Does owning the customer matter in a SaaS world.

 

I recently had an interesting debate with someone about ‘customer ownership’ and how this plays out in a SaaS world.  Its perplexing because my verbal sparring partner has some great points, but the root of my unease with the whole debate was based on uncertainty about if it even matters anymore?

 

Lets look at the evolving SaaS reseller and integrator market.  A bunch of companies that have made money off selling, installing, integrating and managing on premise software have seen the writing on the wall and are looking at morphing their business models to support SaaS. In this case they still sell, but in the services are significantly different. The configure, training and provide 2nd level support.

 

The issue is that in the first instance, that customers was ‘theirs’. They held the core engagement and their walk away position was strong.  But in a SaaS world (Saleforce.com, or even Microsoft’s hosted exchange product), the SaaS provider holds the customer, they are no longer the integrators. So they can do the upfront work, but easily get disintermediated in the medium to long term. Imagine if Salesforce.com of Xero or whoever decided to increase revenue by building a consulting and training practice…what then for their channel partners?

 

My counter argument was that in a SaaS world you are on the line every day for great delivery. This includes the channel partner, if you don’t deliver then of course you can loose the customer. There is also a lot of relationship and customer knowledge etc that comes with the deal AND if you are dumb enough to be a one track pony then of course you are under more risk. What i mean is, if all you do is sell Xero or Salesforce.com and you haven’t thought about expanding your engagement into that customer with other services like change management etc then you get what you get.

 

What do you all think, Is customer ownership still relevant? If so how does it work in a SaaS world? Where do you stand on this? I think its important because a good channel model is going to be increasingly important to SaaS to counter the stagnant growth perceptions that exist.

 

 

Android – people are missing the point

There has been a bunch of commentary about Google’s mobile platform Android. Most commentators seem to be banging on about how it is going after the Apple iPhone (R/WW  seems to be fixated on this aspect). This analysis misses the point. Of course Android will try to emulate the best in class product, there’s no point going out with something 2nd rate. But Android is much much more important to Google than just an iPhone competitor, Android is Google’s punt on protecting its advertising business (98% of Google’s revenue).

 
How? Well we are moving into a mobile device dominated world. This trend has been happening for awhile and is a function of scale and Moore’s law. (basically laptops have gotten cheaper, performance is better etc).  The PDA I have on my desk right now, clearly sits right between my desk phone and my notebook in terms of functions and performance.  When you factor in cloud computing benefits and Web apps (SaaS in some cases), PDAs aren’t that far away from replicating at least 80% traditional computing hardware functionality (and by association replacing those hardware units).

 
Xero believes this trend is happening and has come out with an iPhone supported version of its SaaS Accounting app to get into that space early.

The proof is there, check out some of the stats in this (surprisingly from R/WW) piece from Sarah Parez about how fast the mobile web is growing (and here from GigaOm).

 The implications of this are enormous. There is no dominant OS provider (why do you think MS has listed Mobile as one of its core strategies?). The other major player seeing this trend and having panic moments is Google. Think about it, if I use my mobile to browse the web more and more, then I logically would use it for search. That means Google becomes less relevant in advertising because (you try this) there are NO Adwords displayed in a Google mobile search. 

 
Connect those dots, growing mobile internet use, no Adwords….

So, if you are Google what do you do? Well you try to create a mobile platform that is hugely popular and ensure that in that OS is a browser (or some other special feature) that provides you with an avenue to protect your advertising revenue (or provides you with a new one). This platform must be hugely popular for two major reasons.

1) for your advertising revenues to stay the same you need ubiquity (similar to their 67% of US search type ubiquity)

2) without that kind of demand, no carrier will support Android mobiles.

 
GigaOm outlines a couple of reasons for that here, but more importantly Google hasn’t exactly made a whole bunch of friends in the carrier world with its stance around net neutrality and the San Francisco WiFi project.

 
I’ve blogged before that Google appear to be having their challenges, the shine is definitely coming off their share price.  There are other indications of a new commercial reality coming out of Google too. Check this out by Garett Rogers on the Google App Engine pricing…

 This surprises me because Google is the king at making things ridiculously cheap — not comparable.

 My read on this move, Google is under the cosh for profit growth to justify its PE ratio.

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 – Force.com , Amazon.com, Google.com  (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 Force.com? 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…force.com 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?

 

Is SaaS just Hype?

I was chatting to a friend who does me the enormous respect of reading this blog (thanks Ben!). Ben does a lot of things well, but in my opinion, one of the things he does particularly well is being deliberately provocative. So when Ben through out the comment

“is SaaS real or is it just Hype”  & “I don’t agree with what you write, well that’s not actually true, I think you are nearly there with what you write”

I kind of stand back and listen. (you gotta agree comments like this kind of stop you in your tracks)

Ben’s main point was this. That companies that are buying SaaS aren’t in fact doing that. What they are doing is making sound business decisions, decisions that are right for them. They aren’t into the hype, they don’t really care how they get the outcome. They are just trying to meet their business needs, priorities and outcomes.

To this way of thinking, I guess I am nearly there when I said

“By choosing to go with the SaaS model, the CIO also has to do a sales job on the business. “here’s this new thing, it will be better than the old way and you will get that outcome and make / save  XYZ / be more productive / have better customer sat / retain your staff”. You will notice that the language above is the same language as the business uses,” 

And 

“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.”…” My advice, look to how the traditional software companies did it, therein lies the gems of knowledge garnered through many skinned knees.”

Ben then walked me through two examples to make sure I understood. One being a small SME who has the choice to splash $500 (that’s a guess) on MYOB, install it run and populate it or buy Xero for $50 a month, that you can access anywhere and is backed up, always updated for you, secure etc. The second was of his current employer (who is a massive multinational), who take hosted applications from NZ, HR from Singapore, core financials from Europe, hosted email etc. In other words a large SaaS user who in no part of their business thinks that. What they do think is that for every application and business process that they have chosen, they have made the best choice for them.

At the end of the day isn’t what this is all about, business. And in that context, isn’t SaaS just another example of the IT industry creating hype to fuel its growth, IPO and funding needs?

Like I said, deliberately provocative. Thanks mate for keeping it real