A funny thing happened when Apple and Google built their app stores…

They unwittingly built a massive new revenue stream for Microsoft….

According to Microsoft, OneNote had something like 15 million downloads from  Apple ‘s app store to the iPad.

Think this thru. If you are MS, someone else has solved the riddle of how do you get your apps on more devices and to more people. And what is more, you don’t really have to go thru the massive change this disruption has driven, because depending on how much you squint, you are litterally just cutting application code just like you aways did.

Imagine if you could buy one instance of Word, ppt or Excel instead the deplorable bundle that we’ve had for the last 20 years…. Micro payment based growth….

Weird, what the world does sometimes

Playing by the rules

Every industry has an unspoken set of rules that govern how you operate, compete and play. By rules  I’m not talking about the legal structures we operate under or collusion.  I mean the mutually arrived at sort of symbiotic rule set that allows everyone to co-exist and eek out a profit.

These rules get reinforced by the industry over time by a process which I think is best described as collective thought. Basically all the players have the same information, probably the same people moving between companies, and eventually they all seem to think the same. Something to the affect of ..“We make money from X, so don’t do Y or we’ve ruined our own market…”

All this is fine if all the combatants are playing the same game.  But just recognise that in doing this you are probably leaving profit on the table, you are also horribly exposed when someone enters your game and starts playing by different rules.   

Google is one of the great rule breakers. They didn’t play by the advertising industry rules, neither did they play be the desktop application rules, they aren’t playing by the Telco voice rules, Rupert Murdoch thinks they aren’t playing by the media rules.  

So the question is, what rules do you adhere to in your industry? How could you exploit these? Perhaps even more importantly, how could you be exploited?


Proprietary or open standards– where economics and philosophy collide

There has been a fair amount of commentary within the cloud community about standards.  The view is that for cloud to really take off we need vast interconnectedness, and the lack of standards, is somehow holding us back.  Possibly…

Thinking about cloud computing from a developers point of view, this absolutely resonates. But if you think about if from both a buyer and a provider view point…then I think that vertically integrated, proprietary systems are exactly what we need…in some cases.

Those cases being where the current cloud offering is not quite good enough in the customers eyes. That is, there is a functionality or reliability gap between the current offerings and what the majority of customers want (this changes by customer). 

You could argue (which I am) that recent outages like the ones at Sidekick and Google  create a perception in customers minds that the cloud isn’t quite there yet. Its "not good enough".

Because of this, I think cloud providers need to be using proprietary technology that is vertically integrated. By doing this the provider can control what happens along the whole system, which will address the reliability or functionality gap to some degree.  This is good for the provider because in the market you have an advantage against the competition and hence win customers. It also allows you to find the elements that are still causing the 'gap' and incrementally address those.  I think the poster child of this approach is Salesforce.com. In terms of cloud providers, they are top of mind (to me at least) for reliability and functionality.

Now before I get flamed as a heretic, there is absolutely a time and place for an open, standards based modular approach.  To me these traits become important when you stop being able to win the competitive game based on functionality or reliability.  When those things become table stakes and customers are demanding ever more customised offerings, then you need flexibility, creativity and speed. You can’t do this using proprietary vertically integrated systems. You can’t be nimble enough, creative enough, customised enough and of course relevant enough with a monolithic approach.  In this world, open standards are absolutely required.  Just look at the struggle Telco’s are going through as they try to remain relevant.

Because this is a question of timing, there is bound to be tension about this issue. Its exacerbated because ‘cloud’ is so broad, some parts of it are way more advanced and probably should be moving to a modular approach, others not so much.  To me, if you can step aside from the philosophical argument and instead focus on the customer requirement (make it good enough) and how you can compete (ie make money) from cloud the debate looses its heat.

The internet, the great business facilitator.

I’ve just read a fascinating article by Tom Foremski  called “ The internet devalues everything it touches”. It raises some great thought provoking points, it’s also slightly off base.

