April 3rd, 2008
The future of SaaS billing
In the past few weeks, all of a sudden, I’ve been approached by any number of vendors wanting to tell me about their billing, settlement and subscriber management offerings to the SaaS market. I must say, it’s about time. For the past ten years, SaaS vendors have struggled to manage subscriber management and billing. It wasn’t a major problem in the early days, because if you had just a handful of customers then charging them what they owed wasn’t yet a major headache. And of course when you’re flush with VC funding, collecting your miniscule revenues never seems to be as big a problem as working out how to acquire more customers. You can always work out how to collect the money later on.
‘Later on’ has now arrived for a large number of SaaS vendors. Their business is scaling nicely and they can’t ignore the billing question any more. Trouble is, the more they look at it the more complex they realize it is. As Ed Sullivan (pictured), CEO of SaaS billing specialist Aria Systems pointed out to me earlier this week, “Excel only has 60,000 rows — divide that by the twelve months in a year and [if you’re using it to manage subscriptions] that gives you your maximum number of customers.”
That’s where this new crop of billing vendors comes in — a number of smart people saw there was likely to be an opportunity here and invested in developing on-demand services that promise to solve vendors’ headaches with a simple, pay-as-you-go contract.
What’s interesting is how the variety of billing, settlement and subscriber management solutions on offer illustrates the complexity of the problem that most people in the industry have ignored for so long. Every vendor seems to approach this from a slightly different direction, each bringing a bias that reflects their own starting point. Here’s a revealing selection, every one of them offered as a service:
- Vindicia, which already has an established customer base but launched a new marketing campaign this week after closing $5.6 million funding round, emphasizes fraud screening and chargeback handling as its differentiation. I met with CEO Gene Hoffman and VP marketing Sanjay Sarathy last week. Hoffman pointed out that anti-fraud measures that work for online retailers selling goods from a catalog are far too cautious when applied to recurring subscription relationships. “The risk is you’ll turn away a good customer,” he said.
March 30th, 2008
Reader poll: full-text or summary feeds
Starting Tuesday, this blog’s RSS feed will switch from publishing just a short ‘teaser’-style summary of the blog content to a partial full-text feed that will contain all the content down to the first page break — typically four to five paragraphs comprising around 500 words. This is an experiment, and because I genuinely don’t know what readers prefer, I’m publishing a poll here so that you can tell me what you think. I’ll keep this poll open for at least a week so that I can gather a good cross-section of views. If I get a clear majority by the end of the week in favor of a summary feed then I’ll ask ZDNet to switch it back.
We’ve been having an internal debate here at ZDNet for some time over the case for and against full-text feeds. Personally, I’ve always previously gone with a summary feed, right back to 2001 when I first started blogging on Loosely Coupled. But I’ve listened to many points of view over the years that full-text feeds yield more readers and thus more traffic over the long term, even though there may be an initial dip in page views to start with. I’ve noticed also in my own use of Google Reader that if I want to link to or comment on a blog post, I still visit the original page. So my most engaged readers will still come and visit even if they can read the full text in their feed reader — and the theory is that I’ll have more readers because some people simply refuse outright to subscribe to blogs that only publish summary feeds.
My only reservation about this move is that the full-text option ZDNet is able to offer isn’t the literal full text. The feed will publish all the contents that appear on my blog’s home page, but the text will stop after the first four or five paragraphs, at wherever I choose to put the ‘Read the rest of this entry’ link (known to insiders as the ‘more’ tag). So short entries will appear in the feed in their entirety, but longer pieces (and most of my blog entries fall into this category) will stop short, forcing the reader to click through to read the rest of the item anyway — in exactly the same way readers of the home page have to click through to finish reading any posting that catches their interest.
This is not entirely in the spirit of the full-text feed, although I have also seen some people say they prefer summary feeds rather than having a single blog post occupy screeds and screeds of real estate in their RSS reader. So perhaps this hybrid solution may please some of them.
So let’s go to the poll, which to reflect the choice I’m facing has just two options. If you want to put the case for some other option, please use TalkBack. And to ensure I capture all possible voters, I won’t be using that ‘more’ tag on this post.
Loading …March 29th, 2008
Ever been Oprah’d?
One of the measures of success for a tech website or blog is getting TechCrunched, Dugg or ‘slashdotted‘ — the sudden surge of visitors that comes as a result of being highlighted by one of these big-traffic sites, often crashing the target site (it happened to one of my sites once). But such visitor surges look like mere ripples when compared to the tsunami effect that assails consumer websites when they get Oprah’d.
