SmoothSpan Blog

For Executives, Entrepreneurs, and other Digerati who need to know about SaaS and Web 2.0.

Archive for September, 2007

A Facebook for All Seasons: Skinning the Social Network

Posted by Bob Warfield on September 30, 2007

Facebook will have groups (or groupings) soon to enable you decide which group to place each friend in.  This is a useful feature lots of people are talking about because we have differing relationships with different people.  It’s been suggested that this particular feature is a real LinkedIn killer.  As I mention in a comment to Stowe Boyd:

This is such an important issue, and one not to be taken lightly. All of the efforts to manage the “Social Network” on its own and look at it as a first class citizen have to understand that this means that it has to be able to mean different things to different people in different use cases.

Part of the problem is that its just so much trouble to maintain a Social Network. No sooner do you get one pretty far along that another wants to play. It’s great to think I can just transfer the old one over, but that doesn’t work for the same reasons you need groupings not groups and a whole lot more.

If I’m doing something for business that’s one mode. If I’m doing something for family that’s another. Close friends versus casual acquaintances versus total strangers I’m trying to strike up a conversation with. All of these need to afford the Social Network owner with the capacity to govern the degree of visibility, overlap, and many other arbitrary attributes are present.

It gets even more complex when the Social Network becomes a shared responsibility. A network you’ve built on behalf of a business or other entity demands a different Trust Fabric than one you own yourself and use for social purposes.

The question is how to do this easily, so that everyone can understand, and with enough flexibility that it solves the problem.  Thinking about it again this evening, I started to wonder whether the answer wasn’t tags.  Consider having the ability to place arbitrary tags on your friends:  professional, family, boss, competitor, rival, influencer.  The choice of tags is up to you, that is the beauty of tagging.  By default, the set of relationships Facebook uses now when it asks how you know someone would each be a tag, but you can add as many additional tags as you like.

Each individual on your Social Network can receive one or more tags of your choice.  The tags “decorate” the Social Network to describe the type of relationship you have with each member.  Now here is the next interesting aspect: content on your service, whether it be Facebook or some other, also gets tagged with the same set of tags.  It is the matchup of the two, the tag of the viewer is matched to the appropriate content tag, that determines the experience a visitor receives from you.

There would of course be defaults, so that if you don’t attach a tag to your content, it just goes out to everyone.  If you’re putting something out that’s not for every audience, apply the tag for the audiences that should see it.  Presumably there is also an advantage in weighting the tags, so that if two conflict, the higher weight wins.  Now you can present a slightly different face in your Facebook depending on how you’ve tagged the individuals in your Social Network.  The tags cause you to see a different “skin” of an individual’s Facebook presence.  Their photo, which applets you see, their newsfeed, and all the rest are entirely dependant on your tagged relationship to your friends. 

What do you think?  It seems simple and pretty flexible.

Posted in strategy, user interface, Web 2.0 | 3 Comments »

To Escape the Multicore Crisis, Go Out Not Up

Posted by Bob Warfield on September 29, 2007

Of course, you should never go up in a burning building, go out instead.  Amazon’s Werner Voegels sees the Multicore Crisis in much the same way:

Only focusing on 50X just gives you faster Elephants, not the revolutionary new breeds of animals that can serve us better.

Voegels is writing there about Michael Stonebreaker’s claims that he can demonstrate a database architecture that outperforms conventional databases by a factor of 50X.  Stonebreaker is no one to take lightly: he’s accomplished a lot of innovation in his career so far and he isn’t nearly done.  He advocates replacing the Oracle (and mySQL) style databases (which he calls legacy databases) with a collection of special purpose databases that are optimized for particular tasks such as OLTP or data warehousing.  It’s not unlike the concept myself and others have talked about that suggests that the one-language-fits-all paradigm is all wrong and you’d do better to adopt polyglot programming.

I like Stonebreaker’s work.  While I want the ability to scale out to any level that Voegels suggests, I will take the 50X improvement as a basic building block and then scale that out if I can.  That’s a significant scaling factor even looked at in the terms of the Multicore Language Timetable.  It’s nearly 8 years of Moore’s Cycles.  I’m also mindful that databases are the doorway to the I/O side of the equation which is often a lot harder to scale out.  Backing an engine that’s 50X faster sucking the bits off the disk with memcached ought to lead to some pretty amazing performance.

But Voegels is right, in the long term we need to see different beasts than the elephants.  It was with that thought in mind that I’ve been reading with interest articles about Sequoia, an open source database clustering technology that makes a collection of database servers look like one more powerful server.  It can be used to increase performance and reliablity.  It’s worth noting that Sequoia can be installed for any Java app using JDBC without modifying the app.  Their clever monicker for their technology is RAIDb:  Redundant Array of Inexpensive Databases.  There are different levels of RAIDb just as there are RAID levels that allow for partitioning, mirroring, and replication.  The choice of level or combinations of levels governs whether your applications gets more performance, more reliability, or both.

Sequoia is not a panacea, but for some types of benchmarks such as TPC-W, it shows a nearly linear speedup as more cpus are added.  It seems likely a combination of approaches such as Stonebreaker’s specialized databases for particular niches and clustering approaches like Sequoia all running on a utility computing fabric such as Amazon’s EC2 will finally break the multicore logjam for databases.

