November 22nd, 2008

When to spend cash in a SaaS business

Posted by Phil Wainewright @ 1:53 pm

Categories: Business models, Omniture, Uncategorized, Venture capital

Tags: Software-as-a-service, Omniture Inc., Magic Number, Software As A Service (SaaS), Sales Strategy, Cloud Computing, GAAP, Sales Force Management, Emerging Technologies, Sales

Josh James, CEO and co-founder of enterprise web analytics provider Omniture, revealed to an enthralled crowd at the SIIA On Demand conference this week the magic formula that helped his company sustain rocketing growth, dwarf its competitors and become the second-largest listed pureplay SaaS provider in the US, with 5,000 customers and annualized revenues approaching $320 million.

The key to understanding the formula is to recognize that SaaS companies bleed cash with every new customer they acquire — the complete opposite of what happens when a conventional software company lands a new account and pockets a huge upfront license fee. Especially if, like Omniture, the application requires significant infrastructure investment but the subscription is billed monthly.

“Every time we add an incremental customer, it costs us more money that quarter — it costs us more cash that quarter,” explained James. “When you multiply that by 250 customers in a quarter, that’s a lot of expense for no money.”

Some statistics illuminate the scale of Omniture’s infrastructure: it operates 15,000 servers for its 5,000 customers, and processes almost a trillion transactions per quarter — that’s a hundred times more than Salesforce.com’s proudly touted 10 billion. The average transaction rate is 125,000 per second, with spikes up to twice that amount. Those are truly petascale numbers (to use a word I learnt just last week) and every new customer means adding more capacity.

The financial consequences look exceptionally dire when Read the rest of this entry »

November 17th, 2008

It's different, developing to the cloud

Posted by Phil Wainewright @ 6:25 pm

Categories: Development, Microsoft, Platform as a service

Tags: Cloud, Microsoft Windows, Cloud Computing, Operating Systems, Software, Phil Wainewright, Developer, Platform, Podcasts, Collaboration

One of the hidden secrets of platform-as-a-service is how dramatically it changes the development process. Instead of expending energies on building and managing infrastructure, developers can concentrate on the end result, and they can get there a lot faster because of the collaboration and resource sharing the cloud platform allows. This was one of the big takeaways from some research I did recently for Appirio (disclosure: for a fee) that resulted in a white paper and webinar.

But don’t take it from me. Amitabh Srivastava (pictured), corporate VP of Windows Azure, Microsoft’s cloud platform, says the same about developing on the cloud. “It was a mental switch — it’s a very different mindset,” he told me in a recent phone interview. Formerly codenamed ‘Red Dog’, the Windows Azure cloud platform was developed on the Azure cloud — what you might call eating your own ‘Red Dog’ food — and Srivastava told me that not having to worry about infrastructure is one of the key benefits of using the cloud.

“IT at the moment spends all its time managing the machines,” he said. “In Windows Azure, we manage the service, not the machine. That’s how you drive the total cost of ownership down. That’s how you address the expense.”

Srivastava was talking after we’d finished recording a podcast interview for my new blog on The Connected Web, published at eBizQ. The podcast is in two parts: the first covers Azure’s origins and enterprise focus, while the second looks at the Azure roadmap and what developers can do with it today. During the interview he mentioned the team doing its development on the cloud platform.

The other benefit of cloud development that he singled out was the way that having a shared platform simplifies the workflow around collaboration. “Collaboration becomes easy,” he said, because developers can bring up an instance at any time and share what they’ve been working on. “You have this infinite pool of stages available to you.”

November 15th, 2008

How much does Exchange really cost?

Posted by Phil Wainewright @ 5:14 am

Categories: Collaboration, Google, IT outsourcing

Tags: Serena Software Inc., E-mail, Cloud Computing, E-mail Servers, Online Communications, Enterprise Software, Software, Phil Wainewright, Cost, Exchange

A heated discussion is raging in the comments to a Clint Boulton eWeek article about Serena Software’s decision to switch from Microsoft Exchange to Google Apps.

What is at issue is the true cost of running Exchange. Serena says that junking Exchange in favor of Google Apps will slash its costs from $1 million a year down to $250,000. Many of the commenters are wondering how an 800-employee company manages to blow an eight-figure sum on running its email servers, and the debate throws an intriguing light on how people evaluate the relative costs of on-premise software against in-the-cloud alternatives. Here’s one of the commenter’s calculations:

“800 CALs at retail pricing is $67 x 800 = $53,600. Exchange Enterprise Edition is $3,999. Let’s assume they have two servers: $7,998. Let’s also throw in the Software Assurance CAL of $35 x 800 = $28K. Two beefy servers at $10K each = $20K. Two full time Exchange administrators at $100K/year = $200K. Total = $309,598/year.”