Let me explain. The internet is what it is, a massive and cheap to use platform that connects together many millions or billions of users.  The value destruction component isn’t a function of the internet, it’s a function of how people are using it to disrupt entrenched business models.

If you look at the examples mentioned by Tom, they all relate to some form of distribution efficiency. The simple fact of the matter is that for digital assets, the internet is more efficient at moving stuff around than roads, rail, shipping or retail stores.  The take away is, that if you are involved in traditional distribution and the asset you move can be digitised, you are in trouble. You will be disrupted.

I think it is important to note that it doesn’t have to be value destroying, check out what Amazon has done to the book value chain. Sure they’ve brought down the price, but more importantly they’ve removed stages in the value chain and absorbed their contribution while eliminating their cost.  In effect they’ve made book retail more profitable, and because they did it, they took a larger piece of that profit…nice work if you can pull it off.

Amazon knows what its business is about

“The Business of Delivering Stuff

Amazon is a master of the supply chain”

That’s why they got into Kindle. The digitisation of print, combined with the (nearly) free distribution of the internet is in fact the perfect business model. It so grossly simplifies the distribution of the asset, that the profit pool expands even though the revenue might contract.

There are other examples of this in action. Many look like companies buying up companies to create vertically integrated solutions, but I think it is more about optimising distribution COSTS.

Level 3 bought the Content Distribution business of Savvis, which on the face of it looks like a vertical play. But when you look at who Level 3 already service (Youtube in particular), this looks less and less like a growth play and more like a play to optimise (content) distribution and its associated cost. I suspect that Level 3’s business case would have stacked up on the cost out alone and discounted any upsell!

Google today announced its intent to buy On2. Why? Well in the Youtube value chain Adobe flash became a cost liability (both in terms of licensing and processor). Google already has the massive distribution of the internet going on, so what do they do? They vertically integrate by acquiring an asset to streamline out some cost. The internet didn’t destroy that value, all it did was facilitate distribution.  Google can choose to absorb the cost as profit or pass it through.

The media companies will probably disagree with the above example, but then their historical value was in distribution wasn’t it?

To me this is just disruption in action, in this case the internet is the facilitator of the low cost business model.

Is attitude more important than technology?

I’ve been thinking for quite some time about what you have to do to be successful in cloud computing and SaaS. The more I think about it, the more I think that the attitude of the company is this defining characteristic.

The technology, while no small feat to get right, just seems inconsequential when compared to the attitude of a company.

The attitude defines how the company behaves, it gives it focus and unity. It gives clarity about what that company will and won’t do, and how it does it.

I personally think that the {mosimage} logo Salesforce.com used defined SaaS, especially as they strived to make the market. By taking on the entrenched software model they gave their staff a clarity of vision the majority of vendors lack, their sales channels knew who and what they were selling against, their clients knew what they were offering.

{mosimage} ProWorkFlow,   while also being SaaS, are different. The small amount of dealings I’ve had with them struck me by their clarity of purpose. They are proud of their lean model, they were crystalline about their direction and what they would and would not do technically. 

When you compare this to the clumsy attempts of Microsoft, Google or SAP you have to wonder what is holding them back. It’s not for want of clever people, or money, or mindshare. 

I believe its their attitude, they're either trying to do this ‘cloud stuff’ on the side, or their hearts aren’t really in it.  


Cloud computing evangelists are high on the fumes of their own vitriol

Warning, this is a deliberately provocative post. 

I take exception to some of the self perpetuating myths that the cloud bloggers are continuing to expound. Things like this from Krishnan on cloud ave.

“If internet connectivity is the issue, we should focus on making existing technologies to solve the problem , like Gears, better. We should strive to force our ISPs upgrade the network to meet the demand. Using software is not a solution”

What a lot of trot. Statements like this show how fundamentally divorced from reality these bloggers are.   Here’s why;

1)    Cloud services are not new. Get over yourselves. Dennis Byron describes this very well  here

“Cloud computing is not "the next big thing." It is "the first big thing" finally done right in the sense that all the stars are now aligned to deliver on the promises of the 1960s.”

