THINK IT Services

The most recent issue of Forbes magazine has a scathing article questioning the financial returns being generated by venture capital (VCs) firms.

This article will encourage many institutional investors who serve as the VCs’ limited partners (LPs) to look elsewhere for places to invest their monies.

A broad-based abandonment of the VC community by these LPs will make it doubly difficult for entrepreneurs to find funding in 2009.

Many VCs will be forced to put a moratorium on new investments, others will refrain from making additional investments in current portfolio companies, and some will shut their doors entirely.

Combine the poor track record of many VCs with the downright mismanagement of individual and institutional investments by hedge funds and private equity firms who funneled monies into Madoff’s ponzi scheme, as well as the virtual shutdown of the IPO market, and the prospects don’t look good for funding opportunities in 2009 for privately held companies.

This could significantly slow the growth of the Software-as-a-Service (SaaS), cloud computing and broader on-demand services market.

SaaS, cloud computing and on-demand services companies with strong prospects will still find funding. For instance, Aria Systems (a THINKstrategies client) recently won a new round of funding from Venrock.

However, weaker companies will have a hard time surviving in this more challenging economic climate.

THINKstrategies is pleased to announce the launch of its new “Market Leaders” webcast series which showcases companies who are delivering innovative, on-demand solutions to meet the rapidly changing needs of large-scale enterprises, as well as small- and mid-size businesses (SMBs).

Our webcasts differ from the traditional, structured webinar format by combining the candid, unscripted, conversational qualities of podcasts with the visual benefits of online presentations.
As the producer and host of the Market Leaders webcast series, my goal is to provide a more interesting and engaging discussion with senior executives of companies who are in the forefront of the on-demand market. The webcasts will be pre-recorded, archived and 20-30 minutes in length so you can view them whenever fits your busy schedule.

In our first webcast, we examine how the rapid growth of the on-demand market has created new operating challenges for entrepreneurs and established software vendors who must implement more robust systems to manage and track customer transactions from procurement to provisioning in a highly dynamic environment.

In this webcast, I talk with Steve Booth, VP of Business Development at Aria Systems, about how he sees this transaction management issue evolving, and the Monetization Maturity Model which Aria has developed to respond to this important challenge. Click here to view this webcast.

I hope you find this webcast valuable and welcome your feedback regarding our approach to this new series. You can also click here to read THINKstrategies’ whitepaper about the transaction management challenges and opportunities in the on-demand services market.

Please contact me if you’re interested in learning more about Aria Systems, THINKstrategies or this webcast series.

Maybe a measure of the Software-as-a-Service (SaaS) movement’s success is the growing attention billing systems are now getting from a variety of sources.

Last week, Jamcracker unveiled its new WebStores which will provide front- and back-end service delivery infrastructure, billing and settlement, customer administration and support services for traditional channel companies who want to add on-demand applications to their existing software, hardware and service portfolios.

Today, OpSource announced that it has acquired privately-held and Dublin-based LeCayla Technologies, a provider of billing and customer on-boarding software for SaaS and Web-based applications, to strengthen OpSource’s Web application delivery platform. (Click here to read THINKstrategies’ 2006 profile of LeCayla, or listen to my 2007 podcast with LeCayla’s CEO, Conor Halpin.)

These are just the latest moves by a widening array of players who are offering storefront solutions to make it easier for SaaS vendors to sell and customers to buy their on-demand solutions.

My friend and colleague, Phil Wainewright, recently posted a blog examining Amazon’s DevPay billing and account management service aimed at making it easy for developers to get paid for applications they build on Amazon Web Services.

Why all the attention on a mundane topic like billing?

Now that SaaS is gaining broad-based market acceptance and adoption of SaaS-oriented solutions is accelerating, SaaS vendors are becoming more concerned about how to properly charge for their services and track customer usage.

But, billing for on-demand services isn’t like billing for traditional products. Unlike the static nature of traditional products, on-demand services is a high-transaction and highly dynamic business with lots of moving parts, such as varying packaging options and pricing schedules, never mind variable usage rates and measures. On-demand service providers, including SaaS vendors, are discovering that this business requires a sophisticated billing engine to successfully process transactions.