Posted in amazon, ec2, grid, multicore, Open Source, platforms, software development | 4 Comments »

Memo to Doc Searles: Why Not Pay For The No Advertising Nirvana?

Posted by Bob Warfield on September 28, 2007

Searles asks, “Why do we continue to take advertising for granted as the primary source of the the Bux DeLuxe required to fund technical, social and personal progress?”

It’s a good question.  ZDNet says its about shifting control from the sell side to the consumer “buy” side.  I have a more radical proposal.  I want to compete with advertisers for my own attention span.  Why can’t I pay the media to leave the advertising out?

Given the web is the medium, it is almost trivial for the owners of the media to publish two versions.  One would be advertising supported, but if you pay the amount your eyeballs are worth, you can have the media advertising free.  Wouldn’t that be nirvana? 

It’s not even very expensive when you do the math.  Using some of the math from Andrew Chen’s recent post on monetizing social networks, the cost for clickthroughs on Facebook is about $4 per thousand clickthroughs.  Now a clickthrough is a gold standard, and there is no way I’m going to do 1,000 clickthroughs if I’m paying not to see any ads, but work with me a moment people!

If I were the best possible ad consumer, how many clickthroughs might I do in a month on a service like Facebook or even Google?  It isn’t a thousand, no way.  Is it 100?  I think that’s generous, but that means it should cost me about 40 cents to escape ads entirely in Facebook.  They have something like 39 million users.  Let’s say 20% opted for no ads at $1 a month.  That gets us to the round number of $7.8M a month or $93M and change in annual revenue they’d take in from the program. 

Now they’ve only sold off 20% of their ad inventory, and they’ve sold the least desireable inventory at a premium price!  By that I mean they’re getting the equivalent dollars of a ton of clickthroughs from a group of people who are voting with their pocket book that they hate ads.  How can that not be a good thing?  Well, my guess is it would scare the heck out of advertisers.  I mean, in any con, consorting with the mark is general bad play.  But the smart advertisers will figure out that they were never going to reach those folks anyway.

How about it folks, would you pay to not see advertising?  Tell me what you think on my PollDaddy poll by clicking here.

Related Articles

Someone else proposing Facebook should let people pay to opt out of ads.

Stop the Advertising, Please!  IBM can quantify how this will turn out.

Make Publishing Plastic:  Remixing magazine content and ads.  But why mix the ads back in?!??

Posted in Marketing, strategy, Web 2.0 | 3 Comments »

Is The Newspaper Model Useless For Blogs?

Posted by Bob Warfield on September 28, 2007

Jeff Jarvis over on BuzzMachine doesn’t like the idea of newspaper blogs:

I mostly find posts via links from trusted peers or through RSS subscriptions. Blogs spread not because they reside on huge sites but because they have relationships with people, because the are viral.  And the way to be viral is to live at the same level as other linkers: blog to blog, brand to brand, person to person.

This piece I wholeheartedly do not agree with.  Yes, newspapers presently have a really screwed up delivery of blogs.  They are bolted on as afterthoughts, you have to dig down through to many levels to get to one, yada, yada.  All those things Jeff says are right.

But consider what’s right about the idealized notion of a paper and forget the poor packaging of today.  Why do people like the Times or the WSJ?  Because of editors.  Editors have selected writers and articles that convey the conceptual integrity that is the “flavor” of the Times or the WSJ.  That’s a value added we should be able to respect.  That’s right inline from Jeff’s finding of posts “via links from trusted peers”.  The trusted peers are just Jeff’s exercise of his own editorial discretion about who he likes to read and why.  Is it so hard to think that we could have someone else do a sufficiently good job of making some of the same choices that it wouldn’t be a value add?  I don’t think so.

In fact, this kind of value choice I will argue is something many are craving.  Why?  Because being your own editor is too hard.  It’s too time consuming.  Your only aid if you take this to its logical conclusion is Google, and it’s not enough because the Web is too vast and you may not know the right question to ask Google.  So we rely on others to help us find things.  We rely on experts who we trust, or whose opinion and style we at least have agreed with in the past.  You know it’s true.  Rabid blog readers love to discover the treasure trove of a new blog that speaks their language.  There are many web properties founded on the “birds of a feather” idea.  Social networks, social bookmarking, and others are all based on the idea that people think alike and if you can only find those who think like you, you will have found a measure of bliss.

What the newspaper does in the ideal world is package up a collection of these blogs and ensure they hang together and continue to speak the same language.  They are simply trying to do this in a systematic and professional way, as a business.  That’s no knock on others: we need all these mechanisms to make sense of the vast cacaphony that is the World Wide Web. 

So maybe Jeff isn’t throwing the baby out with the bath water when he says, “The blogs may be getting more plentiful and they are getting better. But now they’re ready to move out of the house and find homes of their own.”  Maybe it isn’t the blogs that need to move out, but the newspaper’s other dowdy web presences that are just in the way.  Newspapers can still provide a valuable role if they’ll just adjust to the medium and quit trying to reproduce wood pulp with great fidelity.

