SaaS-delivered IT Service Management (ITSM) is rapidly on the rise, creating complications for its on-premise counterparts. The transition is affecting existing, on-premise players like BMC, which to compete, announced its own on-demand service last week.
Ovum's Stephen Mann writes that the shift is evident in a number of announcements, including PepsiAmerica's news that it is now a Service-now.com customer. Service-now.com is one of the leading vendors in the SaaS ITSM market.
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"SaaS continues to gain much publicity and vendor backing, and a growing corporate acceptance as an immediate opportunity to quickly and flexibly deliver business-enabling IT services at a lower cost."
SaaS-based ITSM models serve as a way for IT departments to work more efficiently under tight resource constraints.
Mann writes:
"A major benefit of SaaS for ITSM is that it is aimed directly at the heart of the now commonly overstretched IT function - scarce IT resources can be redirected away from internal IT systems to focus on the delivery of business-critical IT services. However, for many organisations the key benefit of SaaS is its simple, subscription-based pricing model - usually a cost per month (or year) per user that covers everything needed to operate, including support and maintenance. This provides a lower and consistent level of expenditure that is opex rather than a capex investment."
This sector of the SaaS market is reflective of the overall difference between online and on-premise applications. Like any SaaS environment, the development cycles are far more frequent than on-premise applications. On average, a SaaS application will be upgraded several times a year, compared to on-premise tools that get updated every 12 to 18 months.
So it makes sense that a company like BMC would offer its own SaaS environment to compliment its own on-site offering.
But enterprise clients need to beware of what they are getting with any SaaS service. SaaS can be confusing when vendors make up their own definitions.
Mann says it well:
"A SaaS solution must be architected such that the customer is able to self-customise its 'application instance', with these customisations preserved through what should truly be an effortless upgrade process. Without these facilities, the SaaS business case is not so compelling."
Expect on-premise vendors to push a hybrid approach. That might work for some enterprises but the cost efficiencies of a pure SaaS model will be hard to pass up for organizations working with limited resources.
If you are building a SaaS (Software as a Service) venture, you should be thinking hard about your pricing strategy. It may be the single most critical decision you make. Pricing impacts your marketing, financial and organizational strategy. Are you selling an expensive, complex enterprise solution? Or a simple impulse purchase that an individual can make with a credit card? Will you offer a free, a.k.a.freemium, option?
You cannot fudge these decisions, you have to tell customers how much it will cost before they can commit. To provide input into this decision, it is good to learn what your peers are doing. So I researched 103 SaaS vendors to see how they handled pricing.
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This guest post was written by Bernard Lunn, a serial entrepreneur. In 2010 he is focusing on how the Internet is disrupting the capital markets after the financial meltdown, and also on what is happening as SaaS crosses the chasm to the mainstream. In 2009 Lunn was the COO of ReadWriteWeb. In earlier times he has built ventures at the intersection of software, media and outsourcing. Comfortable with globalization, he has built ventures in Europe, America and Asia. You can follow him on Twitter.
The Sample Set: 103 SaaS Ventures
How many SaaS ventures are there today? Nobody knows. I can see all of the public ones, and most of the ones that get serious VC money, and those that break through to some level of success. I found 103 of them. But I know that for every one I find, there are probably 100 more. But I think that I found 103 pretty important SaaS ventures and that 103 is a reasonable sample size. You can find the full list here. Here is how I categorize them by funding stage:
VC (institutional round)= 62%
Bootstrapped (maybe angel, but no investors on the record)= 16%
Publicly traded= 22%
Only 30% Really Want You To Call Them
I looked at all 103 to see how many have an 800 number right there on the front page with a big invitation to "call us right now". That is a sign that they have invested in an inside sales team that can take an inquiry and convert it to an action.
The answer is only 30%. That was lower than I expected.
Note: Some companies have an 800 number on their Contact Us page. I did not count those. Most will go to a switchboard or voice mail. If the number goes to a sales team that is hungry for leads, you will want that number as prominent as possible.
