Microsoft recently announced a significant win and overall traction with their online business services offerings. On one hand, this makes hosted Sharepoint a stronger competitor. We don’t have any trouble finding customers who hate Sharepoint and want alternatives. On the other hand, it shows more and larger companies are becoming increasingly comfortable with moving services and applications to the cloud. In this case, Microsoft landed GlaxoSmithKline with over 100,000 users. I’m thrilled to hear this. This is very consistent with other trends where companies, given the economic pressure, are going to increasingly look offsite for solutions. I’m happy to see Microsoft also blazing the trial that SalesForce.com started years ago.
Posts Tagged ‘SaaS’
Microsoft Online Success Bodes Well for SaaS
March 2, 2009Linking SaaS software pricing with value
January 8, 2009This post also lives at ReadWriteWeb where I occasionally write.
Linking the value a product or service provides with its price is an art, not a science. Software pricing in particular has suffered from doing this poorly. The old license software model does not cut it anymore. Businesses won’t stand for paying for a large number of software licenses that they may or may not use. I’m a firm believer in the methods GroupSwim uses.
We price our Collaboration product based on registered users per month; this product is for internal collaboration inside a company or large project. GroupSwim Collaboration becomes an important part of running a business or project and people interact with each other and content on a daily basis. Therefore, the number of users is a great proxy for the amount of value a group derives from a product. Page views would be inflated in this use case. One person could potentially generate a 100 page views a day. One downside of counting users is that people don’t often “quit” a group or un-register. The onus is on the site owner to remove users who don’t use the site regularly or leave the group or company.
The other school of thought is to price based on a usage metric. We price our Community and Community+ products this way; these products are for external customer and partner communities. In theory, this number represents a good indicator of value as it reflects how much users are actually “using” a product or visiting a site when the number of users is large and visits are infrequent. However, there are issues with this method. First, how do you measure a page view? With the advent of Ajax, video, and other new technologies, page views don’t always reflect how much someone is using a product or not. Second, page views don’t always mean someone is benefiting from a product. For example, what if someone clicks around a site trying to find information and fails. Is this someone who derived value from the site or a frustrated user who couldn’t find what they wanted? Looks the same if you use page views as a measurement; hopefully this is rare. In our case, we believe this model makes more sense than charging for registered users on a large external community. One reason we do this is research has proved the proportion of users that consistently use an external site often tends to be small relative to the whole community. We could try and identify these frequent users and charge for them, but this is a different rat hole. Instead, we feel if lots of people are coming to a site and visiting it often, it is likely adding value and we charge accordingly. If the site is not doing well and people rarely visit, then it isn’t adding value and the price drops.
So, we charge based on users for our internal product and page views for our external products. Even though this is painful for us to track, price, negotiate, explain, etc. for the different products, we feel strongly it is the right thing to do. The different methods accurately reflect the value we provide for the different use cases.
What do you think?
Sunny Forecast for Cloud Computing in the Enterprise
December 18, 2008CLOUD COMPUTING
Cloud computing is the latest hot topic on the internet marketplace. Many start-ups are using or are considering using cloud computing. Furthermore, many companies are rushing to position themselves as cloud computing companies. With this post, I discuss what I believe cloud computing means for enterprises looking to use them as well as what is means for cloud computing businesses catering to enterprises.
There is a fuzzy understanding of what is meant by cloud computing. Cloud computing commonly denotes the general usage of services that are provided over the internet, rather than hosted within organizations. If we apply this general definition, many services that have existed for years are cloud computing services. Examples include products such as salesforce.com and groupswim.com. What has happened, however, is that more infrastructure services are becoming available as services, and this is having a huge impact on software and SaaS companies.
The picture below illustrates the distinct layers within cloud computing. At the top, we have services for consumers and enterprise users; we call this the Software-as-a-Service (SaaS) layer. The component layer below includes specialized services provided as API’s or widgets used by the SaaS layer. Further down we have development platforms (sometimes denoted Platform-as-a-Service) that enable companies to develop and deploy services in the cloud. These development platforms are themselves services that require minimal or no installation of software at the site of the users. Finally, we have the infrastructure layer which provides resources to the layers above or even to installed software solutions. The most commonly known example is probably Amazon AWS, which is a service that provides storage and processing capabilities. GroupSwim uses Amazon’s file storage service S3 for certain types of information storage and EC2 for certain processing tasks.