I’d never heard the term until this week, when I had the phenomenon described to me on two separate occasions, first in conversation with Bert Armijo of data center virtualization vendor 3Tera and then during a meeting the following day while attending SaaScon. The effect of getting a mention on Oprah Winfrey’s 8-million viewer talk show is overwhelming for most websites. Ken Harris, senior VP of natural nutrition company Shaklee told me his company’s website has survived five separate appearances on Oprah, despite peaking up to “ten months’ worth of average daily volume in one day.”
It turns out that the ability to handle the peak traffic loads that hit when a consumer brand gets Oprah’d is a big selling point for cloud computing and on-demand application providers, because they have the infrastructure in place to cope with the peaks. Rod Boothby, VP of platform evangelism for cloud computing vendor Joyent told me later in the week that one of its customers had come on board just to be ready for the expected traffic surge after an upcoming feature on CNN and in the New York Times.
Handling those surges is especially important for consumer sites. In the tech world, it’s embarrassing when your site falls over but it’s not a huge loss — various studies, anecdotal or otherwise, show that visitors sent from such links are mostly transient, never returning again and rarely clicking on your ads or affiliate links (which, remember, is your payback for getting lots of traffic).
But for consumer sites, those visitors are all potential customers — they wouldn’t be taking all the trouble to go visit the site if they didn’t have at least some interest in buying. So surviving an Oprah surge has huge commercial value, and in a few short hours can amply repay the effort of migrating to a cloud computing or SaaS provider.
March 24th, 2008
Customization: curse or blessing?
At the high end of the platform-as-a-service spectrum, there’s a cluster of vendors that offer fully templated but still highly customizable business applications, targeting small to mid-size businesses and departmental managers in larger organizations. Interestingly, in a poll of ZDNet readers I ran earlier in the month asking where you’d prefer to develop SaaS applications, this class of platform was the most popular choice, beating out cloud hosting alternatives such as Amazon EC2, and leaving hosted development platforms such as Salesforce.com’s Force.com and the impressive startup Bungee Labs well behind in fourth place. True, the poll was no more scientific than the infamous show-of-hands I orchestrated at last month’s SaaS Summit, but perhaps the results shouldn’t be dismissed too lightly. As computing shifts to the cloud, the way in which vendors enable customization may become the key determinant of success or failure. It all revolves around what kind of platform for customization the market really wants.
I had an interesting couple of meetings last week relating to this theme. One was with NetSuite’s Zach Nelson, who has reappeared after the company’s recent IPO sporting a beard (see picture). More on that below.
The other meeting was a pre-briefing with Pankaj Malviya, CEO and founder of Relationals, the company behind the LongJump PaaS offering, which today takes a major step forward with the addition of a visual workflow designer (partial screenshot follows).
I warmed to LongJump for two reasons. Firstly, the company is bootstrapped, not venture funded. That means it has had to prove the worth of its offering by selling to real businesses, not just a bunch of VCs. “The platform has been proven with real customers and real money.” Malviya told me. “We are a fully bootstrapped, profitable company.” Secondly (and perhaps because of this history), Read the rest of this entry »
March 18th, 2008
Enter the socialprise
According to Coase’s theory of The Nature of the Firm, enterprises form to avoid the transaction costs of buying services or other inputs from other organizations. But that was in 1937. Modern communications, in particular the Web, have reduced the friction costs of doing business with outsiders at the same time as increasing competition — to the extent that it’s now often cheaper to use an outside provider than an internal resource. One of the clearest examples of this is the use of SaaS applications or cloud computing resources instead of internal on-premise computing.
The flipside of these changes is that enterprises are no longer the passport to lifetime employment they were in my father’s time. Corporate loyalty from and to employees is evanescent, easily dissolved when a business downturn or a better offer comes along. Loyalty between individuals is much more important today. I often meet people who have worked for the same boss but at several different enterprises. Teams that build successful working relationships stick together and recruit each other to new employers as they hop from one opportunity to another.
Social networking has always been an important aspect of business life. It used to happen at the golf club. Now it happens on LinkedIn, Google Groups and Facebook. In the same way that the Web has reduced friction between firms, so it has reduced barriers to social intercourse. All of us now routinely form relationships via the Web with people we’ve never physically met. What’s more, the Web is becoming a mine of pertinent, timely information on all our contacts.