I expected more to use inside sales to convert to action. There may be three reasons for this.
They are selling at such a low price point that it is not economical to have a human salesperson in the loop. I saw a few companies in this category. This is what might be called the Google strategy: The sales person only gets into the loop after a large company has already gone far down the adoption road.
They prefer to have prospects fill in a form so that a sales person can call them. As most do not show their pricing online (see next section) this seems a likely explanation. It is the traditional enterprise way. But I question if this way works in the SaaS model, and in an online world where site visitors want instant gratification and are nervous about getting spammed if they give out their information.
They don't have the money to build an inside sales team. This seems unlikely given that our sample set was larger SaaS ventures.
Only 24% Show Pricing Transparently
I looked on the front page for a link about pricing and I dug down a level to find it there. Only 24% display pricing in the transparent manner that I think as the norm for SaaS (usually with multiple tiers). That is being generous; in our interpretation of "transparent" I included some who have one price with a line saying "pricing starts at x-dollars" that is really a come-on to get somebody to call.
I notice that Salesforce, the bellwether of the SaaS industry, has both transparent pricing (and a big 800 number invitation to call them). Other leaders with pricing transparency include Zoho, 37 Signals, Constant Contact, Xero and Timebridge.
Only 6% Have a Freemium Plan
That was the big surprise. Freemium is being discussed almost as the de-facto pricing strategy for SaaS. Note: I did not include a free trial as freemium. Most vendors have a free trial. Freemium means free forever, albeit with limitations.
Some experts are questioning this freemium orthodoxy. In particular I like the work being done by Lincoln Murphy (right), an SaaS expert at Sixteen Ventures. You can find his paper entitled The Reality of freemium in SaaS here. It is a good primer on freemium but once he explains the basic rationale, he goes on to suggest caution. His best advice is that you need to really understand what value you are getting back from your free users. He makes it clear that a no-think freemium tactic ("put it out there for free and figure out conversion later") is often a disaster.
However, if freemium is the orthodoxy I expected more companies to offer a free option. The 6% freemium rate can be explained by either A: the vendors figured out what Murphy is saying and so don't offer freemium, or B: the vendors are locked into old enterprise styles of selling and marketing. They may be SaaS-modern on the delivery side, but they are legacy on the sales and marketing side.
It is probably a mix of the two. The lack of pricing transparency indicates that B is more likely in most cases.
CAC Ratio: Where This All Comes Together
CAC (customer acquisition cost) is one number you should obsess about if you run a SaaS venture. Bruce Cleveland, the SaaS-focused partner at InterWest Ventures (see the ReadWriteWeb interview here) has a good post that outlines his definition of CAC. There are different ways to look at CAC, but I think Cleveland's makes the most sense in the real world. Here is how he calculates the CAC Ratio: ($ Total Sales + $ Total Marketing)/$ First Year Contract Value.
He goes onto say, "The objective is to make the CAC ratio less than 1, which implies a customer acquisition payback of a year or less."
That is controversial. Some would allow ROI over the years of Lifetime Value (LTV). Read his post why that is a bad idea operationally. (Cleveland was one of the original members of the Siebel executive team, so he talks from operational experience not MBA textbooks).
However, whether you measure CAC over one year or multiple years, the CAC ratio is how your investors will measure you. It will determine your capital efficiency, which determines how many times you need to go back to investors for more money.
I believe that vendors that don't offer a clear path to revenue online (through transparent pricing and, for higher priced products, an inside sales) will struggle to have a best-of-breed CAC ratio.
What Is Your Experience?
Is a CAC Ratio below one feasible? What freemium strategies are working? Is it viable to hide pricing behind a lead generation form?
Chester French is a rock band that has built an application on the Force.com platform. That's compelling for the simple fact that when a rock and roll band develops its own application, you know that the market is seeing a far wider adoption than it has ever before.
Even more, it's an important reminder of the advantage of building your own applications over complete reliance on a social network that does not give you access to the customer information that you have developed on the platform.