    I would also add that network providers like Juniper, Alcatel and Cisco have been doing this virtualisation ‘stuff’ for 20 years.  The wake up call to the cloud computing industry is that they  can help you a lot in sorting this out because they’ve already been on this journey.  They also look at the complexity of offering IaaS and see it as quite trivial compared to what they already do.

2)    All these cloud services are based on software, it’s the thing you connect to at the end of the network.Be it fixed or mobile, there is still software there!

3)    You cloud / SaaS guys have no chance of “forcing’ ISP’s” to do anything because you are economically irrelevant. That’s right irrelevant. IDC believes the total market for cloud computing in 2008 is $12bn, if you are lucky you might be $42bn in 2013. That compared to the $1trillion of global Telco revenue is inconsequential, its barely a day’s spend for the US bail out fund.

4)    Cloud computing, as Krishnan and his peers envisage it is a parasite on the networks of these Telco’s.  Krishnan to his credit at least recognises that there needs to be a network, many don’t. But what they don’t realise is that their current business model exist solely at the benevolence of these Telco’s.  Google is exactly the same. The technology has existed for years that means the Telco’s, if they so wished, could block Adwords content.  Google for all its talk of net  neutrality knows this very well, for that reason they are diversifying their business as well as adding network capability themselves. There is also strong rumour within the Telco community that Google has financial arrangements in place to ensure that such blocking doesn’t occur. (no source, just rumor).  This is the case for a very real reason.  The internet (and all other networks) cost loads of money to run. The average Telco spends 10-15% of the revenue on capital.  That’s $100-150bn spent per annum to provide this network. Spends of this nature need to be recouped, & cloud computing companies better understand this because they are going to be asked to pay their way, guaranteed!

5)    My final point is that the internet cloud brigade seem to fundamentally misunderstand customer requirements. For cloud to become truly mainstream, the providers need to be able offer SLA’s. Not uptime guarantees, but end to end SLA’s.  While the cloud pundits have forgotten this, customers certainly haven’t. This simply isn’t possible with the internet, it’s a massive shared pool and anything goes. But cloud computing delivered over private connections enables this to occur. This is a fundamental shift in cloud computing that simply must occur. It will have major implications too. It will shift the business model to service providers as the aggregators. It will enable hybrid internal – external clouds to happen. It will also regionalise the provision of services to accommodate local security laws.

This diagram shows my view of how IT will be segmented over the medium term. This segmentation reflects my points above. There will be folks that are ok with an internet model for a few services, but this will become a small subset of the cloud computing user base. In my opinion most will be in private and hybrid cloud space due to the enhanced security, SLA’s and control it offers. There are also strong economic benefits. Some things will never shift out of the firewall.

We’ve just had a glimpse of the future of PaaS

A fascinating week in terms of the evolution of PaaS, cloud computing and SaaS has been upon us. I wonder if people noticed? The two big items that I saw were the collapse of Coghead and the hypothesis by Phil Wainewright as to why Gmail in Europe went down.

While most commentators are highlighting (and rightfully so) the impact and risk PaaS could provide on customers, I saw something very different.

Let me role this out as I saw it

Firstly it is increasingly obvious that PaaS and cloud computing is a very long way from being mature. I say this because of a number of factors. Just look at the market, everyone is racing to achieve scale. If that didn’t tell you it was a new market nothing will. There is also a general lack of standards (no two platforms are the same), evolving business models, a lack of channel maturity (who is wholesaling to get scale?) etc.   It seems to me that PaaS providers need to truly understand what the ‘P’ bit means. Get clear on the role of a Platform. Historical evidence would point to the fact that you can’t have a plethora of ‘platforms’ in the same space. There is only 1 ‘internet’ (the network guys will hate that), HTTP and its evolutions is a platform of, smpt another. This is true in other industries too, Telco (Bell, BT, Telstra), Rail (take your pick), Banking (two big credit card schemes globally) etc. In this regard I 100% agree with Jeff Kaplan, we are going to see a lot more consolidation. Economically this just has to happen for any of the PaaS providers to make any serious money, somebody has to get to true scale (60% market share).

