• May 18, 2010
  • Not bad for a recession, that’s what I say.  The news from Cloud9 Analytics and Mayfield Fund says a lot about a lot.  First, the nearly moribund venture capital industry is showing signs of life after a couple of long, quiet years.

    Last year, 2009, was the worst venture capital year since 1997 measured by the amount of cash invested (about $17.8 billion) and cash raised (about $15.2 billion).  That’s right in 2009 the industry invested more than it raised and that hasn’t happened in a long, long time.  For a benchmark, in 2000 the industry invested just over $100 billion and then you know what happened.  A more typical annual tally in the last decade was between $20 billion and $30 billion.  So the fact that Cloud9 was able to raise $8 million is very interesting news.

    Of course, a C-round is an important marker because it means the company is maturing and becoming ready for a liquidity event.  The short event horizon is a sign that the VC’s a stepping carefully into the water again.  When we see a stampede to A round companies it will be a different story.

    So, what about Cloud9 makes it appealing?  I think a couple of things.  First, they offer SaaS based analytics but that’s not enough these days.  SAS got into that market a month ago and they’re the gold standard and there are many others doing something with analytics as a SaaS service.  But the thing I like about Cloud9 is that they’re articulating, or starting to, a vision of more strategic use of analytics for the small business through the small enterprise.

    SAS can be excused from this conversation, but there are a lot of analytics vendors out there that haven’t gotten beyond the idea of selling people on the tactical use of analytics.

    So this announcement has legs and it shows hope that the venture capital industry in resurgent and that analytics is gaining more traction where it’s needed.

    Incidentally, the hot markets for venture funding, in order are Biotech, Software, Industrial/Energy, and Medical Devices according to PriceWaterhouseCoopers and the National Venture Capital Association who compiled the data referenced here.

    Published: 14 years ago

    I had the pleasure of attending two events last week, Microsoft Convergence 2010 in Atlanta and the Salesforce-VMWare announcement in San Francisco.  Each event was useful and informative in its own way and I am pleased to have witnessed each first hand.  I have written exhaustively at least I’m tired about each of these so rather than another recitation of events, I want to spend this piece drilling into one aspect.

    Terminology was common and different in the two events and it’s worth looking at.  The term de jour is cloud computing and it has been current for at least ten minutes more like about two years.  We know it’s the “in” thing because until very recently both Salesforce and Microsoft were using it albeit in very different contexts.

    A couple of years ago, Salesforce and a few other intrepid vendors began using cloud computing to describe the confluence of SaaS applications, increasingly available infrastructure and the ability to “mashup” components to make novel solutions.  Cloud computing meant Infrastructure as a Service (IaaS), SaaS or software as a service and PaaS or platform as a service.  For instance, Google Maps, running on Google’s server farm, plus your prospect list in SFA, running on Salesforce’s farm, could yield a map or satellite photo of a territory with markers indicating prospect locations.  In one vivid and visual screen a person could see and strategize a set of sales calls, for instance.

    Cloud computing was fun and it replaced SaaS, more or less.  To be SaaS seemed to imply an application ran for the benefit of those who were earthbound in a building or within the constructs of the enterprise.  To be in the cloud was to let your imagination soar, to combine and recombine in limitless ways to produce new functionality, to go where no man has…er, you get the idea.

    Cloud computing was fine and wonderful until many vendors either entered the space with their own ideas or when they discovered that they couldn’t exactly do it without serious reconfiguration of their product sets and business models.  Cloud computing was a disruptive innovation.

    Not to worry, the inevitable commoditization of the term then began in earnest.  Like watching the sky on a windy day clouds could morph into wonderful shapes and thus cloud computing could be many things.  That’s about when Microsoft entered the fray with Steve Ballmer’s famous quip that “we’re all in” meaning that the software giant was making the biggest bet that it could on cloud computing.

    “All in” for Microsoft means that their vision of cloud computing is essentially infrastructure as a service (IaaS) the ability to tap into a server in the sky on which you’ve bought space to run a conventional application.  With Microsoft’s market power it is likely that cloud computing will come to mean whatever the company wants it to mean and that means cloud computing will look more like time-sharing than a mashup.

    This brings us to last week.  While Microsoft was all in, in Atlanta, Salesforce was way out on the west coast announcing an alliance with VMware.  You’ve seen the news no doubt, that the platform is being enhanced to provide Java runtime services for legacy applications through this association.  It demos well and if it runs that way I think we’ve got another important brick in the wall of new-fangled IT.