Serena’s VP of corporate communications responded, explaining that ancillary costs such as spam filtering, security, archiving and disaster recovery (DR) accounted for much of the total cost:

“Here is how we factored our costs, basic Exchange costs (CALs, SAs and the like) paired with Postini is around $500k. That’s not our full costs though … where the costs really start adding up is in storage and disaster recovery (particularly when you consider we have DR plans for 18 countries). So when you take unified messaging, storage, DR and admin costs which come to $500k and add the original $500k we were looking at $1 million USD per year as a total.”

That hasn’t cooled the debate, with several Exchange hosters weighing in to say they can provide an equivalent raft of services for a much lower all-in cost. But the discussion does underline how easy it is to underestimate the cost Read the rest of this entry »

November 13th, 2008

Back up your online data. Now.

Posted by Phil Wainewright @ 3:30 am

Categories: Customer experience, Service level management, Venture capital

Tags: Data, Litigation, Business Operations, Phil Wainewright, Image, Software As A Service (SaaS), Storage, Emerging Technologies, Hardware

The dark side of the cloud is the risk of financial failure at your provider. At the end of October, Digital Railroad, a photo archiving and commerce site used by over 1,500 professional photographers, shut down without warning. Users had just 48 hours to recover images stored on the site. Even if all of them had been in a position to log on and tried to download their data, it’s doubtful there would have been enough bandwidth to service the demand.

But surely if a site has a paying, professional customer base of that size, someone will step in and pick up the business? Hosting companies I’ve spoken to in the industry who specialize in SaaS hosting have said they’d rather keep a service alive until another owner takes over than wipe the systems clean and start over. But it depends who owns the hardware. In the case of Digital Railroad, after two failed attempts to find a purchaser for its image storage and retrieval assets, company representatives on November 10 announced this devastating news for anyone still hoping to retrieve images stored there (I’ve bolded the chilling three words that sealed their fate):

“Without a commitment for the purchase of its assets, DRR’s senior secured creditor will move to take physical possession of the hardware on which the intellectual property of DRR and the copyrighted images of its customers and partners reside. The creditor will have all information erased from the storage devices and then sell the equipment at auction.

“Digital Railroad had hoped that it could preserve the images on the storage devices so that the owners of these images could recover them. Unfortunately, this was not achievable. We apologize for the difficulties that this has created but without additional resources we have no other recourse.”

Does this example mean we should all stop using cloud providers and go back to the ‘good old days’ of running our own software and servers? Read the rest of this entry »

November 11th, 2008

These are individuals, not just consumers, on the Web

Posted by Phil Wainewright @ 5:44 am

Categories: Business applications, Google, Web 2.0

Tags: Web, Channel Management, Marketing, Phil Wainewright, Consumer, Google Inc., Business People, Strategy, Management

In several conversations during my brief visit to last week’s Web 2.0 Summit in San Franciso I found myself correcting one of the great misconceptions of the Web era. I’m increasingly irked by the way people talk about consumer use of the Web as if it’s something that’s distinct and hermetically separate from business use. We’re using the wrong word here, folks.

It’s not consumer use that we’re talking about, it’s individual use. Sure, those individuals are consumers. But many of the most influential of them are also business people, and there’s no artificial divide in their minds that says, “I’m doing this as a consumer, so it won’t influence or cross over into what I do in the business environment.” Quite the reverse, in today’s 24×7 economy, when for many of us, the business environment has intruded on and invaded our personal time so comprehensively that our business brains are never quite switched off.

A couple of weeks ago I was visiting Google’s EMEA headquarters in London and chatted to Maurizio Carli, managing director of EMEA Google Enterprise. Carli has crossed over to Google from enterprise software land — for a long while he worked for IBM Software under John Thompson’s long reign there, then was at Business Objects until hired by Google. One of the things that attracted him to Google was the more rapid innovation that’s happening in the consumer space, as he put it — which Google can then feed back into its enterprise offerings.

So-called consumer applications are advancing faster because individuals have so much more compute resource available for their personal use, he pointed out, with high-spec multimedia PCs at home, iPhones in their pockets and so on. It struck me that this is an illuminating contrast to Read the rest of this entry »

November 6th, 2008

Funding software from add-on services

Posted by Phil Wainewright @ 4:06 pm

Categories: Business models, HRM

Tags: Software, Tools & Techniques, Software As A Service (SaaS), Smb/Sme, Management, Emerging Technologies, Phil Wainewright, Revenue, Service, Small And Medium Business

Is it possible to fund software from commissions on selling ancillary services? UK-based SaaS recruitment software vendor MrTed is going to test that theory with a free-of-charge applicant tracking system (ATS) which it launched in beta to the US market last week. Fellow Enterprise Irregular Brian Sommer and Gartner’s Jim Holincheck also covered the announcement.