Most on-demand service providers, especially start-up SaaS vendors, cannot afford to build these kinds of systems themselves. They are operating in a highly competitive environment in which price sensitivity and customer abandonment are a constant concern. They have to focus their energies and limited financial resources on developing superior solutions rather than worrying about front- and back-office operations. So, they are looking for turnkey billing and customer management systems from third-parties which can be easily adopted and economically administered.

In response, SaaS platform players are extending their portfolios beyond software development tools and partner ecosystems to include billing and customer management systems.

Salesforce.com recognized this need and business opportunity in 2006 when it unveiled its AppStore idea. Although its announcement was among the first at the time, the company has said little about this capability since preferring to emphasize the broad-based capabilities of its Force.com platform.

Others are now stepping into the void with their own solutions. Specialists like Aria Systems are being fortified by VCs. eBay may direct some of its vast payment processing capabilities toward the SaaS market. And, traditional payment processing players, like AmEx and MasterCard, might move into the market via acquisition.

As the SaaS market matures, the winners will be those companies which have the most efficient and effective transaction management systems, as well as the strongest SaaS offerings.

Last week’s second annual SIIA On-Demand Conference was a bellwether for the state of the Software-as-a-Service (SaaS) industry. Rather than being composed of the usual suspects of SaaS speakers—Salesforce.com, Microsoft, etc.—the event included an interesting mix of prominent players and start-ups who clearly demonstrated that we are well beyond the ‘why SaaS’ stage and deeply into the ‘how’ phase of this important movement.

The event opened with a packed house of over 300 attendees, many with senior executive titles, and a relatively new name to the SaaS market presenting. Donald Proctor, the Senior Vice President of Cisco Systems’ Collaboration Software Group kicked off the event promoting its vision of the next wave of inter-office SaaS solutions based on WebEx’s collaboration platform which Cisco acquired in March 2007.

Although I might suggest that this wave of inter-office SaaS solutions is well underway and the acquisition slowed WebEx’s Connect ecosystem efforts, Proctor’s SIIA presentation was a clear indication that the networking company plans to put its shoulder firmly behind a renewed campaign to establish WebEx as an important platform for SaaS developers and corporate customers.

Erik Larson, Director of Marketing and Product Management for Adobe Systems’ Business Productivity Business Unit followed the Cisco presentation with Adobe’s stance regarding corporate collaboration via SaaS solutions. He demonstrated Adobe’s enabling technology for SaaS applications, and described its vision for a web-based future.

My colleague, Phil Wainewright, moderated a customer panel which included a cross-section of large (Chevron) and small (Pacific Northwest Economic Region Tourism Division) organizations leveraging SaaS to achieve their business objectives. While their views were timely, Phil and I had hoped to recruit enough customers to fill two panel sessions rather than just one. However, SaaS providers are still having trouble convincing their customers to publicly endorse their solutions in this fashion.

I had the privilege of moderating a panel regarding integration challenges consisting of representatives of Boomi, Informatica, Interweave and Pervasive Software. They all boasted about their individual approaches to delivering integration on-demand and admitted that there is still plenty of customization required.

Three of the most interesting speakers presented on the second day of the conference.

Dr. Werner Vogels, the Vice President and Chief Technology Officer of Amazon.com described how his company has commercialized its internal operations platform to support SaaS companies’ storage and service delivery infrastructure requirements. In my view, Amazon has single-handedly resurrected the utility computing concept, and has made it work for a growing assortment of SaaS vendors and other business users. As a result, Amazon now looms as a major force in the on-demand marketplace, not just as a channel to market but also as an enabling vendor.

Jason Maynard, the software industry analyst for Credit Suisse and the strongest advocate of SaaS on Wall Street, suggested that on-demand solutions could create a new level of value which he called “Software as an Answer”. His concept reinforced the views I’ve espoused in my writings and consulting engagements that SaaS provides an unprecedented opportunity for vendors to aggregate, analyze and distribute data based on application usage patterns and statistics. This data can be used for benchmarking, marketing, sales and operations purposes. It can even create new business opportunities for entrepreneurs.