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Known for its dose of "pop pastiche," whimsical lyrics and high energy, Chester French has shown enough popularity to get a record deal with Interscope and perform on the same bill as Weezer.
The band built a VIP application for its fans using Force.com. VIP members receive perks for being on the VIP list. The more they promote the band, the more points they get. Prizes include music and t-shirts.
Here's their story as told by singer D.A. Wallach. It's an interesting tale about the music industry and how one band built its own application to form direct relationships with its fans instead of being highly dependent on a social network site.
It's a problem that doesn't just plague rock bands. A hosted platform can be a bit of a trap. Often, you do not own the data. Application platforms may not be as open as we'd like but you own the information and it can be exported .You can't say that much about Facebook, which is lacking as a business platform simply because you can't export your own contact information. I asked Marc Benioff about this last week in context to how Salesforce.com is integrating with Facebook. He said it is the individual's decision about how they want to move their information around.
But what is the point of a Facebook application environment if the contact information you develop is locked up?
That's going to be a big question for social networks as more businesses move to platforms like Facebook. Contact information is scattered for most people. An application may be the best answer for companies when developing relationships for commercial efforts. Social networks are becoming important for business but their value is compromised when they suck in your customer contact information but don't let it out.
Business intelligence, analytics and the demand for process optimization are the big draws here at the IBM Information On Demand Conference in Las Vegas.
As one executive said on stage, its not enough to react quickly to what is happening but to predict it.
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According to IBM's CIO Global Study, 83 percent of respondents said business intelligence and analytics are a top priority. IBM sees business analytics as the next mega trend, growing twice as fast as the rest of the IT industry.
For example, Cognos, acquired by IBM in 2007, is now a hub for IBM's business intelligence offerings.
Cognos announced its Content Analytics product at the conference. With the addition, Cognos is putting an emphasis on combining a client's internal data with external information to provide a more complete picture of the market and how to optimize marketing and processes within the organization.
This may be used to correlate transaction information with unstructured information that the client collects from the web.
Applications may include using analytics for sales purposes to get a better understanding and deeper insights into trends that come as trickles from actual purchases. The information can be analyzed with other data from sales reps about the products they are selling. This information can then be used by sales executives to predict trends and ready the rest of the organization for changes in the marketplace.
But though this conference is about information on demand, there is little talk about the real-time web. We asked IBM executives if they can integrate activity stream information, such as a Twitter search pertaining to a company name or product. They said it was possible though it is unclear exactly how this would be accomplished.
Most of the examples we saw with Cognos Content Analytics focused on massive amounts of form data that can be viewed in a dashboard. That's impressive but we would like to see how IBM is leveraging the social web and how they plan to compete against the number of lightweight social technologies that are filling the market.
[Disclosure: IBM paid for a plane ticket and hotel room for Alex Williams to attend the IBM Information On Demand Conference.]
Salesforce.com and Adobe have entered a partnership that allows developers to create rich Internet and desktop applications in the cloud. The partnership is just one more example of how an ecosystem is developing between Software-as-a-Service (SaaS) vendors and application developers.
In recent weeks Salesforce.com has partnered with a host of companies, including Box.net last week and an integration with Cisco earlier this month.
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The partnership with Adobe means that users may create enterprise applications on the Force.com platform.
Developers may create applications that are launched through a browser using Adobe Flash technology or on the desktop using Adobe Air.
This is intriguing. We've seen a number of consumer application developed using Adobe Air, including Tweetdeck, the rich Twitter application that has grown immensely in popularity. The partnership with Salesforce.com means that developers may create similar applications through the integration of third-party API's that may provide another means for enterprise customers to create their own social applications.
We know there are any variety of ways to create applications for the enterprise but the relationship between Adobe and Saleforce.com demonstrates how easy it is becoming to create rich applications for specific, business purposes.
The simplicity is evident in the way developers create applications using Adobe Flash Builder. It's as simple as drag and drop to add such features as calendars, grids, charts, buttons and all the other elements to make the user interface compelling for the user.
