Bit of a buzz last week about how NetSuite was IPOing even though it didn’t have a back-up datacenter. This came as a surprise to many in the press, analyst and investor world, but it shouldn’t have. As the guys over at Saugatuck Technology pointed out, this is the most likely case. Most SaaS vendors have no multi-site capabilities. Even SalesForce.com didn’t have a second center until well after it IPO’ed.

Even their NetSuite’s customers were surprised by this. (Though one customer, namely OpSource, was not.) Seemed they couldn’t figure out why for their $500 per month they wouldn’t be receiving multiple datacenter support.

The reality is that traditionally running multiple datacenters is very hard and very expensive. Not many companies really get diversity before $100m in revenue. The reason being that running two centers is more than twice as expensive as running one center. Not only do you have the costs of both centers (with much lower discounts than you would get by massing your buying power) you have the costs of running all the HA software, hardware, and network connectivity to keep the two datacenters in sync. And how much extra functionality can you sell your customers with both of those centers? None.

You might say that customers are willing to pay more for increased availability. They won’t. The fact is a well run single instance of your application should have at least 99.95% uptime. Getting a couple extra 9’s won’t get the customer pulling out their wallet.

And in a cruel twist of fate, multiple datacenters can actually cause more downtime. The hardest thing in IT is to sync multiple instances of an app. Ask SalesForce, who had the most trouble with their availability right after implementing a second site. Anyone who has tried it knows how tough it can be.

When you factor the costs and the difficulty and the lack of true customer demand, it’s no surprise that most SaaS companies don’t have a second center until they have over $100m in revenues.

What’s the answer then? I think it’s going to be a big part of switching from traditional enterprise application development and deployment, in to true web development. By abstracting their app from the physical layer and truly living on the web, companies can much more easily take advantage of multiple points of presence. The tools are just beginning to arrive (of course we’ve got some) but we’ll see even more be done on this over the next couple of years. Companies who take advantage of these tools and offerings will get HA built in without having to break the bank.

Posted: July 27th, 2007 under SaaS - Software As A Service.
Comments: none

Recently at the Progress Software Partner Summit, it was stated that certain type of users wouldn’t buy SaaS. Interesting enough the type of person who was used as an example was the Foreman of a Machine Shop (Progress Partners include some of the most interesting vertical players.) I found this argument false for two reasons.

First of all was the assumption that less technical users wouldn’t be comfortable using a web based app instead of installing traditional software. (Not that shop foreman are necessarily less technical, but that was the assumption for this example.) I think the reason the web has become so widely adopted is it is a much easier form of technology consumption than traditional software, hence new users are far more comfortable with it. How many times have you seen someone who couldn’t do the basics on a computer except web surfing and e-mail. My father spends 4 hours a day on his computer playing fantasy sports, but didn’t know how to save a file in a traditional app. If anything, less intensive computer users will favor using the web over trying to install anything.

Secondly, even if today there are certain users who favor traditional installed software, that is not going to be the case for the next generation. The youth of today, who will be the business users of tomorrow, are going to look for everything on-line. Look at what has happened to Educational Software sales. Between 2000 and 2003 educational software sales fell in half. I’m sure those numbers have dropped even more in recent years. While my nine year old daughter had a drawer full of games, and my seven year old son had one or two, my 4 year old has never done anything but go on-line (I’ll do another post some day about the genius of Club Penguin.)

Regardless of the jobs this next generation goes in to, they are going to expect to consume technology the way they have their entire lives, through on-line applications. And considering that the first of the Net Generation of kids is just beginning to hit the job market, software companies that don’t deliver on-line will be in serious trouble.

Posted: June 25th, 2007 under SaaS - Software As A Service.
Comments: none

I’ve been saying a lot lately that you can tell things are getting good because the jerks are back. 24 year old entrepreneurs who think the world did not exist before ValleyWag and have a shiny new Series A term sheet to prove it. We’re just short of having meaningless demo conferences in the desert with thousands of booths populated by incredibly good looking “marketing coordinators” right out of school who can with a straight face swear their PokeApp really is more than five lines of PHP script creating a weather widget, it’s the next coming of Google. Once that happens, we’ll know we’ve really made it.

That said I had two very good meetings last week with some companies that are really on the cutting edge of the burgeoning field of utilizing web services to build applications. Dave Rosenberg, CEO of MuleSource, and Oren Michels, of Mashery. Both companies are on the cutting edge of how we take we extend the mashing up of applications beyond the class projects of layering Google Maps onto a smell database of the New York City Subway System and in to real offerings that support business level availability, billing and support. Anybody interested in how to make this work in the real world could definitely do worse than start by talking to these companies.

What struck me about meeting these guys was how we are beginning to see a new breed of entreprenuer and CEO; one who understands the technology and community power of Web 2.0 but who also are grown ups who can discuss business and how to make this all work for real companies. Up to now it seems that many people working on SaaS and Web Applications fell in to two catagories. The first are software guys who don’t understand that this is all about the Web for business, not coming up with a new pricing scheme for their old products. The second were guys who have no real world experience and think the whole world revolves their latest Web 2.0 applet, or more simply put jerks.

