The ‘what’ is easy, try taking on the ‘how’ and ‘why’

I'm a veracious reader of blogs, perhaps not like a Robert Scoble , but nearly everyday I'm looking for tit-bits of knowledge.  More often that not this follows a process of eliminating noise and zeroing in on a few blogs a day, maybe 2 from hundreds.

Thinking about what makes me focus on those two blogs in that day, they fall primarily into the  'what' category, and ever so rarely the 'how'.

'What' blogs tell me stuff, IBM taking on Amazon for instance. Interesting but with out a lot of context.

 The 'how' blogs are much more useful. By learning from those who have gone before I don't have to make the same mistakes. Blogs like Ben Kepes and Phil Wainewright's on Ariba's journey through disruption provide huge insight for people.

The third pillar of knowledge is the 'why'.   As a strategist I hold tenaciously  to the belief (knowing sometimes i'm dreaming) that companies do things for a reason. Understanding those reasons is critical to decoding what is going on.

These three facets form the pillars of knowledge, and to my way of thinking, they increase in value as you move down that list.

 So my challenge to you all out there, if you are going to take the time to blog, provide your readers with value. Get past the what, move into the how and why….



PS – I set out to make this a 'how' and 'why' post…. did you find more value in it?

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?

Zoho – another approach to sustainable growth

Phil Wainewright put up a very thought provoking post this morning, speculating if Zoho could outgrow A worthwhile read, the stand out bit being his summation.


A disruptive model? Just as’s CEO Marc Benioff dismisses conventional software vendors such as Oracle and SAP as dinosaurs on the verge of extinction, so Vembu looks on’s high-cost, premium-priced model (in comparison to Zoho’s) as a throwback to the days of old-fashioned enterprise software.…. Meanwhile, Zoho’s decision not to turn to advertising as a source of revenue is also appropriate for the business market and a useful differentiator against Google, the other big player making headway in that mass SMB sector. On balance, Zoho’s model offers enough value to an underserved market to qualify as disruptive and its state of preparedness for a difficult economic environment could well see it emerge the other side of the coming recession as a leading player.

This got me to thinking. So far most of the we dialogue on financial models has been based around a number of streams

  • Freemium models seem to be getting the most coverage, is an example. I was never that impressed (Ben Kepes has a good piece here on why), with the credit crunch i’m even less inclined to believe in this and tbh i’d be amazed to see this one survive in any meaningful way.
  • Advertising supported  – Google is the poster child
  • Traditional pay as you go models –

There is another way to get scale, then monetise internet assets, funnily enough it’s a variant on the Google model and its being used by Zoho.This approach is to use an existing revenue engine to fund the growth of the start-up, in Zoho case its Adventnet who are funding Zoho.The interesting dynamic here is the financial impacts. No credit you see, organic growth but with no debt. I don’t believe people fully understand the economics at play here. The scale challenges a startup have to conquer are enormous, but when you get there your marginal costs plummet and accordingly your profits go up.  Check this from Zoho. Google and Microsoft have clearly reached scale (in their own markets), hasn’t… yet. I’m told that their PaaS play is starting to really reap benefits, huge customers signing up, customers putting Tb’s of Data thru a day. All driving EoS.

Back to Zoho, the more i look at it, the more i like the model. Self fund to scale, charge for premium services, consider a slow introduction of pay as you go later (i’d put in an easy migration path for those who aren’t ever going to pay). And keep in scaling. Its Amazon’s mantra all over again, ‘GBF’ “Get Big Fast”, but without the debt and a fairly logical path to monetisation.


Can Google go Enterprise?

There’s a growing opinion that the answer to that is no. Om Malik got stuck into gmail last week.


How is one supposed to run a business on such an unreliable platform? The integration of Google’s services remains a distant dream, reminding us of the limitation of its competence beyond search and advertising.”

Today Phil Wainewright posted about Sergey Solyanik, [a?] development manager at Google who has gone back to Microsoft because “he values reliability far, far more than coolness”.


Sergey point according to Phil is that Google’s emphasis

[is] on building Web properties that are popular, but which “primarily help people waste time online,”

Its interesting how we pidgin hole companies. Google is a technology company for sure, but they are a technology company that does online advertising really well.That's it.


Is it even reasonable for us to expect them to be able to deliver on-demand business grade services?   I rather suspect that for Google to deliver other (any?) applications is a stretch because of the same barriers that all entrenched, incumbents face. Culture, resources, big revenue levers getting attention etc., etc.


The evidence seems to be growing that Google is lacking something when it comes to building business grade, on demand services.  

Has SaaS become what it disrupted?

I read a piece about 2 weeks ago that gave me one of those moments. You know, when a whole lot of pieces fall into place and your mind races. I was entitled 

You Become what you disrupt

 Since that moment i’ve become increasingly aware of this trend in the SaaS world. (Its like when you buy a new car, suddenly all you see is the same car). Its my contention that SaaS has itself fallen foul of some of the very (bad) traits it set out to remove. All for sound economic reasons, but the proof is there.

Lock in – ,,  (plus a whole bunch more ). Here’s a list of the glittering stars of SaaS, internet and PaaS. All going after lock in. Tim O’Rielly comments on the Google App Engine.

Keeping the internet as an open platform is a choice. We didn't understand what was happening to the PC ecosystem, but we've seen this movie before, so we should recognize and fight this plot line when we see it happen on the internet. We need to keep our cloud services vendors honest, and tell them we want an open, interoperable platform, not one based on lock-in.