Anthony Lye, Senior Vice President of Oracle’s CRM OnDemand division, gave the SIIA audience a preview of the company’s new generation of SaaS solutions which will be unveiled at this week’s OpenWorld conference. They include an impressive user-friendly interface which borrows heavily from the best of the Apple iPod Touch, combined with a robust set of social networking and mash-up capabilities.

The most important message from Lye is that Oracle’s enhancements are not aimed at satisfying the needs of small- and mid-size businesses (SMBs), but to meet the growing demands of enterprise customers. This echoed Proctor’s presentation on behalf of Cisco. This shouldn’t be surprising given the recent partner agreement between Cisco and Oracle. Oracle’s PR machine will undoubtedly generate a stream of third-party endorsements of its new on-demand capabilities as part of its OpenWorld festivities, such as today’s announcement of an integration with Xactly.

These were important proclamations for a market where SaaS is too often viewed as a simpler and cheaper solution for SMBs alone. (A misconception reinforced by a recent statement by SAP.) Instead, Oracle and Cisco are confirming my longstanding view that SaaS offers unique capabilities which fit the escalating demands of an increasingly decentralized and financially strained enterprise market.

Ironically, some of the attendees who had not been to previous SIIA events lamented the conference was too focused on the enterprise. While I understand their frustration, I still believe the seriousness of Cisco and Oracle’s efforts to climb onboard the SaaS bandwagon will further legitimize this movement. This will lend greater credibility to SaaS as a viable alternative to traditional, on-premise legacy applications. In turn, SaaS will become that much more attractive to SMBs as well.

However, the SIIA conference also demonstrated that industry best practices regarding service provisioning and delivery, integration, support, sales and marketing are still embryonic. An example of the risks which the SaaS market must still withstand was the extended outage suffered by NaviSite. And an indication of the growing focus on service provisioning was the announcement by Aria Systems as the SIIA conference convened that it had closed a $4.0 million Series A financing round led by Hummer Winblad Venture Partners.

While Salesforce.com and its Founder/CEO/Chairman, Mark Benioff, get most of the attention and credit for setting the standard for the Software-as-a-Service (SaaS) movement, OpSource and its Founder/CEO, Treb Ryan, have done more than their share to evangelize the business benefits of SaaS and educate the software industry about the steps to success in this market.

Treb saw the opportunity to differentiate OpSource from the floundering hosting business by focusing on a nascent SaaS marketplace early. The company asserted itself as the “SaaS Experts” by establishing a professional services arm which helped aspiring on-demand companies understand the business of SaaS. It also initiated an aggressive marketing campaign in 2005-2006 which included an incubation program, countless webinars and the SaaS industry’s first conference, the SaaS Summit.

The company used the occasion of its second annual SaaS Summit in Monterey, CA, this week to unveil its new portfolio of SaaS enablement capabilities. Borrowing a page from Salesforce.com’s AppExchange platform strategy, OpSource 2.0 includes a similar platform approach with a set of SaaS tools and services which harness the technology and skills of its ecosystem of partners.

OpSource 2.0 is built on an Optimal Services Bus (OSB), a service-oriented architecture that permits on-demand applications which run on OpSource’s Optimal On-Demand platform to leverage additional OpSource and third-party components.

The first of these components is Optimal Insight, based on Visual Mining graphical dashboarding capabilities, which will give SaaS companies an integrated, real-time view into the business and operational performance of their on-demand applications.

In April 2007, OpSource will introduce Optimal Billing, an end-to-end billing, payment and collections processing capability, built on Aria Systems’ billing and payments system.

Later this year, OpSource will roll out Optimal Research, which will give SaaS vendors the ability to conduct user surveys, and test marketing and sales promotions.

OpSource’s goal is to provide SaaS vendors a complete, Web-based development environment to build and deliver successful on-demand applications.

The company may not be able to match the physical resources and financial assets of the larger players in the market, but that hasn’t stopped it from becoming a pivotal player and important catalyst in the SaaS industry.

A measure of OpSource’s importance in the SaaS industry has been the size of its Summit gatherings, and the stature of the speakers and attendees at these events.

If Salesforce.com and Mark Benioff are setting the standard for boldness in the SaaS industry, OpSource and Treb Ryan aren’t far behind.