Counter to this scale based play is regionalisation of data.  Geo-fencing isn’t new, ask content distributors, but how this works in a converged world is. This same phenomenon has been highlighted by the global economy. Up until now, I don’t think people truly realised how intertwined and boundrieless economies were, that’s changing fast. Similarly PaaS attacks this notion of nationhood. Google has no data centre in my home country, how then do they enforce our sovereign rules on SPAM, privacy and data protection? They simply can’t. People have commented on this effect before.

So then what is the future that I saw? I still believe you will see the emergence of one dominant PaaS player, but there will be one in every region or country. I think this will happen for a couple of reasons. Focus, big companies tend to focus on big markets first (elephant hunting or bang for buck). This gives the rest of the world breathing space to home develop a similar offering. Trademe is a great example of this. The second reason is regional legislation differences. While technology standards may eventually emerge, legal standards take even longer. 

If you believe this, then you will see one large player and one mid-to-small player emerge in every geography and be quite successful. For some services (maybe low end consumer stuff) you will see  some internationalisation impact (that horse may have bolted), but not so on the wealth creating business segment. I also think you will see a bunch of small niche players emerge who have specific domain expertise. I also think that all this is likely to occur in the next 2 – 3 years. 

Any other  views?

How you define your business has large impacts

Let me frame this with an real life example.

My partner and I own two small businesses, configure express woman’s gyms. Like all small traders, we often have to put a lot of trust in our staff. Occasionally this doesn’t work out, the classic case being when someone doesn’t turn up to open up for business (gyms start early!)

Now, if they are the only person on shift (which happens), we currently have no way of knowing that the business isn’t open which is absurd because we pay a company to monitor it for break in’s etc. But, THEY WON’T OFFER US A SERVICE TO TELL US WHEN THE PLACE INSN’T OPEN despite us asking.

Why not? Well they answer thus, “we’re a security company, that isn’t what we do”.  Which is true, but they have a system on premise already that can tell when people are in the building, their system will alert them when the alarm hasn’t been set at the right time of night, their system will even tell them to call the premise if the alarm is unarmed at an odd hour.

If they simply redefined their service offering as “we’re a monitoring and alerting company” then bingo, whole new market proposition, market differentiation and even more important, more money for virtually no extra work.

To me there is a strong lesson here for all businesses, even our gyms. Think about how your collective definition of what you do shows up. Is this still relevant? Can, with a small tweak you create even more value.

Some examples for you,

We’re in the weightloss industry  OR  we’re in the beauty industry or the health industry

We’re a CRM company  OR we’re in the PaaS industry, or we are a hub for SaaS applications (salesforce.com)

We’re a search company OR we’re in the  business of ordering the worlds information (Google)


Which is more powerful, relevant and commercially sound?

So what industry are you in?

SaaS is here to stay.

Ok, lately I’ve been grumpy, a curmudgeon by Smoothspan’s definition. Apologies, two kids under 3 can do that to you. So in a new vein, I wanted to point out a few things to the SaaS naysayers.

This 'thing’ isn’t a fly-by-night phenomenon. It is a trend that has been underway for nearly a decade. Take a look at the formation dates of Salesforce.com, Netsuite etc. Same as Google near enough! No one’s saying search & online advertising are flights of fancy.