    In his introduction, Salesforce CEO, Marc Benioff, called the alliance the beginning of a new era in “Mobile Internet Computing”.  When he uttered those words my ears pricked up and it made me wonder if we were witnessing the birth of new terminology yet again.

    Salesforce and its close allies and partners have managed to stay one step ahead of the terminology commoditization curve for the last ten years and it wouldn’t surprise me if we were about to get another new term.  In this way, Salesforce has managed to use accelerating terminology commoditization to its benefit saving its marketing budget for more important things and always managing to pigeon hole its competition as retrograde.

    I have only heard Mobile Internet Computing once and it may not stick but I wouldn’t be surprised if it did.  The thing I don’t understand though, is why Microsoft continues to fall into the same trap of letting someone else name a trend and then spending lots of its own money popularizing it.

    An alternative for Microsoft might go like this.  Microsoft has four ERP systems and one CRM system and you could make a good argument that it is an ERP company and that ERP ought to be an on-premise application except in rare cases.  I am not saying I agree with it because there are other benefits of cloud computing we’re not talking about here.

    But the ERP worker is usually someone who works in the finance or a related department.  This worker does the job at a desk in an office and has little use for a SaaS application.  So why the big push to call this cloud computing?  Selling infrastructure services isn’t really cloud computing so why call it that?  Why not define yourself in terms of what you do rather than in terms of what others make up?

    If Microsoft wants to compete in cloud computing CRM that’s fine.  It could easily develop a hybrid model for integrating front and back office applications and not have to fight an uphill battle with its ERP customers over where their data is stored.  It would be a novel position and one that is immediately appreciated by its ERP customers.

    Published: 14 years ago

    RightNow fired what may be the first salvo in an escalated competition for customers in the SaaS market today.  Other vendors and customers will have to decide for themselves whether to follow.  Company CEO Greg Gianforte cited numerous ways other vendors were making life hard for customers saying that SaaS was originally supposed to be low cost, easy to get into and out of and a dream to deploy.  In his estimate, the SaaS industry has not always lived up to all that.

    First the good news.  RightNow identified a handful of issues it thinks the SaaS industry could improve for customers and the company says it is writing all of the following into its standard contracts.

    • No penalty for adjusting the number of seats a customer buys.  The company said it would let customers adjust up or down the number of seats it buys with no penalty.  Currently, most agreements operate like Hotel California, you can add seats any time you like but often you can’t rev down if, for example, economic conditions deteriorate.
    • Three year price commitment plus a three year renewal cap.  Gianforte said this would give customers six year price stability.  This needs details.  You can always say you won’t increase prices 50% but that’s not very comforting.  Hopefully, there’s something like a cost of living adjustment tied to core inflation or something like it.
    • Annual termination for convenience.  There’s no lock in and customers can leave any time they want without cause.  No complaints here.
    • Gianforte also introduced the concept of seat month — like rollover minutes in the cell phone industry.  The idea has merit especially for companies with big seasonal swings in the number of agents it employs.
    • Cash service credit for not meeting service levels.  This is a biggie since a lot of vendors don’t offer SLAs.

    My take

    RightNow conflated some issues blaming traditional vendors for perceived SaaS problems.  For instance when it talks about other vendors it focuses on SAP, Oracle and Salesforce.  Gianforte said SAP has a 60% shelfware rate.  That might still be true, I know it was pretty high a few years ago but that was for conventional software.  SAP is not a SaaS powerhouse the last time I checked.  The same is true for Oracle, the announcement didn’t make any distinction between Oracle’s premise and SaaS business.  At one point Gianforte called Oracle the “Poster child for bad customer relationships”.  Ok, maybe, but I’d like to see some stats.  I was at OpenWorld the last few years and it looked like there were thousands of reasonably happy people there.  Interestingly, there was no mention of Microsoft as a competitor.  Whatever, at the end of the day you need to filter.

    But the interesting point for me is that none of this preamble was needed.  The SaaS industry could certainly use some of these adjustments to the basic relationship as Ray Wang noted in a recent paper titled a “SaaS Bill of Rights”.

    It’s too bad Gianforte doesn’t run an airline.  Imagine an airline CEO saying bags fly free (Southwest does that but who else?), you can have enough room for both knees and we’ll feed you.  For some people, that’s about what the RightNow announcements amount to.