But enterprise computing is still designed for the old, stovepipe model in which every transaction took place within the same firm. There’s no connection with the social automation that’s happening between individuals. Many enterprises even resist talking about social networking. And even when an application vendor adds some kind of social networking features, there’s always the suspicion that they’re just painting social lipstick on a stovepipe pig.
This yawning chasm is an opportunity for a new class of applications to emerge that can harness the social networks between individuals and make them relevant to the enterprise. Or perhaps Read the rest of this entry »
March 17th, 2008
Ozzie signals Microsoft’s surrender to the cloud
Publicly, Microsoft talks up the merits of its ’software-plus-services’ strategy. In my view the message is bunkum, even though it reflects the reality of Microsoft’s business today: mostly software, with a few early-stage service offerings. But Microsoft has its message back-to-front. Until Microsoft reverses the software-plus-services mantra and puts services at the forefront of its vision, it will continue to disappoint.
I know many people want to believe Microsoft still remains in charge of its destiny and won’t let cloud rivals walk all over it. But time after time, history shows that it’s fresh startups, not incumbent giants, that gain leadership in new technologies and markets. I guess we’re just wired to expect those who wield power to stay in place. But the truth is that, at times of change, it takes a change of leader to adapt to the new circumstances.
Recent pronouncements by chief strategy officer Ray Ozzie suggest that, despite the public bluster, Microsoft’s top brass already secretly realize that they must put services, not software, at the center of their worldview (the world of the mesh, Ozzie calls it). Parse, for example, these excerpts (with my emphasis added) from a recent interview by GigaOm’s Om Malik, and you’ll find some surprising takeaways.
The desktop is no longer central:
“There are things that the web is good for, but that doesn’t necessarily mean that for all those things that the desktop is not good anymore. What I think is important is to re-pivot the center of what we are trying to accomplish.”
March 13th, 2008
Making cash with SaaS and Web 2.0
Ever wondered why so many Web 2.0 or SaaS offerings are free or bundled? It’s because the vendors can’t work out how to bill for them. Don’t believe me? Here are some real-life examples:
- A monitoring vendor that switched a $10,000-a-year data extraction option to free because it had no way to measure usage and so couldn’t tell its auditors when to recognize the revenue
- A leading SaaS vendor where new product ideas with usage-based pricing schemes never see the light of day because of the $1+ million it would cost to re-engineer the billing system
- Another SaaS vendor where it takes up to 8 hours for a sales rep to work through the process of pricing, setting up and approving a customer order for an add-on to an existing subscription
No wonder most Web 2.0 vendors prefer to monetize with ads — or else just hope to exit before the VC cash runs out. For SaaS offerings, per-user per-month is the default charging basis simply because it’s relatively straightforward to track and calculate. Or so you’d think. But even such a simple system rapidly gets complex for vendors that are growing rapidly.
Let’s say you have a thousand customers growing at 25% a year and you offer two products and three license plans. Sounds simple enough, except that life is never that simple. Even if you’re doing well, you’ll lose around 1 in 10 customers a year because of natural churn. With any luck, you’ll upsell 2 in 10 of those who remain. Remember too that your subscriber base is constantly shifting because your customers, through recruitment, transfers and promotions, will change details on at least one in five user accounts each year.
So of the 200,000-plus monthly invoices you’re going to issue in the coming year, how many of them do you expect will trigger a customer query? Especially when the effects of churn, upsell and user migration leave as many as a third of them showing a different bottom-line figure than they did the previous month.
Does it start to sound like a headache? Now you can understand how you’d react when some bright spark in product marketing suggests a new service option with utility-style pay-by-the-drink pricing.
That’s when Tien Tzuo, CEO and co-founder of Zuora, hopes you’ll call in his company (if not before). “We see a lot of deer-in-the-headlights,” he said. The company today announces Read the rest of this entry »
March 11th, 2008
Oracle skins CRM with social networking
There’s been a lot of debate and soul-searching among so-called Enterprise 2.0 gurus and vendors about how to bring social networking to the enterprise. Here’s an interesting new take from Oracle CRM, launched today: build social networking into the applications enterprises already use.
Anthony Lye (pictured), who as senior VP of CRM at Oracle has spearheaded the reinvention of CRM OnDemand over the past year-and-a-half, told me last week that, “What we’re doing in SaaS is now very much on the leading edge of CRM.” I’d say that’s an understatement — the integration of social networking capabilities into the new release is on the leading edge of what’s happening across all enterprise applications.
