THINK IT Services

On October 25, 2006, BT announced its intent to acquire Counterpane Internet Security, a pioneer in the managed security services (MSS) market.

This is the second major acquisition of a managed security service provider (MSSP) in the past 90 days. The previous acquisition was of ISS by IBM. It is also the second acquisition of a managed service provider (MSP) by an offshore player following Cognizant’s acquisition of Aimnet Solutions in September.

While most people view BT as a major carrier, it is also a major outsourcer. So, its acquisition of Counterpane, along with IBM’s acquisition of ISS, indicates that the major outsourcers now view managed services in general and MSS in particular as a critical component of their portfolios going forward.

I perscribed this approach in a NetworkWorld commentary earlier this year. At that time, I suggested the major outsourcers had to devise a means of downsizing their services to overcome the high failure rates of their traditional outsourcing agreements and provide a more palatable alternative to their prospective customers.

Although carriers originated the concept of managed services back in the 1980s when they offered a set of specialized management services to their largest customers, the carriers have struggled to package and deliver a broader portfolio of managed services aimed at a larger cross-section of small- and mid-size businesses (SMBs). Buying rather than building managed service capabilities may be a better path to success, but most acquisitions fail to achieve their original business objectives.

Counterpane monitors 550 networks worldwide for multinational and Fortune 100 customers, BT’s target market. By acquiring Counterpane, BT not only gains solid security capabilities and skills it also gains a foothold in the U.S. where it has failed in the past to build a strong presence. The acquisition also puts BT at the epicenter of the U.S. technology industry in Silicon Valley where it can build relationships with other important players.

The acquisition leaves only a handful of independent MSSPs with any significant market presence. One of the remaining firms worth keeping an eye on is Perimeter Internetworking based in Milford, CT. Perimeter has been growing rapidly through a combination of acquisitions and targeted marketing aimed at specific verticals such as the community banking industry. The company’s acquisition campaign has enabled it to grow from a regional to national player.

As the Software-as-a-Service (SaaS) market gains momentum, SaaS providers are trying to differentiate themselves in the increasingly competitive marketplace by repositioning themselves as ‘platform’ vendors rather than point-solution providers.

Salesforce.com has gained the most attention moving from a product to a platform position with the success of its AppExchange and the unveiling of its new Apex programming language.

This week, NetSuite responded by unveiling a new platform of its own, SuiteFlex, to expand its presence in the SaaS market. While Salesforce.com’s partners have primarily focused on expanded the array of horizontal applications that can be linked together on the AppExchange, NetSuite’s SuiteFlex initiative is aimed at delivering a new generation of vertical market applications.

The SuiteFlex platform is built upon NetSuite’s SuiteScript programming language, which was unveiled months before Salesforce.com’s Apex, but has generated little attention or support. NetSuite is enhancing the SuiteScript language with Suitelets, SuiteTalk, SuiteScript UI and SuiteBundler.

NetSuite is hoping its expanded portfolio of programming tools will attract a larger number of industry-specific partners to create a new ‘ecosystem’ of vertical market, industry-oriented solutions linked to NetSuite’s core products.

The first round of enlistees include Explore Consulting, IT-Ration Consulting, Epiphany, Kuspide, Marketworks, Onsite Technology, Skyytek Worldwide, Demand Solutions Group and Ncompass Business Solutions.

While this is a good start, NetSuite universe of partners is still just a fraction of the size of Salesforce.com’s AppExchange.

In order to match Salesforce.com’s success, NetSuite will have to intensify its marketing efforts. And instead of complicating the world with its new “Service as Software” campaign, NetSuite will have to clearly demonstrate that the SuiteFlex platform can generate real, tangible benefits for customers and partners.

(This is a lesson that IBM is still learning with the failure of its vain attempt to differentiate itself with its lame ‘Software as Service’ banner.)

As more companies launch free, ad-based, online services, the debate about their long-term effectiveness grows. Two Software-as-a-Service (SaaS) companies have recently unveiled new, innovative approaches to circumvent the controversy and create new value for customers and sponsors.