Cloud computing will be a significant force in advancing offerings on the internet in the coming years. Cloud computing increases the efficiency and speed that companies (in particular small companies) can bring products to market. Capital and upfront expenses are significantly lower and cease to exist as barriers for new ideas and solutions. Cloud computing will enable the development of new services and solutions that have previously been viable only in theory. It will also make it possible to realize functions and features that have previously not been viable for economic or practical reasons.
OPPORTUNITIES
Many companies already use cloud computing services. If you are a start-up using large amounts of storage, it would be stupid not to use services such as Amazon S3. If you need to boost computing resources during peaks or for background processing, it is difficult to justify not using virtual servers such as those offered by Amazon’s EC2. There is a very clear drive and opportunity for new software and services companies to use cloud computing to lower costs, enable new solutions and accelerate time to market.
So, where lies the opportunity for enterprise computing? Enterprises spend a lot of money purchasing software licenses and hardware. Licenses are often purchased upfront to cover all or a large part of the staff, even if it will take significant time (months or years) before all employees will effectively use the software. Licenses tend to include all functions just to ensure all bases are covered and reduce the number of purchasing processes, which in themselves can be expensive and time consuming. Purchased software often needs additional hardware, and the cost of implementing the systems is significant. According to some analysts, the average time to deploy an application to a division within a larger enterprise is 6 months or more. Clearly, there is a huge opportunity to deploy new applications within an enterprise more efficiently and more economically.
CONCERNS
If cloud computing is so great, what are the concerns from an enterprise perspective? Security is frequently questioned. The questions surround whether cloud services can be trusted to store data, do they have backup policies, what kind of SLA do they provide and so forth. From a web perspective, many cloud computing services are just as safe as any banking solution; communication is encrypted, transactions are monitored etc. To some extent, it boils down to whether a service can be trusted to handle your data or not. From an enterprise perspective, there is also a requirement on audit trails, backups, disaster recovery etc. that may not be clearly articulated by cloud computing vendors today.
Clearly cloud computing service must provide auditing and security functions that enables customer organizations to protect themselves against malicious users. They also must provide easy-to-use and understandable permission structures to make information management efficient. I expect this to be an area where cloud computing services will improve significantly within the next year or so.
There is also a concern about losing control over business critical data. Data is stored in a data center where the customer will most likely not have physical access. Could computing services give the customer confidence that they can easily and at any time be able to retrieve all their data? At GroupSwim, we are experimenting with letting customers inject their own storage solution into a SaaS environment. Whether this is the most efficient way of making concerned customers comfortable remains to be seen. The point is that the customers need to feel that they can select the solution they are comfortable with and that they can manage their data at will.
Availability is of course a question that come up. It would be surprising if it hadn’t as we are talking about mission critical enterprise systems. Cloud services are built to be up 24/7, and one could and should assume that a reputable cloud provider can do at least as well as internal IT . I believe concern will diminish as users see that availability of these service is in fact satisfactory.
It also must have crossed the minds of enterprise buyers that they depend on the viability of the cloud computing vendor more than on a software vendor. If a software is installed in-house, the software will still work even if the company behind it fails; there will be no immediate urgency to switch to another product in many cases. With cloud-computing services, it is clearly more complicated. This emphasizes that cloud computing companies must have a viable business model, which may or may not imply that free services are riskier than those that charge. It also enforces the ability to easily get enterprise data in and out of a system in case a migration becomes necessary. In the end, the complexity of migrating is probably the same.
WILL ENTERPRISES ADOPT CLOUD COMPUTING?
We believe cloud computing will become an integral part of the infrastructure of many enterprises. In most instances, it will manifest itself as the usage of a SaaS application. But we also believe that using various infrastructure level resources on the internet will be irresistible even for enterprise customers. The economic and tactical benefits are too good to ignore. As cloud computing companies position themselves to become enterprise-grade cloud computing services, they will improve both internal and external security mechanisms to make CTO’s and CIO’s feel more comfortable with using their services. Cloud computing companies will enable customers to have greater influence on where their data is stored, and how it can be accessed. I expect cloud companies to present very clear ways of migrating data for customers to avoid lock-in and in the unlikely event of a cloud company shutdown. As these aspects of cloud computing services develop, I strongly believe cloud computing will become an integral part of enterprise systems in the future.
SaaS Security – Is It an Oxymoron?