    The adjustments Gianforte introduced amount to risk sharing between the vendor and the customer.  That was what SaaS was supposed to be but the original benefits have commoditized so a new round was needed, at least according to RightNow.

    This risk sharing is something I think we will see a lot more of and it won’t be in software only.  I expect we’ll see some creative forms of risk sharing in all sectors just to keep the gears moving in a tough economy.  Risk sharing started with the reintroduction of layaway by Kmart at the start of the recession and I think we’ll see more creativity in the B2B space.

    RightNow’s announcements also reveal a turning point in the SaaS industry.  When the industry was younger, vendors needed as much revenue as they could get to build infrastructure and to plant the idea that SaaS was safe in people’s minds.  For many that’s mission accomplished at this point, so they probably have a little excess cash flow to fund these initiatives.  But that also closes a door for the industry.  These givebacks will reduce the cost of a seat (seat-month as RightNow would say) and act as a barrier to entry for other vendors.

    It had to happen at some point.  From here if you want to be a SaaS application provider you might have to layer on someone’s platform such as

    Published: 14 years ago

    What exactly is Cloud Computing?  The question just doesn’t go away and as the year starts SugarCRM has just released a white paper — “The Sugar Open Cloud” —offering its definition and its argument for why its vision is superior.  I am not sure about either.

    Full disclosure: I like SugarCRM and have a lot of respect for what they are trying to do.  The idea of open-source CRM is very appealing and can be very successful — like open-source operating systems (think Linux), open encyclopedias (like Wikipedia) and open source web servers like Apache.  All of these open source products are very good in their own right and highly sought after.  Let me give just one example of open-source success — Apache has 52% of the market for web server software.

    In his new book, “Drive: The Surprising Truth About What Motivates Us,” Daniel Pink says that one of the key values to those who contribute to open-source technology is the sense of accomplishment that goes with participating in a project whose goal is the greater good, to solving a really tough problem.  To this idea, I would also add customers leveraging products like Salesforce’s Service Cloud to provide accurate support aid to their fellows using social media, search, email and other modern technologies.  They get no pay other than to stamp their name on a solution and that’s a surprisingly effective motivator.

    The only issue I have with open source is the business model and how you make money with it.  Well, how do you make money with it?  It’s a question that has vexed me and probably a lot of B-school kids, professors and practitioners for a long time.  The psychic rewards are good but they just aren’t enough.

    It is with this frame of mind that I read the Sugar white paper.  The paper says that we have entered the third phase of the evolution of whatever you wish to call SaaS.  First there was the ASP model that crashed and burned for economic reasons — you couldn’t get enough client-server users onto a server to be cost effective.  Then there was multi-tenant SaaS, which has had our attention for the first decade of the century.  Now, according to Sugar, there’s “multi-instance distributed SaaS”.

    According to the paper the multi-instance version is superior for many of the reasons we heard when multi-instance went by the name of “hybrid” such as you could deploy it in an on-demand way (single or multi-tenant) or in a traditional premise-based configuration.  What’s different with multi-instance is the freedom to pick your infrastructure provider, and here the waters get murky.

    Sugar claims its solution is superior because it enables users to choose which servers the applications run on such as Microsoft Azure or Amazon EC2.  This is superior to vendor lock-in according to the paper which makes the incredible and self-contradicting claim, “In the first phases of SaaS (ASP and multi-tenant SaaS models) customers had no options around who hosted their business applications as the software vendor was the only service provider.”

    Really?  Two pages earlier the paper displays a table of data titled “The ASP Model” the bottom row lists Key Providers as Corio and USi.  I was a CRM analyst (still am) when those companies roamed the earth and neither one was a software house.  The big dog in that period was Siebel and they didn’t care who hosted their product.

    Sugar makes the point that Cloud Computing is becoming an indeterminate term, meaning that the definition is set in Jell-o.  That’s fair.  The Cloud needs to have three parts — infrastructure as a service (IaaS), software (SaaS) and, now, a development platform (PaaS).  Companies that want to offer infrastructure or software only or to cobble together best of breed Clouds are free to do so and I am sure you can get a lot of value that way, though you will need to invest more effort and cash to accomplish your own integration.  But don’t worry, there’s an (Sugar Cloud Console) app. for that.