The debate revolves around two quesitons. The first question is whether customers will take advantage of these services if they have to put up with a user-interface cluttered with banner ads or search engine listings. The second question is whether the services will generate enough qualified leads for the sponsors to justify the marketing expense.

Klir Technologies is an on-demand IT management solutions vendor which is offering a free, on-line performance measurement service to enable enterprises to improve the reliability of their data center operations. Rather than simply include a Google search engine which produces a listing of potentially competitive IT management solutions, Klir unveiled in September its Analytics 3.0 Beta service which is being financed by a growing array of content providers who are supplying ‘best practice’ information users can leverage to better interpret and act about the data generated by Klir’s service.

In addition to providing users with greater value, Klir’s new service turns the traditional vendor/publisher relationship upside-down. In the past, vendors paid to advertise on publishers’ websites. Now, publishers are adding their links to Klir’s website to drive traffic to their sites.

Today, BlueTie unveiled a free online email and calendaring service which could also disrupt the traditional ad-based approach. The company is enlisting a variety of partners, including Orbitz, who’s on-demand services will be integrated into BlueTie’s already robust business-class webmail and calendaring capabilities. Using patent-pending programming, BlueTie’s new service suggests third-party services based on the user’s activities.

For instance, when a user makes a calendar entry for an appointment in another city it will prompt an alert from Orbitz offering a list of the available airline flights, hotels and car rental services for that destination. ‘Mashing up’ BlueTie’s online calendar with Orbitz’ online travel services not only reduces the number of clicks a user needs to make in order to fully prepare for each appointment, it also creates a new online transaction relationship.

In both of these cases, the SaaS vendors have admitted to me that they are uncertain what proportion of users will convert from the free services into full subscribers of their on-demand services. But, they are confident the new business models they have created could generate sufficient short-term revenue and long-term value to make them self-supporting.

These are just two examples from a rapidly growing array of innovations which are clearly demonstrating that SaaS isn’t about offering cheaper on-demand substitutes to traditional on-premise applications. Truly innovative SaaS providers are creating onlines services which redefine the way users perform their day-to-day work and reshape the way business partners structure their relationships.

If the center of the Software-as-a-Service (SaaS) universe is the San Francisco Bay area, then one of the satellite galaxies to keep an eye on is Dublin, Ireland.

I was invited to this amazing city by Enterprise Ireland, the high-tech arm of the country’s economic development authority, to serve as the keynote speaker and moderator of a one-day symposium regarding the SaaS movement. As in the case of IDG World Expo’s SaaScon event in September, I was pleased to also help Enterprise Ireland formulate the agenda and recruit the speakers for the SaaSie seminar.

I got my first taste of Ireland’s unique culture, and its potential to become a hotbed for SaaS, the evening before the event when a scheduled dinner among the event speakers quickly grew into a enthusiastic gathering of local software entrepreneurs and executives thirsting not only for a Guinness but for insights about the true meaning of the SaaS movement.

Much like Ireland’s overall society, the country’s software industry is a tightly-knit community where everyone seems to know one another. And, much like the country as a whole, Ireland’s software industry is riding an economic wave fueled by foreign investment and participation in the Economic Union. These forces have transformed Dublin into a young, vibrant and exciting city, and the broader Ireland into a more modern and upbeat country.

Despite the ever-present threat of rain, the positive economic climate spurred over a hundred people to attend the SaaSie event. The audience was primarily composed of business executives from new and established software companies interested in learning more about the rapidly evolving SaaS market.

I kicked off the event by providing an industry overview aimed at helping the attendees better understand the forces driving today’s SaaS opportunities and the key challenges facing companies attempting to capitalize on the SaaS movement.

I was followed by Bobby Napiltonia, SVP Worldwide Channels and Alliances of Salesforce.com, who outlined the key principles which have shaped the company’s phenomenal success, and its new initiatives which were unveiled at Dreamforce aimed at allowing Salesforce.com users to customize their on-demand apps. But, much of Bobby’s talk centered around the benefits of Salesforce.com’s AppExchange, the partner ‘ecosystem’ which is at the heart of its channel and alliance program.