December 12, 2008It doesn’t have to be. I find myself asking what it really means to have enough security. As you can imagine, it comes up frequently with customers and prospects. They want to know that we take security seriously and that their data and intellectual property are safe. We take security extremely seriously and take great pains and expense to provide as much as we can. The question I don’t know the answer to is what contitutes enough.
There are so many shades of gray on this topic, it is mind boggling. There is one prevailing standard out there right now called SAS 70. However, you must spend tens of thousands of dollars to have a auditor come in and assess the technology, process, segregation of duties, etc. and provide their blessing. In fact, it is more of an audit than a true look at technology. You could have the most rock solid technology stack in existence, and still not qualify for SAS 70 if there is an issue with segregation of duties as an example. Moreover, the auditors are usually not technology experts and focus far more on process and responsibilities.
This is one area where a lack of SaaS or cloud computing standards hurts. Some of the things we do at GroupSwim include:
- All login and credential pages utilize Secure Socket Layer (SSL)
- SSL available for entire site
- Email authentication for all users
- Password hashing
- Session level security
- Files stored and encrypted using Amazon S3 service
There is much more we do. We believe our security architecture and processes are rock solid, but will continue to innovate and invest, just like we do with our product features. I’m hoping the industry will eventually coalesce around a common set of standards. In the meantime, companies like ours will continue to provide security to the best of our availablity. What do you think constitutes solid security? How can companies like ours prove it?
Is SaaS cheaper than licensed software?
November 21, 2008This is a blog post from ReadWriteWeb, where I occasionally contribute.
Most people quickly answer this question in the affirmative; I certainly do. However, there are people out there who aren’t sure. They look at the monthly cost of a SaaS application and compare it to an equivalent licensed product over an extended period of time. Given enough time, you will eventually hit a point where the SaaS product “appears” more expensive. Let’s look at it from total cost of ownership (TCO) perspective.
The true cost of a licensed product is MUCH higher than just the software. Here are other things to factor in:
- Hardware costs – You either have to buy machines or add your software to existing servers and manage them. If it is a mission critical application, you will probably need dedicated machines and back-ups
- Additional software costs – You will most likely need an OS, application server software, database, monitoring software, etc.. Many of these products are OpenSource now, but there are still associated costs
- Implementation costs – In my experience, the implementation costs associated with a behind the firewall solution are ALWAYS higher than a SaaS application. There is simply more to do. You will either pay consultants or use your own valuable resource time to worry about installing software, integrating it, building servers, configuration, etc..
- Maintenance labor – If you have software in-house, there is going to be some level of effort required to keep it happy. Your IT resources will need to take care of it, which will keep them from doing more value-added activities.
Another huge factor here is the ability to get the latest and greatest technology. Once you install software in a data center, it becomes more difficult to upgrade and maintain it (especially if you customize it). In this case, you will be stuck with old software that you will have to replace in the same time horizon as we described above. In other words, unless you are absolutely sure beyond a shadow of the doubt that your licensed software is going to meet your business needs for 5 years or longer, it might make financial sense.
Let’s look at a real-world example. There is a 100 person company that has been sharing files via email and internal servers. The executives have finally concluded they need to join the 21st century and a solution in place. One option is to implement SharePoint. Here is a rough estimate of what that might cost:
Year 1
MOSS Server – $4,500
User Client Access License – $90
Hosting and Maintenance – $5,000
Implementation/Developer Support – $20,000
Total – $29,590
Year 2 – X
Hosting and Maintenance – $5,000
Developer Support – $3,000
Total – $8,000
I know of a SaaS solution that has 80% of the file collaboration functionality of SharePoint that charges $850 per month for 100 users.
Year 1
SaaS Fees – $10,200
Implementation Support – $10,000
Total – $20,200
Year 2 – X
SaaS Fees – $10,200
Total – $10,200
It will take over 4 and a half years before the license software is cheaper. By that time, I’m quite sure there will be another solution that replaces SharePoint and the cycle starts again. We can dither about the numbers but you get the point. Plus, the numbers don’t reflect that the SaaS solution is likely to improve and innovate faster than the licensed software by a significant amount.
What do you think? Have you done this analysis and what did you conclude?
IT Must Learn to Bend or Business Will Break
November 21, 2008This is a blog post from ReadWriteWeb, where I occasionally contribute.