Posted in strategy, Web 2.0 | 5 Comments »

Apple’s Greatest Strength and Weakness: They Are Control Freaks (aka Beware Proxies for Success)

Posted by Bob Warfield on September 28, 2007

Sometimes a company or individual becomes fixated on a particular idea or process that is “almost right”.  By “almost right” I mean that the idea or process optimizes something that is very close but is not exactly what the world wants optimized.  Growth is an “almost right” for the stock market.  The market really wants earnings, but it will take growth almost forever as a proxy because it knows (or thinks it does) that with enough growth earnings are inevitable.  I call these “almost rights” Proxies for Success.  What is particularly difficult about proxies is they’re generally not seen as such.  Rather, they’re seen as the “reasons for success”.  Cause and effect become confused.  And when the old “reason for success” quits working, or worse, causes problems, then it really gets confusing, and often bitter and confrontational.

Having impeccable taste in user interface and being a total control freak in imposing the resulting vision is Apple’s proxy for Great User Experience.  As we’ve discussed before, the World wants Great User Experience. 

Apple has always had this quality of being total control freaks about their usually brilliant notion of user experience.  It stems from Steve Jobs, and it has infected the culture to an extent that its probably irreversible.  And let’s be clear, we don’t really want to reverse it.  The proxy results in fabulous products time after time when other companies struggle just to release a bit of UI face lift or a new OS that’s way better (Microsoft will be extending the availability of Windows XP in case you were worried).  But let’s also be clear that emphasizing total dictatorial control over a vision for how it should be is only a very near proxy to Great User Experience.  Any time you pursue a proxy rather than the Real Thing, there comes a time of disappointment and perhaps failure.

I’m watching in horror the logical conclusion of that close-minded proxy in action as Apple is systematically bricking iPhones in an attempt to ensure that anyone with the temerity to try to exert a little control outside Apple is soundly flogged.  As Fred Wilson says, “They’ve gone from being the cool company to being the evil company.”

The Times says, “There is something futile about the way Apple appears to be fighting some of its most ardent fans.”  Futility is the ideal word to describe what happens when a proxy goes wrong.  It is futility because the chief protagonists who are employing the proxy believe it is the one true way to success, and they will futily continue to press home their proxy with all their energy until that success comes back.  But since it is only a proxy, the success may not come back.  Futile indeed.

The lawyers are, of course, telling us that Apple is 100% within its rights (forget that this isn’t right).  Lawyers and negotiators employ proxies as a strategic weapon quite consciously and intentionally, so it makes total sense to them.  But then, the Great User Experience has seldom been felt at the hands of a lawyer.

Even if one wanted to agree on some level to support Apple on this, perhaps out of some sense of loyalty to past glories of the proxy, the idea that they’ve only given a week of warning before dropping the bomb is unconscionable.  How many people would’ve already gone too far past the pale to turn back?  Why not make available a “relocking” solution directly from Apple? 

Scoble is quite right to say that Apple has a PR nightmare brewing.  There’s not much more to say on this one, but I would expect the floggings to continue until morale improves.  One does not give up one’s proxy easily.

Posted in business, Marketing, strategy | 5 Comments »

Is Conventional Software Built on Bubble Economics? (Hint: It’s All About Recurring Revenue!)

Posted by Bob Warfield on September 27, 2007

I stirred up considerable discussion by dropping a chance remark in the middle of my Steve Singh interview:

I wonder sometimes whether the conventional software model has ever really flourished except during bubbles of one kind or another.  Look at Big ERP.  They had the benefit of several major bubble waves:  the rush to switch to client server architectures, the Y2K debacle, and then right on the heels of Y2K was the Internet Bubble.  Would these businesses have grown nearly so large without any of those bubbles?  Maybe SaaS would’ve gotten here sooner.  The choice between the two is a Tortoise (SaaS) versus the Hare (Old School ISV) race.

Phil Wainewright was taken aback by it, and in retrospect, it was unfair to drop that out there without giving it a blog post of its own to explain.  Before I do that, let me summarize some remarks others have made that are pertinent. 

Phil runs with the premise for a bit, likening the purchase of conventional software to subprime mortgages, suggesting companies must then rue the purchase when normal times return, and further suggesting that in a recession, conventional revenues will collapse while SaaS revenues will “power ahead”.  While Phil juxtaposes Larry Ellison’s denouncement of SaaS (where’s the money in SaaS?) briefly against my comments, he finishes with a great Talkback post where the poster says the only reason Larry doesn’t pursue SaaS at Oracle is because its too hard to reinvent the company, which is exactly what Steve Singh says (one of the few guys who has successfully reinvented a good sized company).  To all of this, I do say that conventional revenues are much harder hit than SaaS revenues, but not all conventional software companies are hit the same in recession.  I will explain in a moment, but it all boils down to recurring revenues.  Before leaving Mr. Wainewright, I suspect after reading his piece that on balance he sees there is some truth to the idea that conventional ISV’s are built on bubbles.

SaaSWeek picks up on the theme.  Their penultimate question and conclusion:

“Is SaaS an inherently stronger model that is destined for eternal greatness by inherent design? Nope.”

Their thining behind this conclusion is that they feel that dealing with the scale issues of very large businesses as well as their flexibility requirements are too hard for SaaS companies. 