On the desktop, the data is synced to the Salesforce.com environment via an API, creating an integrated platform for users.
Remember how third-party applications accelerated Facebook's growth? A similar model is emerging in the SasS world. Applications are making SaaS platfoms rich integrated environments, tailored to the business user. Development is far easier than ever before, making it possible to create tools that can enrich the experience for the user by viewing data in ways that helps them take faster action without the need for an IT administrator or analyst to present it in a way that makes sense.
The release preview for Adobe Flash Builder is available at force.com. The product will be fully available in the first half of 2010.
In the world of Software-as-a-Service, you can start to see how platforms will evolve into service networks - where enterprise users may subscribe and get access to applications that they pay for on a per use basis.
Box.net will now be available in Salesforce.com CRM through tabs that will give the user access to their files stored within the Box.net environment. The tabs provide access to the user's Box.net files instead of the corporate site or the user's desktop.
Documents, presentations or rich media files may be emailed to contacts through Outlook or Google Apps. Box.net integrates with eFax. Contracts may also be sent digitally using EchoSign, a digital signature company.
Box.net shows how a service using the cloud can be disruptive to the big players in the market.
It's without question that Box.net is gunning for Sharepoint and the enterprise market. Founder Aaron Levy did an interview with Robert Scoble this week. Levy wore a no Sharepoint shirt. That says it all.
The Box.net announcement is illustrative of an overall trend for service providers to provide their applications on existing SaaS platforms.
Freshbooks, for instance, is a platform for small businesses to manage their finances. Services such as MailChimp, RightSignature and Batchbook offer their applications to Freshbooks users.
It's clear this kind of integration is gaining traction with enterprise users. Companies have seen the value of cloud services like Salesforce.com. The next step is for the enterprise to leverage applications that rest on top of SaaS applications such as Box.net.
Box.net is offering unlimited storage for companies that sign up for the service. Cost is $25 per user per month for an Enterprise account.
Wikis, micro-blogs and collaboration technologies get a lot of attention for their use in the enterprise but one need remains constant.
Search.
Who wins the search battle will come home with a lot of prizes and big wins in the enterprise. Search may even prove to be a differentiation for companies that are choosing collaboration platforms.
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There are a number of enterprise search vendors who are delivering search technologies. Companies like Open Text offer a bridge between Enterprise 2.0 and Enterprise Content Management to make "2.0 content is both manageable and secure." Many of the enterprise search vendors are well-established. For our purposes, we are looking at enterprise search from a collaborative perspective. It's clear that Google has a leg up but the home-grown nature of services like Box.net make them attractive alternatives. Microsoft Sharepoint has made some improvements to its search, which are worth noting.
Google Search Appliance is a cornerstone of the company's strategy to reach into the enterprise market. It fits closely with Google Documents and Google Sites, its collaborative environments. The Google Enterprise group has launched what it calls a "self-learning scorer," (SLC) which analyzes employee clicks and behavior patterns to better the results that the user receives. Queries that get clicked will jump in the search rankings.
In Google, people will often click on what they discover on the first page of the search rankings. Google calls this "trust bias." SLC uses a regression model to filter out trust bias to better understand the behavior patterns of the user. Google claims the improvement can work across any number of documents in the enterprise. What this does is create a self-improvement system, using analytics to improve the results.
The impacts of this kind off development can be heard throughout the enterprise as business users discover a whole new community of tools that provide search functionality on top of their core offering.
Box.net uses a mix of open-source technologies to broaden the capabilities of their collaborative applications. As information is added to the network, the system adds the information from the documents into a relevance algorithm.
Users upload their documents into the Box.net environment, which gives the user the advantage of working across a finite universe as oppose to the great sea of the entire enterprise.This makes search a lot easier. Results can be served up to the user that may not have necessarily been requested. For instance, a marketing manager may do a search and get results that are not directly related to the query but are relevant, nonetheless.
