The results of the CRM poll are up

A few weeks ago, Lauren at Software advice ran a survey on the on-demand CRM market. Well she’s just posted up the results which clearly show that  Salesforce.com is the percieved  the market leader.

If top of mind position is any indicator of future success (and marketers will vehermently assert that it is) then Salesforce.com clearly have the wood on their opponents.

The analysis about whether or not Oracle will acquire Salesforce.com is quite interesting.  The consensus opinion being that this won’t happen.

All in all I think this is great stuff for the Cloud industry. I know its only a small sample and probably screwed by online centric folks, but it does point to the coming of age for SaaS CRM. Something @benioff has probably known for  a while… Salesforce.com is not only a comparable enterprise ready product…. in many instances its a far superior offer.

An interesting side question: Is this superiority specific to Salesforce.com or generic to the SaaS model?

Cloud, or X-as a Service is not the end game.

I’m a  big fan of cloud computing, over 2 years ago I wrote that in my opinion “SaaS was here to stay” because it was a natural evolution of traditional IT. In fact it was ICT, finally fulfilling its TCO promises.

But its not the end game. As good as it is, I think that the phenomenon has unwittingly instigated its own demise…

I think, businesses have been given a taste of value, and that this will be the key driver for change. At the end of the day, CEO’s want outcomes. They are raving about “service” now (which only highlights what a failure the traditional IT model has become in the business users eyes), but soon they will demand more.

I think that the next big thing will be outcomes. Business lead buyers (our new reality), heavily influenced by consumerisation, will move on and focus on how what you are selling achieves their outcomes.

“You take our CRM system, and your sales efficiency and hence revenue will increase to ..”

“Buy and system to collaboration, and productivity per employee will increase by 15%”

At this point in time, people buy technology to create a system to deliver a business outcome. Not the most efficient supply chain.

The trend toward technology becoming irrelevant is already in train, paying for the technology is next.

"Outcomes" the next big thing…

SaaS providers, know your business.

A cross posting with Cloudave.com

 

I’ve always viewed SaaS as a disrupted technology, and I mean disruptive in the classical sense as outlined by Clayton Christensen.  Looking at the SaaS market though, I can’t help but wonder if the a good deal of SaaS companies don’t fully appreciate this.

By this I mean, they don’t seem to appreciate the macroeconomic forces they are playing with as well as the customer needs they are addressing.

Not wanting to do Clayton a disservice, but I’m going to quickly summarise my understanding of disruption and how it occurs.

  1. There is an incumbent business model
  2. These incumbents enter into a cycle (arms race even) of continually adding features to their products in an attempt to keep adding value to the clients, and hence maintain their pricing.
  3. The cycle continues until you get to a point where the products are over spec’d compared to client NEEDS or even requirements, and accordingly over priced
  4. Then someone finds or offers an alternate product or delivery method, which is much cheaper and actually more suited to the clients  real needs
  5. The incumbents, talk to their clients (who have sunk investments and a political agenda to support their buying decisions) who say they aren’t interested in this new product approach etc. The incumbents completely miss the new trend, because hey…the customer base aren’t asking for it.
  6. The disrupter gains a foothold in a niche part of the market, gets scale over time and eventually becomes acceptable to the mainstream. They then enter the arms race cycle (they are the new incumbents), while the old incumbents struggle belatedly to meet the market…

Phew… all this is shown in this picture (from Wikipedia)

 {mosimage}

So back to today’s SaaS market and my assertion that many of the players don’t fundamentally get this economic and market dynamic. Here is what I see

  1. Many SaaS providers seem to be targeting the mainstream market, not the niche. You can tell this because they are going after current incumbent providers customers….
  2. They are over specifying their products. That is to say instead of understanding the niche’s absolute needs, they’ve attempted to offer  like for like functionality when compared to the incumbents product. My guess is because they aren’t targeting niches
  3. Their pricing isn’t disruptive… in some cases its not that cheap. Instead they are banking on other levers like speed to benefit, opex not capx and the other regularly articulated benefits of SaaS

 

Based on my assumption that SaaS is still early in its market cycle ( 2 minutes into the first quarter of the game ), by acting this way the SaaS companies are missing the greater opportunity and literally giving the incumbents a breather.