They put scale as, “Anyone want to run GE’s global payroll using SaaS?”.  I think they’re dead wrong on that one.  ADP handles companies that large all the time for payroll and they’re one of the biggest SaaS companies out there.  I’m familiar with the scale requirements of these kinds of organizations–Callidus Software pays sales compensation for some of the largest sales forces in the world for companies like Allstate, Sprint-Nextel, and many others.  SaaS has no problem there. 

Flexibility is a much harder issue, and one that I will have to wait for future postings to address more fully (flexibility is also related to the SaaS+Open Source discussion I need to address separately too).  For now, let me just say that it is an area where many SaaS vendors have dodged the bullet by simply refusing to offer much flexibility.  That works for applications where flexibility doesn’t add much business value, but even Salesforce is investing heavily in making their solution customizable.  However, there is no reason why SaaS vendors can’t strive to deliver flexibility, it’s just harder to do because you need sophisticated meta-programming capabilities on top of your multitenant architecture.  Trust me, we’ll drill down on that later.

SaaSWeek goes on to say:

A manufacturer of canned corn can be fairly certain their business won’t fluctuate much in terms of workforce, product innovation, economic cycles and so forth. Why would they spring for a SaaS solution when they can call a local ERP vendor, eat the initial cost but then run on the same system for 15-20 years with bare-minimum, in-house maintenance?

Here I think we have an apples to oranges comparison that SaaS vendors deal with frequently.  You can’t compare the cost of maintenance of On-Premises software against the (apparently) higher cost of SaaS.  The SaaS cost much more closely reflects Total Cost of Ownership.  Maintenance only entitles you to upgrades, which our canned corn friends have no interest in, and the ability to call Tech Support with questions.  TCO for the canned corn gang is going to include keeping the data center running, doing backups, replacing hardware that fails during that 15-20 years (any of you run a 15-20 year old computer), installing patches when problems come up, paying the salaries of the IT people that do that stuff, and so on.  When you look at the IT salaries in particular, SaaS comes out way ahead in nearly any sober calculation.  Look at Steve Singh’s numbers he gave in the interview for how much he saves folks with his software.  Touching back on scale for a moment, Steve Singh’s Concur sells to very very large organizations just as well as small ones and its all SaaS.  I would argue the closer your organization is to needing something that has the best possible economics and doesn’t need uber flexibility, the closer you are to wanting to insist on SaaS. 

BTW, in a recession, aren’t those the qualities you look for: best economics and skip the bells and whistles?  Don’t you want to live with what you can get by on until there are better times?  Are you really going to invest in a boil-the-ocean IT rework of major infrastructure when everyone is hunkered down in the nuclear winter?  And doesn’t SaaS let you get by paying for just what you need as you need it, and leave you with the option to easily change your mind later when times are good and you do decide to boil the ocean?  Do you change paradigms like ripping out your mainframe stuff to install shiny new client/server ERP during a recession?  Those are some gut arguments in favor of SaaS during lean times.

Now let’s get back to recurring revenue.  The lower TCO argument tells why customers want to buy SaaS in bad times instead of conventional software.  Recurring revenue is what you need as an ISV in bad times.  Every software company faces a potential downturn in new customer bookings during bad times.  That includes SaaS companies.  But here is the difference.  With perptetual software, every quarter is a new ball game.  What you sold last quarter is recognized revenue and no longer matters in the current quarter.  If the bottom falls out and you sell very few new customers, the perpetual software company is busted.  The SaaS company looks a little different.  The reduced new customer sales are riding on top of recurring revenue.  So the percentage change looks less.  Let’s see it graphically:

Value of Recurring Revenue

This compares a conventional new sales model versus a SaaS recurring revenue model through good times and bad.  We assume that SaaS recognizes 1/4 of each new sale each period, but that it gets to keep recognizing 1/4 a period forever (e.g. no churn).  We assume conventional recognizes the entire new sale in the same period.  We start out selling $2M a period (perhaps a quarter), and we three quarters of 30% growth followed by a period of decline, and then a period where growth comes back.  The SaaS company has the same problem–it can’t sell as many new customers during bad times either, but it falls back on the cushion of recurring revenue.

Now I ask you, which company would you rather have invested in?  Which one would you rather be working for?  Do you see why I wonder about whether the success of big conventional software isn’t built during bubbles when abnormal growth rates fuel a meteoric rise?  Clever readers will surmise the next shoe I want to drop.  It’s an old shoe too:  big conventional ISV’s have a huge advantage over small conventional ISV’s.  Yes, it’s all the old stuff about brand and yada, yada.  But, to make it worse, they have a lot more recurring revenue!  In fairness, all conventional ISVs have some recurring revenue so the graph doesn’t look as bleak as I’ve drawn it.

Conventional ISV’s can gain recurring revenue from at least 2 sources:  maintenance revenues and professional services.  Even if you have a downturn in new license sales, you still have some recurring revenue cushion.  But the biggest conventional ISV’s like Oracle and SAP have been building up their maintenance base for many years until it is substantial.  And yes, Virginia, the bubbles I mentioned around client/server adoption, Y2K, and the Internet Bubble, all tremendously fueled that build up.  For those not familiar, it is customary on Big Enterprise Software to charge an annual 10-20% maintenance fee.  All big responsible companies pay their maintenance if they’re using the software (and some pay even if they aren’t using it, but that’s another story)

Professional Services is another source, albeit a less efficient one (because it is of shorter duration and lower profitability), of recurring revenue.  If you’re engaged in a long term installation or if you’re called back into the installed base to install an upgrade or do further customization, you get to charge for services over a period of time.  It’s likely not as long as a SaaS or maintenance contract, but it is significant.  That’s why it should be no surprise that when times are tough selling new licenses, companies hunker down around their services organizations. 