This current economic client is having a devastating effect on almost every business around. In order to adapt to changing conditions and opportunities, businesses will need to use flexible, adaptable systems to survive. The days of expensive, year long implementations of behind-the-firewall software will be few and far between.
I recently attended a Forrester Briefing and listened to comments from Peter Burris, who is a very smart guy. They’ve done a host of studies showing that technology will be a growing part of how businesses compete and differentiate themselves in the future.
While systems and software used to be very “behind the scenes” and often transaction based, it is the case no longer. Consumers and businesses alike buy differently, consume differently, and recommend differently. Trends like social networking, video on demand, ecommerce will continue to force businesses to adapt to keep up with their customers. They cannot rely on systems that take years to implement and most don’t have the budgets to make large investments, at least for the next couple of years.
The growing focus on SaaS, cloud computing, application platforms, etc. are all responses to this growing trend in the market. There will be other solutions in the future for mobile, etc. that we haven’t even imagined. They all support the need for businesses to utilize systems that they can deploy, change and retire quickly. In my real job, I remember meeting with a venture capitalist who talked about how their firm looks for opportunities where they see lots of “wiggling”. He couldn’t describe what that really meant, or how one gets paid for wiggling; I thought he was a lunatic.
In retrospect, he does make one good point. Things happen quickly on the internet and in this changing global economy. When a business sees wiggling (or opportunities) either positive or negative, they need agile systems to respond. One size fits all software and packaging is going the way of the VCR. I think this will continue to grow in importance and focus as enterprises evaluate new systems and invest in new technology. What do you think?
Lessons Learned from a Successful SaaS Trial
September 3, 2008This is cross-posted with ReadWriteWeb where I will be occasionally writing on the Enterprise Channel.
A growing part of the software sales process involves offering trials or try-before-you-buy programs. Buyers love it but it puts pressure on the vendors to deliver during this important process. I recently trialed software from Vertical Response. They offer self-service email marketing services. I needed a way to create, send, and analyze our email campaigns. First off, I signed up. They did a great job across the board so props to them. Here are some lessons learned going through the process as a buyer.
Product
- Product worked well - I can’t emphasize this enough. I know it seems obvious but we all can list examples of the opposite. Be very careful putting software out to the world to try if it doesn’t work. You have one or two chances to impress someone, so you better nail it. Very rarely will the trial customer stick through a bad experience unless you happen to be in the enviable position of offering software someone has to buy and has no other options.
- Ease of use – the product is very easy to use. It is simple and straightforward. Plus, they provide lots of videos to teach users how to use the product. I find this particularly helpful. It is great to have user manuals if you want to go deep, but a handful of simple, short videos is an awesome way to train new users with minimal effort.
Process
- Rules of the game – they did a very good job designing what the pilot includes and what I would be able to do. In their case, I received 500 emails to try the product (I signed up through SalesForce AppExchange). There were no limitations on features or number of campaigns.
- Provided true product experience – the trial provided functionality for the whole product suite and all features. I was able to fully understand what I would be purchasing and what I could do with it. I think other companies that provide trials, but only expose a percentage of the product features, are making a big mistake. In the case of Vertical Response, they make their money based on volume so it fits nicely in their model.
- Sales person was awesome – I received a very polite phone call and email asking if I needed any help. When I talked to him, he invited me to a weekly webinar to learn about the product. (Small aside – this is a great strategy and one I plan to start with our company). He did a great job on the webinar and really helped me get the most of out of the product.
- Make it easy to sign-up – Once I decided I wanted to use the service, it was very easy to enter my credit card and get started. It isn’t always so easy with business software, but it should be to take as much friction out of the process as possible.
Marketing
- Word of mouth – I had heard of this company from some of our customers, so I was already inclined to give them a fair shot. I can tell from my trial experience that they take care of their customers based on their responsiveness. Granted I was in their sales process at the time but I’m assuming the same responsiveness will apply as a customer. Bottom line – you HAVE to take care of your customers and delight them. If you pull this off, your customers start selling for you.
- AppExchange – they have done a nice job of promoting themselves on AppExchange. It is very noisy in there, and tough to figure out which solutions to use. I thought they were able to rise above the noise effectively through their write-ups and obvious success.
Have you trialed any software lately? Any lessons learned you would like to share?
GroupSwim featured on Read Write Web
July 13, 2008Check out the coverage here. Ben Kepes, an accomplished blogger, is a guest blogger on the site and was kind enough to feature GroupSwim. Enjoy!