Interestingly, Lye attributes the progress his unit has made to its on-demand architecture: “Being on-demand gives us access to a much greater range of Internet capabilities.” I would be putting words into his mouth if I were to deduce from that comment that on-premise applications can’t replicate the full functionality appearing today in Oracle CRM On Demand Release 15. But it does seem to imply that they have a tougher mountain to climb to get there, which has interesting implications for the competitive landscape between SaaS and on-premise applications going forward.
In another break with established practice, Lye has pre-briefed a select band of CRM bloggers on today’s announcement, so I’ll leave it to them (and to the mainstream tech media) to trawl over the details. I’d just like to highlight a couple of elements that piqued my interest because of the way they use the Web for Enterprise 2.0-style collaboration and networking. Read the rest of this entry »
March 6th, 2008
A plethora of PaaS options
About that show of hands. I didn’t expect my straw poll at last week’s SaaS Summit would produce only two hesitant supporters for Salesforce.com’s Force.com platform-as-a-service model out of a room full of two or three hundred ISVs. But this was a conference organized by specialist SaaS hoster OpSource, and even though the OpSource team does a great job of making this an event of interest to the entire industry, you’d still have to expect the attendees would skew towards favoring OpSource’s managed hosting model. A similar straw poll at a Force.com event would probably skew in the exact opposite direction in favor of Salesforce.com’s more packaged platform. To arrive at any other conclusion is mischievous at best. [Disclosure: Salesforce.com and OpSource are both clients, OpSource funded my travel costs to be at the event.]
What’s more, I’d argue that the cloud computing and hosting choices available to people — whether they’re ISVs, enterprise developers or business users — are still poorly understood. There’s been a veritable explosion of platform-as-a-service choices coming onto the market in the past month or two, and the pace of introductions is accelerating rather than slowing. It’ll all settle down eventually, because at the end of the day people tend to coalesce around just one or two dominant providers, or a handful at most. But ISVs perhaps want different choices than enterprises and indeed solution providers. So I think there may be several different categories of platform where we’ll see those clusters of long-term dominant players getting established. I’d divide the options into five layers, as set out below. There’s also a poll at the end where you can express your preference, and perhaps arrive at a better-sampled (though just as statistically invalid) result than that show of hands … Read the rest of this entry »
March 3rd, 2008
Microsoft disappoints on SaaS. Didn’t you see it coming?
So Microsoft’s much-rumored big splash in SaaS this week turns out to be an extension of its hosted SharePoint and Exchange offerings. As Dana Gardner writes, Microsoft Online Services is “about maintaining the base of the small businesses and department-level buyers of Microsoft products. In essence, this is defense.”
Mike Arrington is gutted. The blogosphere wants nothing less than Microsoft Office (or Works, at a push) hosted in the cloud just like Google Apps. I promise you, it ain’t gonna happen. Not until Microsoft is finally dragged kicking and screaming into the on-demand era, sometime in the next decade. (By the way, beware the suspect math Arrington and some analysts are using to talk up Google Apps revenue. Someone forgot to subtract the existing revenue acquired with Postini’s on-demand email filtering service.)
There will be some more to mull on at MIX. Probably some kind of Platform-as-a-Half-baked-Software-Plus-Services play (PaaHaSPS), building on the hosted development service announced by Ray Ozzie last year plus some Silverlight 2.0 goodness to put a new spin on it. There’s also Startkey, an interesting move that allows users to carry their local settings with them as they migrate around the cloud.
But Office in the cloud? Steve Ballmer will lose his job before that happens. Shifting the Office cash-cow into the cloud on a monthly subscription basis would drive a stake through the center of Microsoft’s business model (which is why Microsoft got uppity when a UK hoster tried to introduce a $10-a-month service last month).
When Microsoft finally gives way to the SaaS tide, the company will post annual losses equivalent to the annual GDP of several minor countries for several years on the trot, just like IBM did in the early 1990s when it finally realized client-server was going to trump its proprietary systems strategy. For obvious reasons, Microsoft will do everything it can to delay that outcome until the last possible moment (and probably beyond).
In the meantime, expect nothing but disappointment if you think Microsoft is going to shift any of its desktop products into the cloud any time soon. I don’t own a hat, but I’m so sure of this I’ll promise to eat Ryan Carson’s if it happens. Safest bet I ever made.
Phil Wainewright is a commentator and strategist on emerging software industry trends. See his full profile and disclosure of his industry affiliations.
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