Which brings us back to SaaS, where Software is the Service.  It’s all Services.  It’s all recurring all the time.  This is a beautiful thing!

So there you have it.  The economics of recurring revenue streams and why they mean SaaS companies have yet another long-term structural advantage over conventional software.  They can continue to show growth even when things are quite difficult, so long as they can sell more than their churn (i.e. customers who leave and don’t come back) in new recurring revenue contracts.  In a future post we will consider churn at SaaS companies and some of the factors that lead to churn as well as strategies for minimizing churn.

Posted in business, saas, strategy | 4 Comments »

User Experience is the Most Important Thing: it’s the Only Thing.

Posted by Bob Warfield on September 27, 2007

I was recently chatting with my old mentor and boss Philippe Kahn about startups.  Philippe has been ahead of the curve throughout his career, and has prospered commensurately.  He’s most well known as the creator of the camera phone in 1997, which his company Lightsurf introduced.  He’s infectiously passionate about software and business, and I always take note when he wants to take a particularly strong stand on some issue.  In this case, his issue was user experience.  We were chatting about what aspects of product lead to what Marc Andreesen calls Product/Market Fit.  Market Fit is that state of bliss where your product fits a market so well that it is literally pulling product out of  you.  Unbridled demand rears its lovely head and your job at that point is to hang on for dear life and keep delivering.  Andreesen, in the post I’ve linked to above, says that achieving this fit is the only thing that matters for a startup.  I think we (Philippe, Marc, and I) are all in violent agreement on that, but Philippe took the concept to a more focused level when he said to me,

“User Experieence is the Most Important Thing, it’s the Only Thing.”

He was brandishing his iPhone at me to make the point all the more clear.  What makes the iPhone so special?  It’s user experience.  As Philippe says, it isn’t what the iPhone does, it’s how it does it.  You can’t capture user experience on a bulleted checklist any more than you can understand the beautiful sound of a pure audiophile stereo system by reading such specifications as total harmonic distortion.  On paper, the better user experience may even appear to be inferior but try it out for yourself and there is no doubt.

So, the task at hand for a startup is to provide the best possible user experience for a group of users that is large enough to make an interesting market.  If you can provide a quantum leap in user experience for that market, you may have a breakthrough hit on your hands.  This is why some of the greatest trends and hits of our day are happening.  SaaS provides a dramatically better user experience to the Enteprise compared to most difficult to use and install Enterprise software.  If you build a SaaS product that has a dramatically worse user experience than the incumbent software, you’ll be wondering why it doesn’t sell.  Web 2.0 offers a compelling user experience versus the last generation of Web technologies.  The iPod, iPhone, and Macintosh are all about radical user experience improvement.  Flex is all about delivering a whole new level of user experience on the web. 

It’s not easy to get a fabulous user experience, but ironically, it’s also not incredibly expensive.  It’s hard because you have to build it into your company’s DNA.  People have to care.  It won’t happen by accident.  It can be thwarted if you get too focused on feature lists.  It requires lots of customer contact and testing.  Good user experience is tragically knowable.  User Experience requires a particular skill set.  Make sure you have people who’ve been associated with great user experiences in the past, and not just “UI design experts”.  If there is nobody on your team who has the title, temperament, and skill set of “designer” instead of “engineer”, you need to change that fast.  If you’re trying to enter a new market, the first thing you need to do is nail down a good user experience through prototypes and testing.  All the rest follows. 

How do you improve user experience?  The answers are all around us if we’re sensitive to them.  It’s a question of listening.  Here’s a random sampling of things I read just recently that seem innocuous but that inform us about user experience:

  • Sleepers:  37Signals asks what to do about Sleepers.  These are folks who signed up for an account but aren’t using it.  They propose bribing or goading the sleeper back to consciousness.  I’d look at it much differently.  The Sleepers are a huge asset because they represent a User Experience failure.  They thought they wanted what you had badly enough to sign up, but they couldn’t get over the hump.  It’s urgent for you to find out why and fix it.  Chances are there will be many dispersed reasons, so don’t give up easily interviewing until you’re sure you’ve heard it all.
  • Ask Them What They Hate:  A great counterpoint to Sleepers from Jeff Monaghan.  We’ve all taken the little user surveys after visiting a site.  Most of them are begging for praise: please rate our service!  Jeff wants to beg you to tell him what you hated.  He wants to identify problems he can solve.  Jeff rightly assumes we must always be vigilant for chances to improve the user experience.
  • The Power of Chunking:  Seth Godin reminds us one more time that you get to communicate in chunks of 7, no matter what you are communicating.  That’s how the wetware (our brains) you interface to works.  It’s fascinating how often this enters the picture.  It’s why telephone numbers have 7 digits.  For menu structures, don’t put more than 7 entries on a menu lest the user forget the first entry by the time they’ve read the 7th.  Never put more than 7 bullets on a slide.  In fact, I try for less, but view 7 as a hard stop.