Microsoft has added new search functionality to Sharepoint 2010. Users may use query syntax while searching on Sharepoint. This means users may use "AND," "NOT," "OR" in searches. Microsoft has also added a"wildcard" functionality and a "faceted search."
The wildcard search allows users to add incomplete words to the end of a search string. The faceted search pops up a tab on the left column of the page, allowing users to drill down to discover the data they are looking for.
A major aspect of Microsoft Sharepoint is giving the IT administrator control over the functionality of the user environment. This is evident in Sharepoint 2010.
Administrators can also configure the other categories that are used in the refinement panel based on managed properties and enterprise content management taxonomy nodes.
That means any time a user wants a deep search functionality, the administrator has to go in and make the refinement.
Google nor Box.net require IT intervention with their services. In Google, The SLC is continually sell-improving, eliminating the need for IT to get involved. Box.net's algorithms crawl the text of the customer's documents. Refinement is built into the product.
To be fair, Sharepoint is looking across the great universe of data in the enterprise. But will enterprise customers look to Google for help in search across Sharepoint?
From the Google blog:
We are newly providing native integration for SharePoint out of the box, making indexing of SharePoint content 10x faster. Second, we are providing connectivity to Lotus Notes through Enterprise Labs. Third, we are expanding our support for file shares and databases, so organizations can connect to any file share or database in any format.
The quest to provide full on search and analytics for the enterprise is only beginning. Smaller companies like Box.net are offering their own analytics with home-grown algorithms. In the meantime, Google is leveraging its search strength and Microsoft is offering an improved user experience.
It is clear that collaboration and search operate in the same universe. The provider that makes the bridge is our odds on favorite to bring home a roster of customers who recognize that their employees, partner and customers are creators, media makers. What they produce will morph in size as they get more comfortable as producer.
Collaboration will work best if the user can easily search what is available to them. If the search doesn't work then the chances are the collaboration platform will likely falter, too.
RightSignature, the company that allows you to sign with a mouse, is making a play to serve as a core integration for the Software-as-a-Service market.
It's a trend we expect to see more from third-party providers that seek to establish anchor positions as agnostic tools for Salesforce.com and vertically oriented SaaS services.
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RightSignature is a digital signature company launched last April. The company started as a service for the small business market (SMB) but has seen pick up in the enterprise, which sees digital signatures as a way to save on the costs associated with creating, processing and completing contracts. Competitors to RightSignature include DocuSign and EchoSign.
It's pretty clear that third party developers are seeking ways to get into the SaaS market. Salesforce.com has an extensive partner program. They call it an ecosystem, a reflection on how third party developers are working with SaaS providers. On the leading edge, Google Wave is seeing budding interest from developers. For example, Twilio is one of the early developers on Google Wave. The company provides a voice API that companies use to build applications for making and receiving calls.
Daryl Bernstein is CEO at RightSignature. He says that they are planning to integrate with a number of SaaS vendors in vertical specific markets. They now have an integration with Freshbooks. They also integrate with Google Docs. When creating a document, users have the option of uploading from their computer or Google Docs.
Vendors know that SaaS services are like coral reefs. We first heard Dave Winer use this term to describe how third party developers have built extensively on the Twitter API. The same trend is occurring in the SaaS market. Companies like RightSignature are developing applications that work in the SaaS ecosystem.
The RightSignature service allows forms to be uploaded as reusable templates. People are directed to a document, such as a lease agreement, that that they sign with their mouse or with an iPhone application.
The RightSignature user interface is pretty elegant. It has a flow that makes it simple to complete the signing of documents through the automation of tasks such as adding initials to each page, a requirement of most contracts. A flag follows the user, similar to a tab on a printed contract that shows you where to sign. The flag follows the user as he completes signing the document. Photo authentication is included so the person signing the document may be identified.
Part of RightSignature's appeal is in its overall change to the workflow and the efficiencies that result. Faxing contracts can be eliminated. It decreases the need for services like FedEx, which can run $10-$20 per package delivered.