“Can we give away SaaS for free and monetize it through alternative channels? We think in our space there is room for this,” the company’s CEO, Jérôme Ternynck (pictured), told me in a pre-launch briefing. The company claims 60,000 users and more than 200 customers, mostly larger organizations with anything from 10,000 to 40,0000 employees, spread across Europe and Asia.

Called SmartRecruiters.com, the new offering will target what is a completely new market for the company: SMBs in the US. There’s no risk, therefore, to its existing business from offering the new software for no charge. “We do not service the SMB market at all so we do not lose,” explained Ternynck.

The e-recruitment market is significant but not properly addressed, Ternynck told me. Vendors compete on price and by investing in sales rather than product innovation, he said. “What is delivered hasn’t really changed since 2001.”

MrTed aims to shake that up with SmartRecruiters.com, which will be monetized by selling pay-per-use services alongside the free software. It’s designed to be easy to use, claiming that businesses can register and start recruiting within just five minutes. Marketing will use Web 2.0 techniques to drive viral adoption.

The notion of funding the software out of selling ancillary services is based on the calculation that, Read the rest of this entry »

November 4th, 2008

Salesforce mashes up the cloud so you don't have to

Posted by Phil Wainewright @ 7:58 pm

Categories: Platform as a service, Salesforce.com, Web 3.0

Tags: Salesforce.com Inc., Cloud Computing, Strategy, Management, Phil Wainewright, Facebook, Marc Benioff, Platform, Amazon.com Inc., Sales Force Management

Salesforce.com CEO Marc Benioff stitched several more constituents of the Web-as-platform into his company’s own Force.com platform yesterday. Force.com now comes with built-in integration to three other major cloud platforms: Google Apps (announced in April this year), Amazon Web Services and Facebook (both announced yesterday). For many applications, anyone who wants to develop to the Web can now do that by developing on Force.com — as well as publish it to the Web using the new Force.com Sites capability [disclosure: Salesforce.com is funding my accommodation to attend Dreamforce].

Talking to press and analysts yesterday, Benioff jokingly defined the strategy as, “We love all vendors. This is our core strategy — love.” But in its impact, it’s deadly serious, and it’s devastating for other more closed platforms — such as, for example, Microsoft’s newly announced Azure platform. “This is not just about one vendor. That is over,” Benioff had said earlier in his keynote. “We need a new world where all these platforms can interoperate.”

The new strategy, first outlined at DreamForce Europe in May and now extended to embrace three major third-party Web platforms, positions Force.com as the optimal gateway to access Web resources. In doing so, it opens up a huge lead for Force.com over other PaaS platforms, none of whom have even begun to forge such relationships. Other vendors are going to have to do a whole lot of catchup now. That of course confers a lot of power on Salesforce.com, which is worrying for those not welcome on its platform.

A few notes about the link-ups that were announced yesterday: Read the rest of this entry »

November 3rd, 2008

At last, this is how websites should be built

Posted by Phil Wainewright @ 1:05 am

Categories: Content management, Platform as a service, Salesforce.com

Tags: Web Site, Web Site Development, Web Technology, CSS, Internet, Scripting Languages, Software/Web Development, Web Development, Phil Wainewright, Salesforce.com Inc.

On Monday at its annual Dreamforce conference, Salesforce.com will change forever the way that businesses build websites. It is launching Force.com Sites, which provides a hosted website infrastructure for publishing data from an organisation’s internal Salesforce.com applications to the outside world. [Disclosure: Salesforce.com is a recent client and is paying my accommodation costs to attend Dreamforce].

Force.com Sites will be a free add-on to existing Salesforce.com licences provided customers stay within fixed pageview limits — up to 50,000 pageviews per month for Group licence customers and up to 1 million monthly pageviews for Unlimited licence customers. Customers can buy extra pageviews at the rate of $1000 per month one to five million, and $3000 per month for above five million. But most customers — especially those at the small business end of the scale — will find their usage stays well within those pageview limits, making the new feature effectively free-of-charge.

Although Salesforce will be hosting the Web pages, customers wil be able to map them to their own domains, making it invisible to site visitors where the pages are hosted. Examples where the Sites capability will come in useful include online forms that link into an internal recruitment application, or published stock availability information.

Previously, publishing this type of information meant creating a Web application that wrote or read data to and from the Salesforce.com API. Now that programming task is removed from the equation, Read the rest of this entry »