User Experience is the Most Important Thing: it’s the Only Thing.  What are you doing with your business and products to ensure the utmost user experience?  How are you innovating on user experience?

Related Articles:

How could I not put Nick Carr’s Fat Guy in Salesforce Hell here?  As I say in my comment to his post, “User Experience is the big picture, the little picture, the alpha, and the omega.  If you screw it up, even SaaS and Marc Benioff can’t save you!”

Make sure you’re not pursuing a proxy to use experience instead of the real thing:  Apple is there with their iPhone bricking shenanigans.

Posted in business, strategy, user interface, Web 2.0 | 2 Comments »

Interview: Concur’s CEO Steve Singh Speaks Out On SaaS/On-Demand, Part 2

Posted by Bob Warfield on September 27, 2007

This continues my interview with Steve Singh, CEO of Concur.  In this installment, Steve gives his view on Salesforce, their Force platform, SAP’s ByDesign and acquisition strategy for SaaS companies,

As before, my parenthetical remarks (meaning my reaction but not something Steve and I talked about) are in parenthesis.  Any mistakes are mine, and any great insights are Steve’s!

What’s your view of Salesforce.com?

Steve:  I have tremendous respect for Marc, he’s the best.

If I compare Salesforce to Concur, we took a vertical business process and owned it across all horizontal customers.  We took a stagnant industry and turned it on its head.
Salesforce is more on the outside “we’re a big tech company.”  They want a broad technology platform.

What are your thoughts about Salesforce’s Force?  Could you see using the platform at Concur? 

Steve:  Concur wouldn’t use it.  The cost structure requires a higher price to customer, so it only works for small companies who can’t take on the cost.  If you already have a big SaaS presence, why do it?  No economic  reason.

Bob:  (Steve focuses a lot on economics.  He’s made the comment before that scale drives the economics of profitability for SaaS.)

Would your customers use it?

There is tremendous value to IT customers.  Mostly those related to CRM.  Marc has nailed it.  On-demand platforms should focus on a vertical niche.  We’ve launched  a supplier platform.

Bob:  (I would echo Steve’s sentiments on Force.  I’ve yet to meet someone building a major app on it.  There are many who want to leverage it for connectivity to the Salesforce CRM world.  I’d like very much to talk to anyone that wants to educate me in the error of my ways on this platform.)

I’ve said that SAP’s ByDesign brings competition to the SaaS world for the first time, but that it’s a good thing for all concerned.  What are your thought’s on SAP’s By Design?

Steve:  They announced something that was already public for quite some time.  You can’t fault them for trying.  They’re trying to start in the middle market where they have no presence.  Their challenge is whether they can deliver a whole different experience.  Meanwhile the rest of us aren’t standing still.  The leaders of SaaS are in an incredible position.

Bob:  (Steve’s remark that SAP has targeted the middle ground where they have no presence sounds like a classic example of my “protected game preserve” strategy for companies attempting a SaaS transition)

Concur has been pursuing an acquisition strategy.  How does SaaS change the rules of that game?  What do you look for and what do you try to avoid?

Steve:  You could view acquisitions more successfully in a SaaS company because you can integrate the technologies in the back room while maintaining a different UI for a period.  Captura, Outcast, Joco.  They were SaaS apps to start.  Data layers, business layers, UI layers.  You can integrate in steps.  You can leave out integration when it doesn’t help.

There will be more SaaS M&A.  Look at payroll.  Adding employment verification.  What does it have to do with payroll?  Leverage business and service delivery models to address related spaces that are part of the business process.  Adds a lot of depth.

Can you acquire a non-SaaS company and SaaSify it, or do you only want SaaS?

Steve:  It’s not worth it.  Too hard.  I would rather build the functionality or buy a younger already SaaS company.  It’s too hard to make the change.  Once is enough  for a lifetime.

Bob:  (I had another conversation today about the software M&A game.  The person I was talking to was concerned that there are fewer and fewer buyers as things roll up.  SaaS may change that dynamic in a lot of ways.  If you are starting a company, SaaS even makes better sense as an exit strategy.  First, because Steve is right, companies should prefer to acquire SaaS.  Second, it positions you for the opportunity that the up and comer SaaS companies offer.  The game at the top of being bought by Oracle and SAP may be less lucrative (or even unavailable if they don’t want what you offer) than hooking up with the middle tier of healthy acquirers, which may just be the biggest pure-play SaaS companies.  This also makes me wonder what the private equity world is thinking about SaaS.  Are they frantically converting their properties to SaaS without the pain of public scrutiny, or are they pursuing business as usual?  One person I talked to said the great thing about SaaS is you’re acquiring a recurring revenue stream.  In a traditional acquisition, license sales all too often crater right after the acquisition.  Salespeople will totally drain the pipeline to get every last bit before the change.)

Next?

Our third installment will air next week and will have Steve Singh’s thoughts on Sales and Marketing for SaaS companies.  Stay tuned!

Posted in business, saas, strategy | 2 Comments »

Should I Push or Pull Information?