 Bob on Smoothspan suggests that Amazon should more aggressively move toward lock in to further its financial success. Hmm,  I thought lock-in was so last decade? Isn’t one of the tenants of SaaS the way you can change vendors easily?

 Interoperability. Hey software vendors, get this. We want our applications to work together!  Have a quick think about why Microsoft desktop applications are so wildly successful. They did two things – 1) they made it simple to use. The leap from DOS to GUI was massive in making PC’s mainstream. Secondly they made all the programmes you commonly use work together on the same platform. Its my understanding that way back when they brought the various services like word and excel together one at a time (the argument about how successful this was done is irrelevant for most people). They made it easy to do.

Fast-forward to Monday, SaaS commentator Phil Wainewright went into overdrive about the SFDC / Google Apps integration. Saying a bunch of stuff including.

This is a showcase for on-demand integration. Salesforce for Google Apps is a close integration of two distinct on-demand application stacks, in which both applications can continue to follow their separate upgrade and evolution paths without breaking the integration.

(In the interests of honesty & integrity, so did I about Salesboom .)

But think about that. So basically your saying wow, you can integrate two apps together. Ummm so like integrating your SAP GL with CRM from Seibel. Or how about Payroll with Accounts. Ok, i’m assuming it happened a bit quicker, but the mere fact that Phil is trumpeting this as a major event is…well sad.  This isn’t new, way back it used to be called EDI, then that became unfashionable so it became integration, then webservices and the latest mashup. Sorry, but I would have thought in a 2.0 world this was EXPECTED.

Identity, look at what is going on here. The fact that OpenID exists is to address the same issue users have been fighting since application silo’s were in nappies. The nirvana here is single sign-on. IMHO Google’s suite of products is so useful because i’ve got identity federation across them. This still isn’t addressed. Take the iPayroll / Xero example above. They got database integration, no identity bit. To the best of my knowledge none of the vendors allow for single sign-on (does Does anyone?)

 Proprietary systems – ok here (with one large noticeable exception) SaaS providers seem to be doing quite well. The ability to create customisations (widgets or whatever) seems to be quite universally applied. My question is (and the point of this post), for how long? Using history as an indicator, this free for all can’t last. For a couple of reasons. 1) Vendor share, someone will dominant and change this. You’ll be able to write customisations, but for one company not many. Then you’ll see a bunch of small companies writing auxillary apps for the core… anyone? And 2) Commercial pressures, freeware just don’t cut it. Ad funded apps, well for the time being ok. But the relevance of Adwords is declining, surely that makes that model questionable?  Sooner or latter the market is going to come under pressure. That means a couple of things, consolidation and pressures to retain (lock in) customers…

So has SaaS failed in becoming like the old established players? Who has it failed? Was it all inevitable? Am i way off base?


SaaS channels and the VAR market

On the back of my previous post on SaaS companies profitability as well as some good analysis by Smoothspan about the costs of acquiring customers i’ve been thinking about the various channel models available to SaaS companies.

The general market perception (and some GM’s too if truth be told) is that SaaS is completely sold through the online channel.  This is blatantly untrue.

From the SaaS providers point of view that would be great. If the client found, tried, bought and self served themselves online, the cost of acquisition (excluding the marketing budget), provisioning and supporting a customer would be very small. for instance has a good segmentation model in place, they then pursue the clients in each segment with the appropriate cost channel. SMB’s are done through a mixture of small partners, telephone reps and online channels. Medium enterprise and corporate channels through a direct sales model and SI/VAR (which for simplicity I will just refer to as SI). The Smoothspan analysis proves one thing, the key to a SaaS companies profitability is matching the cost of acquiring the client to the value that they bring in.

Linking back to the SI market I think it’s erroneous to make statements like SaaS will be the end of SI’s. The reasons for this are many. As pointed out by Hari Nair, the on-premise model isn’t going to disappear. I believe my post about how a passionate belief in one approach creates extreme views still holds. The market reality is that clients will adopt a more moderate (and workable) stance for their business. SaaS will continue to successfully address point solutions, will creep into other business areas over time. SaaS will continue to require someone to recommend, integrate, configure and promote business change. Given that SI’s have been doing this for decades, they’re the logical choice to continue on.

I think more critical to SaaS companies is the yet to be clearly understood value of the SI in the ME / SMB space. You won’t be able to displace the SI in this space for one vital reason. In many instances, the systems integrator is the IT department for the client. They are the trusted advisor, in many cases the only advisor that a customer will turn to. 

Unless SaaS companies win over the SI with a compelling offer and support them in selling their software / service the SI could to torpedo every sale.( Phil Wainewright’s post about MS CRM play is a classic example of a SaaS provider (MS) getting this wrong.) In fact I would take that a step further. If you come across a customer who has such a trusted SI advisor, you will in fact be selling to the SI, not the end client. So if you don’t get the proposition right to the SI, you are wasting your time.

In terms of partner channels, the right mix of upfront and ongoing commission needs to be found. The upfront is to placate the sales person who is classically coin operated. While the annuity revenue (the nirvana of all business) keeps the CEO and shareholders happy. The annuity revenue streams also gives the SI a chance to revisit the customer, which if you have a portfolio of services is extremely important, as it would be nice if the SI sold more than one core component .

None of this is new, and it’s certainly not rocket science, the channels that exist for SaaS companies are the same as any other software business. They are all viable and potentially very valuable. The mix is the important bit.  

SaaS companies too will learn that it’s simply not financially possible to sell to every client. This in turn will mean that they will have to build robust partner channels. My advice, look to how the traditional software companies did it, therein lies the gems of knowledge garnered through many skinned knees. Mistakes you could avoid …