Tag: software Page 3 of 4

Making money from SaaS

On November 22, 2008

Internet Cash Machine

The core promise of SaaS is that it will help you deliver services more efficiently. Instead of trying to manage software projects (which can easily get expensive and out of control) a company can outsource non-core development and deploy an SaaS solution almost instantly. In the current economic downturn many people have been watching SaaS vendors closely to see whether they struggle or thrive. On paper they are cheaper and allow businesses to focus on their core strengths, but would companies shun the risk and element of change in uncertain times?

There have been a few earnings announcements over the last couple of months that are proving the SaaS backers right. Salesforce is the biggest ‘flag bearer’ for SaaS solutions, and it has exceeded analyst expectations and posted a 43% revenue increase from the same quarter last year. The good news doesn’t end there however. Concur, Taleo, RightNow and many other SaaS providers are also posting record quarters.

Islands of Computing Power

By Scott Savage

On September 4, 2008

In Microsoft, software

Amit Mital kicked off TechEd Australia 2008 today with a keynote presentation on Microsoft’s view of how software and services will develop in the future, particularly in relation to their new Live Mesh offering. There is a good summary of his presentation on the TechEd New Zealand site, it seems they got an identical opening keynote. For someone who loves networks he sure doesn’t seem to like professional networks!

There was one flow of logic which struck me in his speech. Moore’s law is still holding true, and computer hardware is continuing to double in processing power every 18 months. This computer power is also appearing in more and more locations. But when was the last time your network doubled in speed? What about doubling in speed to each additional node? This rapid processing power increase has meant two things that are obvious even today:

Computers are islands of computing power – There is no seamless transfer of data between your devices. You work on a file at work, email it home, download it at home, work on it and send it back.
Deploying local machines is too hard – Each branch office needs a rack, servers, backup, redundency, configuration, support, licencing…

Microsoft’s solution at a high level is the Mesh stack, the structure of which can be seen in the slide shown here. The fundamentals are that local software is fast, hosted services are convenient, so lets tie them together with an API and we get the best of both worlds. The trick is getting the balance right, where does a local application end and the service begin? How do you split the business logic? How do you provide offline access and quick sign-on to new devices? Hmmm…

Microsoft’s current practical solution is to re-write most of its server packages to allow hosted delivery. Hosted Exchange is an obvious flagship for this. Google have taken a different approach. They believe that all you should need on your desktop is Chrome, essentially an all-purpose thin client rather than a thick client on a drip feed.

So who is right? Well I am betting things will converge on a middle of the road approach. Implmenting with current technology I would say that javascript, a web browser and some sort of XML interface would be the best way to go. A few things need to develop from here:

API’s need to be standardised and built into the browser (or OS as these merge). Something like Javascript libraries, but compiled, lightening fast and highly reusable. Chrome is getting there.
Data transfer needs to be better than XML. Think highly compressed, encrypted on the fly, but quickly decoded into a human readable format if necessary. Microsoft’s MeshFX is getting there because it has authentication and other services built in, but it needs to be open like SOAP.

So I guess the race is on! Google will take Javascript to it’s limits, Microsoft will try to blow us away with it’s feature set. When will they sit down and standardise on the next generation of javascript and data format?

Costs of deploying SAAS

By Scott Savage

On August 28, 2008

In Business, software

SAAS is a cheap delivery model right? Well it depends if you are a technical or a business oriented person. There was a very interesting article on Business Spectator today regarding the costs of deploying SAAS software.

One of the most interesting statistics for me was that Salesforce.com (one of the few genuinely profitable SAAS success stories) spends half its revenue on sales and marketing. When I think about it it makes sense, but I guess coming from a technology background it isn’t something that I would have initially thought of. The scary thought that comes after this is what percentage of revenue is taken up once you include support as well? The even scarier one is are you really achieving scalability if these represent the vast majority your costs?

As the article points out, there are three economic fundamentals:

How much it costs to attract new customers (known as subscriber acquisition costs)
How much money can be extracted from those customers in regular subscriptions (known as “average revenue per user”, or ARPU)
How often subscribers drop out and have to be replaced (the churn rate)

For point 1 I think SAAS companies still rely on their old mantra that the SAAS model generally is still struggling for widespread momentum. I think this still holds true, but perhaps these days more because of the costs of migration and training rather than lack of market acceptance or knowledge. The sales and marketing costs are therefore quite high as they are pulling lagging and inflexible customers into what is now a competitive market place with low barriers of entry.

These low barriers of entry tie into the last two points. Companies can theoretically treat SAAS software like they would their telephone company and switch at any stage. This means that new entrants can come in and undercut the established players, keeping subscription revenues down across the board.

The interesting part for me is that online classifieds is somewhat like the SAAS model. It relies on subscriptions and has a low barrier to entry. Why are they so profitable then? I have a few ideas:

A new twist on the established classifieds model, rather than a whole new model
Industry maturity leading to a consolidation of players (and profits)
The difficulties in targeting consumers online

To be honest I really feel like I am missing something here. Can anyone help?