Nick Blozan, SVP of Sales and Marketing at Opsource and the Chairman of the SIIA SaaS Executive Council, talked about the service delivery infrastructure requirements for SaaS and suggested that the aspiring SaaS vendors leverage third-party service providers to address their operational needs so they can focus their internal resources on developing unique SaaS solutions.

Conor Halpin, the CEO of LeCayla Technologies, described how the pay-as-you-go revenue model associated with the SaaS market is generating greater price/earning (P/E) ratios for the leading, publicly-traded, on-demand software services companies than traditional, perpetual license software vendors. He also warned attendees that in order to benefit from these higher valuations, companies will not only need to set the right price points for their SaaS solutions but also implement effective methods and mechanisms to provision, meter and measure usage.

Justin Floyd and Kevin McGirl of SmartFundIT.com and the SaaSfoundation.com discussed the parallels between the leasing arrangements that helped to finance the growth of the computer hardware market and innovative on-demand financial services today that are funding the SaaS subscription pricing model.

Steve Korn, an independent consultant who served as the Client Delivery Executive responsible for EDS’ outsourcing contract with General Motors Asset Management and Treasurers Office, talked about how SaaS is gaining acceptance in large-scale enterprises as a viable solution to address compliance and risk management issues.

The morning presentations were followed by a lively roundtable discussion in the afternoon that enabled the attendees to ask about specific pitfalls to avoid in developing and delivering their SaaS solutions, and ‘best practices’ to adopt in order to take full advantage of the growing opportunities in the on-demand software market.

The response to the event was very positive. Many attendees said they have seldom been to a session which contained as much usable information and insight. As a consequence, I am very confident that a variety of Irish software vendors will use the SaaSie event as a stepping-stone for joining the SaaS movement, and Dublin will become the home of an important ‘ecosystem’ for on-demand software services.

The convergence of the managed services and software-as-a-service (SaaS) markets came into focus again recently when Everdream and Verizon unveiled new offerings and alliances aimed at covering customers’ desktop management needs.

As I’ve suggested previously on this blog, the line of demarcation between managed services and SaaS can be fuzzy. In fact, there are many who use the terms interchangeably. I tend to differentiate them this way–managed services are those offerings in which vendors/providers assume responsibility for performing a management function, while SaaS gives the customers the functionality to perform a management task themselves.

This distinction becomes blurred when the vendor/provider offers both options to its customers. BMC is an example of a vendor offering both managed services and SaaS solutions to its customers in addition to its traditional packaged software.

Everdream illustrated how the managed services and SaaS worlds are rapidly converging by announcing a new alliance with Salesforce.com at the Dreamforce conference. Under the new alliance, Everdream’s Asset and Desktop Management capabilities will be available via Salesforce.com’s AppExchange, the company’s online/on-demand clearinghouse of fully integrated third-party applications.

The alliance gives Salesforce.com’s customers and partners real-time, one-click access to hardware and software asset information to more rapidly troubleshoot and resolve IT incidents. It also gives them greater visibility and control over their desktop and laptop computers, regardless of location. Users will be able to more easily perform remote access, patch management, software distribution, virus protection, and online backup management.

While Everdream extended the reach of its desktop management SaaS solution via its alliance with Salesforce.com, Verizon announced it is extending the scope of its managed services to cover desktops and peripherals. The new desktop services are an extension of Verizon’s managed infrastructure and application services. The new services include remote and on-site hardware repair; operating systems and software application support; hardware/software moves, adds and changes; hardware imaging; asset management and recovery; patch management; antivirus updates and anti-spyware.

Verizon claims its new management services have been established in response to growing demand from customers seeking strategic sourcing companies that can cover their infrastructure, application and desktop management needs. Cognizant made a similar claim when it acquired Aimnet Solutions in September.

Verizon also admitted to me that its desktop management services will not be the “lead” into new accounts, but a method of expanding its footprint within existing accounts or as an added weapon in competitive bid situations with companies such as IBM, CSC, EDS, Getronics and other major IT outsourcers.