I know some SaaS providers aren’t playing like this, to those that are I would say this. Know your business,  

Step back, think a little, be the disruptor. Ask yourself

  1. Are we better suited competition head on with a SAP, Oracle or MS with their huge resources, channel and marketing engine, or going after those customers who have a more basic need, haven’t bought a product or literally hate the incumbent price model. I would contend that there are a bunch (the vast majority in some markets) of clients who’d love some basic HR, ERP or accounting products (for instance) who can neither afford the entry price or the ongoing maintenance and are ‘making do’ or deferring another year
  2. What features does this niche really really need?  I bet its not 30 massively configured modules requiring 50 servers,  and a team to implement and manage
  3. At what price can you offer this much simpler product?  Make sure its more than it costs you to make and ensure it’s a lot cheaper than the traditional providers. You need scale to win, price for the long term.
  4. Who can you pre integrate with to offer a broader offering (instead of building it all)

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.  

Thoughts?

Telcos will be a force in Cloud Computing

This is a cross post from Cloudave.com

Ben Kepes asked me to write my thoughts on Jeff Kaplan’s post Can Telcos dominate cloud computing, in which Jeff argues, that based on their history, this is 'unlikely'

 While there is nothing wrong with delivering reliable services, in today’s rapidly evolving cloud computing environment reliability is quickly becoming table-stakes as businesses of all sizes seek cloud computing services which can give them greater agility, better economies and added functionality to reduce their operating costs and strengthen their competitive positions. These are not attributes which people associate with telcos…


…Telcos are still struggling to figure out managed services, which have been around for over a decade, as a new wave of Software-as-a-Service (SaaS) and cloud computing services become mainstream.

Jeff also throws in a comment about Telcos failing it their own markets:

 In fact, even responding to new ideas and business models in their core communications business continues to be a struggle for the telcos… Now, Skype is the largest international long-distance carrier.

This is a red herring and I will tell you why later.

First let me be very clear; in this post when I talk about cloud computing, I mean utility computing, IaaS or Cloud Computing services. I am excluding PaaS & SaaS from that definition. These are different propositions and to the best of my knowledge only BT, Telstra & Telecom NZ have commercial propositions launched.

Within that definition, I do believe telcos will have a large role (maybe not dominant), here’s why;

All cloud services require a network, who better to provide you that? SLAs that are currently conspicuously absent in cloud computing will become table stakes as businesses demand greater surety from their providers (just look at the buzz when gmail goes down). Unless you can deliver the end to end service, you aren’t easily able to do this

Telcos know about reliability. I just don’t get Jeff’s point above. If reliability is table stakes then can you seriously consider an internet delivered model as being better than an integrated private network and cloud model?

Cloud Computing is only just becoming mainstream. Really, just look at the numbers. The vast majority haven’t moved. Cisco, IBM, Microsoft and HP have only just entered the market. Customers look at these guys for legitimisation of any trend. No offence to any existing provider, but most companies are risk averse and naïve about today’s market leaders. By endorsing cloud computing, these vendors will make the cloud computing market much more real to end customers.

The other critical component of these vendors entering the market is their view on Telcos as a channel. That is the vendors that are going make cloud computing real for the majority of business users are all looking to work with Telcos for local delivery. Just look at the recent announcements (Cisco, IBM Juniper), they are all partners Telcos are familiar with.

It is also my belief that Governments are going to force regionalisation to occur within the cloud market. When Governments realise what this movement to the cloud will do for their tax intake (less IT spend, combined with less employment) they will figure out ways of protecting that. This again is advantageous for Telcos as they can enforce geo boundaries and they are generally large regional players.

Telcos have access to capital in the sort of multiples most start-ups would kill for. And make no mistake; it takes lots of cash (see this for speculation on Google’s spend) to build this sort of stuff.

Convergence of data and IT means this is a logical extension of Telco services. This is important because as Jeff accurately states, Telcos are under financial pressure. The difference between Cloud Computing and tolls is incumbency. One of the reasons Skype was successful is that they disrupted the incumbent Telco business model, a business model that Telcos are still very eager to protect. That is not the case in cloud computing, all that utility hardware is an upside for them. That’s why Jeff’s comments about Skype are a red herring, completely different challenges.

I’m not clear if Telcos will dominate this industry, compared to many other types of organisation they are slow to move and aren’t that innovative. That certainly isn’t universal and I would question whether it’s altogether relevant to mainstream customers. But I do believe that when the dust settles, some Telcos will be major providers in this space.

 

Disclosure – I work in the ICT industry – the views in this post are my own and may, or may not be, shared by my employer

How to make money from SaaS #2

This is the second part in a series on how to make money from SaaS. If you missed it, here is Part 1 (It also appeared on Cloudave here)

Step 4 – Create a plan

This is the critical step in the metamorphosis from idea to actual start up. Why? Because it's the bit that describes the "how", and that information is really really important to investors.

No matter what your product does, you are going to need money to make it real. If you can articulate the process by which you are going to build and operate the product. How you are going to sell and market the product, how the business is going to run, and hence how you are going to turn a profit, you are in a good position to get funding. IPO, private Equity or Angel…. understand which is best for you and go with it.