    What concerns me about all this is what manages to not be said.  Cloud Computing is largely an economic issue and a necessity at that.  It’s about a great deal more than lowering the cost of computing so that a larger audience in emerging markets can access technology.  And it is certainly about more than where data is stored.  From what I have seen about hackers stealing sensitive data, corporate IT departments are the last place I feel comfortable storing my personal information.

    Cloud Computing is not about the tired arguments about where data is stored or the “freedom” to move it from one vendor to another — that base has been covered.  The Cloud is about ubiquity of computing access and that’s an economic driver.  Historically, when computing power has become abundant and cheap innovations such as relational databases, the graphical user interface and the Internet have swallowed it up.

    The new ubiquity spawned by Cloud Computing — all three components — is spawning new, fast and, above all, mobile business processes, not just applications.  This may not seem like much but in a world that is growing increasingly “Hot, Flat, and Crowded” as Thomas Friedman would say, this is the bedrock of sustainability.  In this context arguments about where data is stored and vendor lock-in seem trivial.

    Published: 14 years ago

    I was talking to Jason Lemkin, CEO of EchoSign the other day when something he said gave me an idea.  EchoSign is a cool bit of SaaSware that manages the document signing process across the Web eliminating the need for sending copies of contracts overnight to complete deals.

    There is a niche for this because no company that sells an on-demand product, for instance, can afford to overnight the volume of contracts needed to support the business.  There simply isn’t enough margin in selling ten seats of your software and most SaaS deals are still of the small seat number variety.  So along comes EchoSign and the problem becomes very cost effective to manage.

    On top of the signing process, a product like EchoSign also provides long-term benefit by becoming the archive for the contract.  If you’ve ever found yourself wondering what the terms of a deal actually were, you know that can be very helpful.

    But the point of this story is the C: Drive and all that it has come to mean.  Everyone has a C: Drive, it’s where your stuff lives whether we’re talking about your PC at work or at home.  I have an iMac and Apple calls the drive something else and I don’t remember what it is because I just turn the thing on and it works and I don’t mess with operating system stuff any more.  It’s very liberating.

    At any rate, Lemkin’s point is that the C: Drive has become a black hole because we don’t know what’s on it — you might know what’s on your C: Drive but you don’t know what’s on your office mates’ drives and they don’t know about yours.  All this got me thinking that there is a heck of a lot of potential intellectual property hidden on the C: Drives of the world.

    You could have a contract or a thousand on your C: Drive but your company might not know how to access them on the day you call in sick.  Surely the networked Q: Drive would be better but many companies grow their computing infrastructure organically and you see where this is going.  Yes, the intellectual property goes into a black hole.

    Now, IP isn’t something that any of us has given a lot of thought to with regard to the operation of our work PC’s but maybe we should.  Maybe the C: Drive and harvesting intellectual property are ideas whose time has come.  There are companies already harvesting IP but maybe they don’t know it.

    Companies like Kadient, Oracle and all have facilities for capturing the IP generated by sales people in the sales process.  Think about it, whenever you develop a presentation, a proposal or respond to an RFI or RFP, you are creating IP that is unique to your company.  The IP is valuable only if it can be reused.  Sales people do an OK job of reuse by trading things in email.  But that’s one step removed from sneaker net.  Imagine how much more effective they’d be if they stored things on a network drive and if there was functionality to also capture metadata (this presentation helped win three big deals)?

    I am beginning to see the same kind of IP potential in service systems.  Salesforce’s Service Cloud is a big IP generator and it has the cataloging and analytics you need to support reuse.

    Of course, none of these ideas is going to change the world, but in an environment where we routinely seek to maximize value and utility, it strikes me that advanced systems based on cloud computing concepts and social media offer more than simply the usual litany of better, faster, cheaper.  They expose value where there was none in the form of IP.

    None of this says that cloud computing is the only way to derive this new value, as I said a network drive might work well in some instances.  But cloud computing improves not just the storage of the IP but its re-use and it is in re-using what was done before that you derive additional value.

    As I am looking at it, the ability to harvest IP from materials that were once stored in — oh, let’s call it the Chaos Drive — is a major unintended consequence and benefit found at the intersection of cloud computing social media and multi-tenancy.

    Final thought, last week Apple introduced the iPad and immediately, wags started asking the inevitable pointless question — What’s it good for?  I don’t know.  But I do know that new products like that get the creative juices going in right brained people and it wouldn’t surprise me if, like cloud computing, iPad develops some unintended consequences/benefits.  Can’t wait to see what they’ll be.

    Published: 14 years ago