RightSignature costs $14 per month per user. Up to five users is $49 per month and $249 for up to 25 users. Enterprise contracts work on volume.
Nimsoftis launching a benchmarking service today for enterprise customers that will help them define and measure the actual costs of cloud computing and monitor the performance of IT infrastructure.
The benchmarking service monitors the multiple systems of an enterprise and pulls them into a unified view. These include internal systems, managed service providers, cloud-based and Software-as-a-Service investments.
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The service offers visibility where to distribute workloads, identify problems in the infrastructure and look at performance metrics.
Cloud computing is getting so much hype these days that chief executive officers are starting to ask a lot of questions. They want to know about using Google for email and other enterprise functions. The CIO does not always have an answer. That creates a shift in the relationship, forcing some answers about budgets and an examination of the actual costs of cloud-based services to internal systems.
Nimsoft is offering benchmarking services for visibility into: Google Apps for Business, Rackspace Cloud, Amazon Web Services (AWS) and EC2, Salesforce.com, and other services.
Nimsoft also provides similar services for visibility into virtualization environments.
The service is offered in two packages. Customers may purchase a software package that is installed behind the corporate firewall. Alternatively, customers may work with one of Nimsoft's partners that work on a SaaS model.
Nimsoft does the benchmarks by running direct tests such as sending batches of email to measure how long it takes the email to get to its destination. What the benchmark does is help define the service equation. The costs are pretty clear to understand but the value of the service is another matter. If there are three outages in the span of the month, then the email system may not not be worth the drop in cost.
That's some good information to have when making a decision about a SaaS provider.
The wiki market space has transformed over the past few years with a number of the existing players adding social features to keep them competitive and more fully dimensional for users.
But we are starting to wonder how many wiki providers can play in the more established spaces of the market. Perhaps the best potential for emerging vendors is in the small business market, which is increasingly open to Software-as-a-Service (SaaS) environments.
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cctext is a new wiki environment. It joins a number of more robust collaborative products that integrate wikis and social web technologies into their products. Perhaps there is an opening. Many of the first entrants to the market have moved up the ladder, due to their deeper product offering.
For instance, Socialtext started as a wiki provider and now offers social networking; social messaging; weblogs; dashboards and distributed spreadsheets. MindTouch calls itself an open-source collaboration engine for the enterprise and the web. PBWorks operates far deeper in the collaboration space as well. They recently introduced Social Collaboration Update, which in their words "includes social networking-style user profiles, Twitter-style microblogging, and the ability to create wiki pages (with file attachments) just by emailing a single email address."
This trend is an example of how social applications are segmenting. As developers learn to add more pieces of information into their wiki products, they look more like content management systems than what we have traditionally called a wiki.
cctext, for its part, is a straight forward wiki that is counting on its speed and UI to give it a jump in the market.
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They may be on to something. Customers do complain about speed. A recent tweet about PBWorks expressed this pretty clearly:
cctext claims its speed comes from its cloud infrastructure. They use Amazon Web Services. We tested cctext and it does appear to be pretty fast when writing, editing and saving information. cctext allows for media uploads that play in the wiki. We uploaded a video. It worked fine but we could not view it. We used a test account so it may have been unviewable for that reason. Overall, cctext is a pretty clean experience. They have a pretty thorough list of features.
All in all, cctext is a wiki that truly is a wiki. It's a basic tool for small business. Cost is $12 per month. First ten users are frree. cctext integrates with Google Apps. Pricing is the same for the Google Apps version.
SaaS-delivered IT Service Management (ITSM) is rapidly on the rise, creating complications for its on-premise counterparts. The transition is affecting existing, on-premise players like BMC, which to compete, announced its own on-demand service last week.
Business intelligence, analytics and the demand for process optimization are the big draws here at the
In the world of Software-as-a-Service, you can start to see how platforms will evolve into service networks - where enterprise users may subscribe and get access to applications that they pay for on a per use basis.
The wiki market space has transformed over the past few years with a number of the existing players adding social features to keep them competitive and more fully dimensional for users.
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