Posted by Bob Warfield on September 26, 2007

Another great Seth Godin post, this time on push vs pull.  He observes quite rightly that the beautiful thing about RSS is it converts a pull medium to a push medium.  He also mentions that he is not a pull guy: 

“I can’t use internal wikis. ‘It’s on the wiki’ is a dumb thing to say to me. “

Welcome to the world of Web 2.0 Personality Styles.  Push vs Pull is just one of the dimensions (I call them “Interrupted” and “Deferred”) that define the idea, along with Rich vs Simple Textual media, Structured vs Unstructured, and Watcher vs Participator.  The more I read, the more I find that this set of dimensions works really well for describing the various ways to reach out to folks and interact on the web.

The answer to the question of should I push or pull?  Well, the answer is usually that you should do both and make it easy for people to select which one they prefer.  The more interesting question is what are you going to do about all the other personality styles?

For a roundup of my recent posts on this concept, see “Roundup of Personality Posts“.  Others are starting to think along these lines too.  You’d be surprised at who seems to be using this model or something like it.

Posted in Marketing, strategy, Web 2.0 | Leave a Comment »

Interview: Concur’s CEO Steve Singh Speaks Out On SaaS/On-Demand

Posted by Bob Warfield on September 25, 2007

I had an opportunity to talk with Steve Singh, CEO of Concur Software about SaaS.  Steve’s company Concur is in the business of automating corporate travel and expenses through SaaS (or On-demand as Steve prefers) offerings his company provides.  Concur is also one of the few that’s successfully undergone a transition from being a conventional vendor selling On-premises to being a pure SaaS vendor.  Did I say succeessful?  Concur is now one of the powerhouse SaaS plays, second perhaps only to Salesforce.com.  Steve’s a real gentleman to talk to, extremely smart, and as you’ll see, he is passionate about what Concur does and about SaaS in general.  He provides a number of key insights that companies thinking about entering the SaaS world should consider.

Below is my transcript on the interview, with my parenthetical remarks (meaning my reaction but not something Steve and I talked about) in parenthesis.  Any mistakes are mine, and any great insights are Steve’s!

What’s your elevator pitch to customers about what Concur does?

Steve:  It’s an amazing opportunity, so good I have to pinch myself sometimes.  We bring innovation to a stagnant market by automating business processes around booking travel and getting expenses reimbursed.  This creates a more efficient supply chain around these areas.  This kind of processing is amazingly expensive.  It costs companies anywhere from $45 to $50 per trip to book travel without automation.  We bring that down to $5.  It costs $40 to $60 (let’s call it $48 on average) to get an expense report reimbursed and we can automate it to do that typically for under $8 a transaction.

In addition to the savings, we eliminate a ton of paper.  We pull data together for mining.  We help companies address governance and SOX issues.  Think about how big a portion of budget travel and expenses can be.  CEO and management have to sign of on the integrity of these transactions.  Concur spends something like 2 1/2% of expenses on Travel and Expense reimbursement.  That’s a big piece of our budget.  And, it’s very hard to govern a process without automating it.

How is your product sold?

Steve:  Our metric is transactions.  Think about it like a cell phone plan.  You get volume discounts with lots of minutes, and incremental minutes cost more.  A volume discount can be thought of as your free minutes.

Concur has 5,000 customers and we’ve sold about 28 million transactions.

Bob:  (This differs from companies like Salesforce.com that charge by the seat month.  It’s an interesting model to consider where the transactions are what the customer is thinking about.   This makes perfect sense for Concur, who want to align their charges with the customer’s perception of savings based on Steve’s economic figures on costs per transaction.)

What crystallized your decision to go SaaS?

Steve:  I would love to tell you there was an epiphany, but we just paid attention to our customers.  Our business and stock were doing well, but, there was a realization that our business served large customers well but nobody else.  This is true for all conventional software companies.  This limited our market and growth.  We wondered how best to solve that problem?

The only real example serving customers of any size and with an accountable 2-way relationship was On-demand.  Licensed software has no accountability.  Our examples were companies like ADP or Paychex.  Technologists think they invented everything, but On-demand has been around for decades.

Bob:  (It’s great that the proximity of ADP to the space helped give Concur an example to learn from.  Others have to stretch further, but now that SaaS is out there, everyone should “get it.”  Steve Singh is not the first SaaS executive I’ve talked to that brought up ADP.  Dave Thompson, former VP of Marketing for WebEx, told me their sales model was formalized around many small transactions because they hired their VP of Sales from ADP and he kept asking how to make WebEx more like ADP.)

Steve:  To make the transition involves a lot of pain.  Only some technology is common, everything else has to be reinvented.  The best example of what can happen if you get it right is to look at Concur vs Extensity.  In March of 2000, both were the same size.  During the downturn, Concur went On-demand and Extensity stayed On-premise.  Extensity was betting the downturn was the source of their problem, that it was just the economy and their growth would resume as soon as the economy turned around.  Fast forward to today and our guidance is almost $35M, Extensity is at $3M.

Bob:  (I wonder sometimes whether the conventional software model has ever really flourished except during bubbles of one kind or another.  Look at Big ERP.  They had the benefit of several major bubble waves:  the rush to switch to client server architectures, the Y2K debacle, and then right on the heels of Y2K was the Internet Bubble.  Would these businesses have grown nearly so large without any of those bubbles?  Maybe SaaS would’ve gotten here sooner.  The choice between the two is a Tortoise (SaaS) versus the Hare (Old School ISV) race.)

