused on the application or platform. The picture above is from and is a great example, Apprenda another. This focus doesn’t actually take into account the end user experience. It also doesn’t give the user any service level guarantee’s.

In this second diagram I’ve painted a simple picture of all of the elements involved in the end user experience (and by proxy their satisfaction with SaaS). You will notice a whole lotta real-estate between the platform and the end user which is unmanaged. What is the point of a five 9’s datacentre and platform if the net is down, the router on the fritz or there’s an issue with the end device.


To my mind a good SaaS provider should be interested in this additional real-estate. It represents a space that If MANAGED could be a point of differentiation. A way to get the mass of the adoption curve past their current hurdles and a way to provide businesses (who are putting up mission critical information into the cloud) some sort of SLA (and by association reassurance). It also represents the next evolution of maturity in the SaaS model, SLA’s. Its because of this that I think the increasing involvement of ICT businesses (typically Telco’s who are playing in IT ) in SaaS is of massive importance. It seems to me that they alone can put all these bits together and hence provide the SLA’s that must eventuate.


More on Media

This from Nick Carr

Behind Microsoft's big bid for Yahoo, I argue in a column at, lies a bigger shift: the transformation of consumer software into a media business.

 This to me is conspiciously like my proposition of music in the clouds (or my tongue in cheek version  -MaaS). Just coming at it from a the other end of the continuum.