Everdream and Verizon’s moves demonstrate that the desktop, along with related peripherals and mobile devices, is becoming an important battleground for both managed service providers (MSPs) and SaaS vendors.

One of the common myths about Software-as-a-Service (SaaS) solutions is that they can’t be customized to meet the specific needs of individual users.

I’ve always felt that this, and many other concerns about SaaS, was unfair because there is a growing number of SaaS providers, as well as an ‘ecosystem’ of third-parties, offering a variety of open source alternatives, application protocol interfaces (APIs), meta-configuration options and integration services which address the customization issue.

Salesforce.com–the spiritual leader of the SaaS movement–has made the latest and most dramatic effort to dispel the customization myth.

At its Dreamforce 2006 conference in San Francisco earlier this week, Salesforce unveiled Apex, a new multi-tenant programming language and platform that enables customers, partners and developers to manipulate the company’s code, triggers and stored procedures. They will also be able to leverage the programming language and platform to create their own custom components which they can add to Salesforce’s AppExchange directory, the most vibrant partner ecosystem in the SaaS industry.

Some industry observers and software vendors reacted to Salesforce’s new initiative negatively either by questioning the extent of its customization capabilities or raising suspicions about its ulterior motives to usurp the position of third-party application providers.

I’ve always been more inclined to listen to customers’ views about vendor announcements. And in this case, the response was overwhelming positive. Salesforce CEO Marc Benioff said in his introductory remarks as he unveiled Apex during the opening keynote session that the company is responding to escalating demands from its customers and partners to permit greater application customization capabilities. Approximately 5000 Dreamforce attendees responded with enthusiastic applause to the Apex announcement and demo. And, the positive response among customers didn’t subside during the 48 hours that I wandered the various breakout sessions.

Lending further support for the growing success of the SaaS movement was a customer panel organized by Bluewolf Group that I was privileged to moderate. The breakout session was entitled “Redefining Integration: The End of the Black Box.” The panelists were from Dow Jones, Standards & Poor’s, R2 Technologies and LivePerson. They all leveraged Bluewolf’s “integration as a service” to successfully pull together data from multiple legacy systems and databases into their new Salesforce applications.

The positive energy also permeated the AppExchange Partner Expo from the opening Sunday evening welcome reception through the happy hour networking session on Tuesday evening. Some Salesforce partners confided to me that they are keeping an eye on the expanding feature set of the SaaS leader’s online application to make sure it doesn’t engulf their value-added capabilities. But, they also acknowledged that the AppExchange is far and away their best channel-to-market and business development mechanism.

NetSuite and other aspiring SaaS leaders are trying to counteract Salesforce’s latest move and prevent the company from gaining too broad a foothold on the SaaS marketplace. While these Machiavellian maneuvers are understandable, I believe these companies would do themselves and the SaaS movement more good by directing their energies on the shortcomings of the established independent software vendors (ISVs) and their legacy applications–the common enemy of the SaaS movement.

Sibling rivalies only get in the way of proving to the mainstream market that SaaS is not only a viable alternative to legacy applications, but a far more valuable business solution because of its real-time, collaborative qualities.

Some critics will say Salesforce wins because of the boldness of its marketing style as opposed to the soundness of its actual solutions. I saw an arena full of Salesforce customers, ranging from non-profits to multi-national brand-name corporations, smiling in San Francisco because they are no longer suffering with the typical hassles associated with traditional software applications.

So, hats off to Salesforce for continuing to push the SaaS movement forward.

Putting things into perspective–On Wednesday Google unveiled a beta version of Google Docs & Spreadsheets that may not spell the demise of Microsoft’s Office suite, but takes another bite out of the company’s traditional business model.

And while the Dreamforce lovefest was happening in San Francisco, Steve Ballmer of Microsoft was facing some harsh questioning at Gartner’s Symposium/ITxpo in Orlando about the company’s SaaS strategy. His best line was, “We may not be first but we’ll keep working and working…”

Based on the number of Microsoft application and business development people attending IDG World Expo’s SaaScon conference earlier this month, I’ve become a believer that Microsoft is taking SaaS seriously.