Steve:  It’s about driving a long term business, not short term success.  We knew we faced a lot of pain going SaaS, but we wanted to focus on the long-term.

Our first quarter of transition expanded new customers sales faster than ever before.  This was like getting instant feedback that our decision had been a good one, so I’ve never looked back.

What Were Your Biggest Fears About the Transition, And How Did They Turn Out?

Steve:  Our stock cratered and we wondered in the first 6 months.  We replaced all but 2 executives over 9 months.  The only 2 that stayed were the founder and myself.  Nobody else wanted the job.  We had massive changes in sales, support, prod development.  We created a new hosting organization.  We needed a new consulting organization that changed from traditional SI-style consulting to smaller deployments.  Essentially, we started a brand new business.

Our biggest fears:

  • We didn’t know if people would buy SaaS.  Even though customers bought payroll that way from ADP, they weren’t buying anything like what we had.  There was no proof they’d buy software as on-demand.  We did do customer research, but it was a bet.  Our first quarter told it all.  We couldn’t have asked for a better response.  This is why SaaS is doing so well.  It’s cost effective.  The vendor is accountable to the customer.  The customer’s life is easier.  And there is a much lower cost structure.
  • We also had a fear of whether our people could transition.  They had a lot of choices outside Concur.  It was the height of dot com.  Many wouldn’t take the pain.  We lost a lot of folks who wouldn’t do it.  Some were fine to lose and some it was very painful.

Bob:  (You can hear the pain in Steve’s voice when he talks about how hard it was during the early transition.   It’s awesome that they got instant positive feedback from the market, but you wonder what happens to companies that try a SaaS experiment without really committing and don’t get enough instant feedback?)

What surprised you as you moved into the SaaS market that you didn’t expect?

Steve:  We knew we’d do well in the middle market bringing enterprise class services that were unavailable to that market before.  But we didn’t think global accounts would embrace as quickly as they did.  American Express.  BofA.  Alcoa.  They came early.  They thought we had a much better solution than any other choice, including our own on-premises software. 

The other surprise was how things went with sales.  On-demand delivers reduced cash flow versus perpetual.  Initially, we tried to incent our sales orgs to tackle big accounts perpetually to offset the cash flow issue.  Eventually we made comp completely neutral.  Same commission no matter what the customer buys.  We let the customers decide whether to go SaaS or On-premises.  When the sales comp favored On-premises, it was a 50/50 split.  When we made it neutral it went to 99% On-demand versus 1% after comp change.

Bob: (Having been in the incentive compensation software business, I can’t tell you how powerful compensation is as a tool for aligning sales behaviour.  Steve Singh’s example points this out.  His salespeople where swaying almost half the customers to do something they didn’t really want to do because of the comp plan the sales people were on.  CEO’s take note: the next time you want to turn your supertanker company on a dime, think about using compensation to push that turn through faster!)

Do you think SaaS is an inevitable bridge that every ISV has to cross in some form or fashion?

Steve:  Absolutely.  Look at what’s happened in the last 30 years.  We went from mainframes and sky high transaction costs with few users.  Then we went minis.  Lower costs, more users.  Micro/PC.  Web-based On-demand  is the lowest cost structure and most users yet.  It’s inevitable continuation.

Bob:  (It’s a fascinating way of looking at it.  If Singh is right, there’s a lot more action in store for the SaaS world as we go forward!)

Any other advice for those who want to convert?

Steve:  This is just one guy’s prediction.  I don’t believe large companies can make the conversion.  Forget their genetic code.  How many will take the pain?  Companies won’t reinvent themselves. 

Think of taking a $40B company to On-demand.  The value of the business will go through huge negative change.  It will get crushed.  Cash flow will get crushed.  You have to layoff.  The transition is really hard and its very sudden.

If you’re north of $100M its hard.  Over $1B its impossible.

I’d like to compare businesses that have gone through fundamental shifts in the business model.  Very few have done it.  Intel is one.  But for every Intel there are 100 DECs.

You will see a next generation of leaders that don’t look anything like the last generation.  Keep your eye on the SaaS leaders.  Lots will happen there.

Bob:  (I think Steve is probably right, but we’ll see whether a few don’t decide to walk over the hot coals to SaaS anyway.  The amazing thing about SaaS is that it is better for customers and much worse for the incumbent non-SaaS ISV’s.  This is what makes it such a disruptive new business model.  It literally has the potential to completely change the landscape.)

Next?

Check out Part 2, where Steve gives his view on Salesforce, their Force platform, SAP’s ByDesign and acquisition strategy for SaaS companies,.  Part 3 discusses Sales and Marketing for SaaS companies as well as some observations Singh makes on future trends in the SaaS world.  Be sure to click the “subscribe” link at the top left of the blog page so  you don’t miss out on these future posts!

And special thanks to Steve Singh for taking so much time to talk with me for this interview.

Related Articles

To Seth Godin’s point, Steve Singh is the guy that said “follow me” at Concur and converted the company from Seth’s green curve to the blue curve.

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Posted in business, saas, strategy | 17 Comments »

 
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