It’s guys like Dave and Oren that I think really differentiate this new wave of technology from the last one. They both really understand the technology and what it’s going to take to make real business’s work with it. This new breed of entreprenuer is far more visionary than the traditional software guy, but knows that you can’t be a jerk if you want to create the long term relationships necessary to build these businesses. Oren is so balanced, he even called me for being a little over enthusiastic about what we do and how great it was (not that I’ve ever been called a jerk myself.)

It’s exciting, because I think that means companies who realize the potential of these technologies will have a much better chance of succeeding this time around. Plus, they’ll be a lot more fun to work with.

Posted: May 7th, 2007 under SaaS - Software As A Service.
Comments: none

What’s the difference between these two groups of names:

Group 1

BoingBoing
Dekoh
Megite
Nuvvo
Podango
Vimeo

Group 2

Metapod
Weedle
Zubat
Cloyster
MewTwo
Wooper

Group 1 is a list of companies I randomly selected from the TechCrunch company list and Group 2 is a random list from the Pokemon Pokedex from my favorite company Nintendo. This struck me the other day when I realized our sales meetings were sounding exactly like my kids Jack and Madeline discussing their latest captures in Pokemon Diamond and Pearl.

I wonder if the game designers at Nintendo worry that Spoink the Psychic Pokemon might be confused with Spoink the Contact Extractor incubated by BMGI Ventures? Is this someone’s full-time job? Do they have to get the legal department to sign off on these things?

And should I be surprised that there seems to be a Wikipedia entry for all 386 Pokemon characters (and that the posts seem longer than the one for Abel P. Upshur our 15th Secretary of State?)

I wonder how many companies on TechCrunch are also Pokemon names. I couldn’t find any, but I’m sure someone can write a quick script to check the two lists against each other. Let me know if you can find any.

Posted: May 2nd, 2007 under SaaS - Software As A Service.
Comments: 2

I think the biggest mistake people make when looking at Web Applications and SaaS is thinking that’s about just moving users over from siloed enterprise applications. This just scratches the surface.

I’m a long time fantasy football player (16 years now.) When we started our league we all used to get up early on Monday morning to get the stats out of the paper and manually calculate our results and phone them in to the commissioner. We were dedicated buyers on fantasy football magazines. Eventually we found some desktop software from an ad in one of the magazines and used that to start managing our league.

When fantasy football came on-line and we were able to put our league on CBS Sportsline’s Commission.com it was a revelation. We were able to configure our league exactly like we wanted and get realtime stats and draft and trade our players much more easily than we ever thought possible. We even stopped having our draft at the local pizza joint so we could go to someones house and connect to the internet with the draft attendees from all over the country (though we are now back at Vito’s in Sunnyvale since they added wireless.)

Soon every fantasy football league in existence went on-line. I don’t think there has been an off-line league anywhere in the country. A web application made our lives so much easier.

But was have been even more amazing is to see the explosion of popularity in these fantasy leagues since the advent of the web. What used to be a highly targeted sport’s fan/geek niche has become a much more main stream pastime. No longer is participation limited to 40 year old losers like myself going out and buying the football magazines. In our office, almost everyone has some sort of team.

Good web applications have a way of doing that. They convert not just existing users but broadening the scope of who uses them. eBay took collectibles out of dust shops and fan mags to the masses. Salesforce.com has brought CRM out of the Fortune 500. It will be interesting to see what is next.

Posted: April 25th, 2007 under SaaS - Software As A Service.
Comments: none

I just got back from the Tier 1 SaaS Evolution Summit, where I saw a presentation by Mike Mankowski of Tier 1. He had one statistic that floored me; that only 13% of Software as a Service companies had click-to-buy functionality on their site. Delivering as many SaaS apps as we do, I knew a number of them didn’t allow users to subscribe directly from their site, but I had no idea it was 87%!

While Mike was quick to point out that research was preliminary, I think it’s amazing indication that many SaaS companies are not truly understanding what it means to be On-Demand. It’s not enough to offer your software on the web and charge a subscription, you need to make it simple to adopt and get started. Not having a “click-to-buy” feature tells your users that they are going to need your help to get going and make their software work. That sounds a lot like bad old Enterprise Software.

Besides “Click-To-Buy” offers great advantages for the SaaS company. Not only does it greatly reduce your customer acquisition cost, it forces your team to simplify your message and clarify your primary value to a user. You may not be able to sell a complete and complex suite of tools over the net, but if you have “Click-To-Buy” you can get to a point where people can get going. Once they are using your software, then you go in for the complex sale.

From here out, I’m going to ask every SaaS company I meet if they have “Click-To-Buy,” and if not how soon they will have it. You can’t be Business Web if you don’t allow people to do business with you on the web.

Posted: April 21st, 2007 under SaaS - Software As A Service.
Comments: 1