The plan will also help you focus your staff, there should be one clear message that you can tease out of the planning process. 'Get Big Fast' (Amazon) or 'A PC in every home' (Microsoft) are good examples.

Step 5 – SaaS companies should buy SaaS

For goodness sake use your own software, and take SaaS every other way you can, bar one application (and I'll get to that). You have to live and breathe this, experience the highs and lows from a customer point of view. That way you keep your upfront costs down, know first hand what a pain in the butt an outage is, and understand interoperation and single sign on from a customer point of view. I repeat Live and breathe it.

But, keep one on premises application. For a similar reason, so that you'll understand the highs and the lows and have a balanced view. Your sales people can use this… "we deliberately kept our XYZ application on premise so we'd remember…"

Step 6 – Think long and hard about how you will build your service

Sinclair Schuller of SaaS Blogs (and CEO of PaaS provider Apprenda) wrote an excellent dissertation on the many acronyms of cloud computing platforms. The key here is speed, economics and reliability.

I refer you to point 5 above. Be a SaaS company. In my opinion, there is no way you should build every element of your service, that would be fiscally irresponsible given the plethora of platform offerings available today.

This opinion is especially true of the underlying infrastructure that delivers your service. Think about what goes into building a geographically diverse, robust operating environment. You also need to think about how and where you are connected to the internet because it can significantly affect the end user experience. All of this costs and absorbs time. Why even do it? A good PaaS provider has also thought through such things as billing, API interoperation (Salesforce.com and Amazon) etc. All very important, and sometimes easily forgotten.

If you are going to build stuff you have a lot of different choices depending on what you have as a service

  • Build it all in house – do this in a proprietary system or opensource
  • Go PaaS and only build the 'special sauce' part.
  • Go IaaS, build the OSS/BSS layers plus the special sauce

Any approach you take is going to have its pros and cons. To me the most critical part is to understand your costs and cash burn rate. Then look really hard at the numbers and seriously, in your heart of hearts, ask…. can we make money doing it this way. If the answer comes back positive go for it, if the answer is negative or marginal, consider the alternatives above.

 

PaaS just got a new poster child, Cisco

What do Cisco, EMC and VMWare all have in common?  Virtualisation. Up until fairly recently they’ve all been playing in their own sandpits, but that’s is all changing. Cisco recently bought a chunk of VMWare from… EMC. So now you have  (arguably) the three leading vendors in virtualisation playing together. Not only in it, but tightly integrating.

Imagine one orchestration framework that could dynamically allocate you network, server and storage. That’s powerful… very very powerful. Think about why virtualisation hasn’t gotten 100% penetration? You’ve never been able to seamlessly link network bandwidth to server I/O or SAN space. Now you can, this is IaaS. 

Then extrapolate out what VMWare is doing with their View product. (Virtual Desktop Technology) and suddenly this triumvirate can deliver SaaS AS you WANT IT, and not just through a browser.  This is immensely powerful for an enterprise, it would be even more powerful for a MSP.

This isn’t just vapour ware either, reportedly Terremark are already doing this. Definitely watch this space .

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?

SaaS in nappies

 

Think people, think…

 

Ben Kepes posted on cloudave.com about how both Salesboom and Netsuite are both aggressively targeting Salesforce.com’s customer base. This is bad strategy people, you need to think this through. Here’s why.

Firstly, think about who your competitor is? SaaS accounts for only 14% of the total CRM market. To me that clearly states that the SaaS competitors are the on-premise crowd. The ones with 86% of the market…. or the other $9bn dollars.

Secondly, think about what you are doing to the collective profit pool. Both propositions are cost based. So not only are you not growing the total SaaS profit pool by growing the market, you are cutting your own throats in  a price war that doesn’t need to happen yet. There is enough growth potential left in SaaS CRM for you to happily maintain your margins! If you keep this up you are forever trashing the profit pool. 

Thirdly, think about the global economic climate. Think about the recent announcements from SAP and how they are hurting, think about how the SaaS market could benefit from this perfect storm (I said it, Gigaom said it, Zoli said it). You have a fantastic opportunity to win SaaS Greenfield customers here, don’t pass it up.

Business strategy is a lot more than figuring out what your customers want, especially in a growth market. Looking at your peer (as opposed to competitor) organisations pricing should be done, but not only with a view to competition. Also to a view as to what signals are they sending here. If they put out a price that is seems high, it can mean they are saying we reckon there is a load of profit here, lets keep it that way. 

To this end I am sometimes of the opinion that SaaS companies are in their infancy in terms of maturity of thinking, let alone market position. This just seems a like a beginners error to me…