SaaS companies are making serious money these days. Salesforce.com is the largest, right now they are a billion dollar company. That puts them inside the top 25 largest software companies in the world (interesting that SFDC doesn't show in that list). I’m guessing, but I would say at 43% they are the fastest growing of those 25 too…. By the way, just for those who think SAP is growing annually by the entire SaaS market. They are only 8 x bigger than salesforce.com & last I heard I struggling in these ‘tight’ financial times. The same times that salesforce.com grew by 43%.. . .

The market as a whole is going gangbusters. Growing at 20% CAGR according Gartner, and is currently a $6bn industry. An industry that big isn’t an ephemeral thing.  Size matters. Market penetration matters. This report shows just how much it matters in he US market.

Some key findings include SMBs spent USD 3.2 billion on SaaS applications in 2007, compared to USD 5.3 billion on packaged software; by the end of 2008, more than 55 percent of businesses based in North America will have deployed at least one SaaS application, with Europe close behind at more than 40 percent; and the SaaS market in Asia will reach USD 1.6 billion by 2010, with a CAGR of 66 percent.

Hype Cycles are often used against SaaS, “oh look, you are just on the peak of inflated expectations”. My answer, no… more like on the  slope of enlightenment. How? Well the much maligned (and deservedly so) first iteration of SaaS was the ASP play. Yip, that was the first crack at this market, and yes it did disappoint. BUT technology and business models have moved on, and are now at the point where the faults of the ASP model aren’t valid anymore. Some purists are likely to take issue with this whole statement, but think about it… it is the evolution of the business model.

Investment in SaaS is an indicator of its maturity. There are oddles of cash being thrown at the SaaS market. Even more compelling is the movement of incumbent software companies into the space (Microsoft, IBM, Siebel, SAP, Symantec, CA – all in that top 25 by the way). When these guys move you can assume that the market is mature and becoming mainstream.

Momentum is changing in the blogsphere too. I use Google Alerts as a tool to catch stuff I don’t normally subscribe too. I’m amazed how many posts I see defining or describing SaaS, trying to pin point why it’s a winning proposition, or what makes SaaS so different. Things that were going around 18 months ago are being re-litigated much to my  frustration. The imperturbable Ben Kepe ’s helped me to see that this was the journey, mainstream or even laggards catching up. Now these alerts say something different. To me they mean momentum, to me they mean mass acceptance, collective awareness of SaaS is happening.

But the most compelling factor in this whole diatribe, the one irrefutable truth is that customers believe in SaaS and are voting with their dollars. The proposition may vary slightly, but the appeal of rapid deployment, low up front costs, and lower ongoing costs and for what you use is just too compelling.

So to the SaaS detractors, check the facts, you cannot argue with those. SaaS and on-prem will co-exist. I don’t believe that you will ever eradicate on prem software. But when you take emotion, job preservation and ‘doctrine’, SaaS is an easy choice for many applications. For that reason, SaaS here to stay….

Does brand matter?

This might seem like a silly question, most marketers (which I am) will crawl over broken glass to tell you that its everything And to some extent it is. (Seth Godin’s post on Hunger is brilliant at describing JUST how powerful). But picture this. In a SaaS framework, especially where you are taking a utility service, does the brand REALLY matter?

I was reading the comments on Mary-Jo Foley’s post about sharepoint in the cloud and was struck by the intensity of the brand dislike coming through. Classic anti-Microsoft vitriol. But if I wanted I could find the same on Google, opensource products etc.

Given that any decision to move to a SaaS application should include the ability to extricate yourself and your data from that provider, does the brand thing even matter? Consider email as the example. Most would agree its a utility application, valuable but utility. If you get antsy with what you get from Google, move to Zoho. You get Antsy with Microsoft move to Zimbra. You get the picture.

In that world, does the brand actually mean anything? Do you know what brand of road you use? What about the tap water?  Does the provider’s brand mean the utility provided is any different from their competitors? What about if you bring your historical perceptions to the table in a SaaS world, does it make a difference? Really make a difference?  Why would you pay differing amounts? Would you fall for the marketing?