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SaaS for Very Small Businesses – Show Me the Money

Posted on May 31, 2006 ·

Recently, in  SME / SMB Have Become Obsolete Acronyms I discussed how now, that business software and services have become affordably available to small businesses, the SMB term has become inadequate to describe this market, especially from the software industry’s point of view.  Simply because the needs of a $100M company, which SAP and Oracle consider a “small” business are not even comparable to a 6-10 person company – traditionally referred to as SOHO, while recently a new term is popping up: VSB – very small business, the absolute “S” part of SMB.

Innovators in the software business are increasingly focusing on this segment. The result of this change is that “Enterprise Software” is no longer the luxury of large corporations. This might sound like a shocking statement, since “Enterprise Software” typically means the world of SAP and Oracle, and the traditional heavyweight, expensive, pay-huge-license-fees-upfront, then try-to-implement-forever model that does not work anymore.

But there is another definition that is largely being overlooked: 
Software that allows a company to conduct it’s everyday business, supporting most of the core, fairly standard business processes any company performs repeatedly. 

With this definition, Enterprise Software has a whole new, largely unpenetrated market to enter: that of small businesses.   Such business functionality has traditionally been beyond reach for a typical small business, for two major reasons:

  • Cost (license, hardware, implementation, maintenance ..etc)
  • Lack of IT resources (integrating applications, designing processes, dealing with multiple vendors ..etc)

SaaS  is the right answer for both, since it allows the SMB user to start using the functionality without an upfront investment, does not require implementation, upgrades, maintenance, worrying about backups and security ..etc.  

Of course several Open Source packages are available completely free, which is a perfect solution for the cost problem, but frankly most of these packages are by geeks for geeks; i.e. you really have to be quite IT-savy to implement, integrate, upgrade them, and as we stated most small businesses simply do not have that type of resource. 

Stefan Topfer, Winweb‘s Founder and CEO started an excellent mini-series on Saas Benefits  detailing a lot of technical, delivery, usage aspects – now I am going to look at the changed economics from the other side, the software vendors’ point of view.

If SMB’s could not in the past afford Enterprise Software, the same held true for the Software Industry: they could not afford SMB’s, since there was just no way to profitable reach millions of small businesses.   The cost of customer acquisition vs. the very low license fees made it an uneconomical model, whether via direct or channel sales. A common “dirty secret” of the industry is that about 80% of a an enterprise software company’s cost is Sales and Marketing.  There’s a lot of “fat” in that sales process that needs to be cut out.

Once again, technology comes to the rescue: the Internet, and largely Search Engine Marketing changes everything.  Joe Kraus, Founder of JotSpot and previously Excite sums it up:
“ Ten years ago to reach the market, we had to do expensive distribution deals. We advertised on television and radio and print. We spent a crap-load of money. There’s an old adage in television advertising “I know half my money is wasted. Trouble is, I don’t know what half”.  That was us.  It’s an obvious statement to say that search engine marketing changes everything. But the real revolution is the ability to affordably reach small markets. You can know what works and what doesn’t. And, search not only allows niche marketing, it’s global popularity allows mass marketing as well (if you can buy enough keywords). “

Another benefit of SEM (search engine marketing)  is that while traditional advertising can pick the right demographic groups, it cannot pick the right time, only a fraction of the target audience is in “change mode”, looking for  a solution.  That’s the beauty of Search Engine Marketing: obviously if you are searching, you have a problem and are looking for a solution, which is half a win from the vendor’s point of view.

Small Business Trends published a survey on “Selling to Small Businesses”, which supports the increasing importance of SEM: “A full 73% of vendors attract small business customers through search engine results”

Joe has another excellent article worth reading; especially the last two bullet-points are relevant to our discussion here.

What we’re seeing is that the SaaS model changes not only the technology and the delivery of software to customers, but the marketing and sales process, too, which is perhaps where most of the excess “fat” can be cut from.  Software companies can now directly and affordably reach millions of small customers. The entire marketing,  sales, delivery, implementation, support, upgrade process is seamless, highly standardized, conducted via the Net, teleconferencing, Webex-like sharing in new low-cost ways.

So how do software companies make money on small businesses?   Ziff Davis  has the answer:  “Products for the long tail and SMB market, where 72 million businesses spend $5k or less each year, are a much easier play”  Wow, I don’t know where those numbers come from, but if I were a SME-focused software vendor, I’d certainly like them … there’s a goldmine out there. 

AMI Partners confirm:  U.S. SMBs to Spend $2.2 Billion on Software in 2006

(This article, with minor changes is cross-posted at The SME Blog, where I am a guest blogger)

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Filed Under: Business, Enterprise Software, SaaS, SMB / SME, Software ·
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Web 2.0 in the Enterprise – Round …n.. (I can’t keep track)

Posted on May 26, 2006 ·

Stowe Boyd picks up where Ben Metcalfe left off in Web 2.0 doesn’t work in the mothership, but… essentially recommending that Web 2.0 is best introduced in the Enterprise “in a satellite operation at arms length from the rest of your operation”

While this is often the easy solution, I think a case can be made for the seamless mashup of process- and workflow-centric enterprise applications and the more creative, unstructured, collaborative tools like wikis.  Case in point is JotSpot’s integration with Salesforce.com based on the Appexhange. Granted their target is not the largest of enterprises, but another example I heard of at SAP’s annual conference is the SAP Help Desk wiki by  Socialtext targeting the entire SAP ecosystem.  In any case, I agree that spontaneous, project-focused use is how wikis will become adopted in the Enterprise, but at the same time I believe they should be a logical extension of any Enterprise system – SAP, Salesforce.com are starting to recognize, and I think the day when we’ll have both top-down (enterprise sale as part of the large package) and bottom-up (departmental initiative) penetration is not that far.

But then Stowe goes one step further, and this is where the trouble starts:

“…the larger question — whether the enterprise would be more agile, more adaptive, and more of a survivor is it could somehow break away from the need for slow-to-change applications that span the needs of many departments, beholden to many but satisfying none — has not really been addressed by Ben or the others I am interviewing on the on ramp to CTC 2006….
My gut says yes. Enterprises would be better off if their IT departments could move to small, low cost, web-based apps that satisfy local needs — a project group, one campus in Denver, the marketing department in Japan — without having to subordinate local needs to corporate controls. The benefits of enterprise standardization are measured in the IT budget, but the true costs are distributed thoughout the enterprise: less collaboration in the research team leads to slower innovation, a less-thatn-intuitive UI for the sale staff in France leads to lowered sale numbers, and a heavyweight finance solution that slows down invoicing costs serious bank in collection time.”

Oh, boy. When we’re talking about large multinational corporations, as Stowe does in his example, the primary benefit of standardization and integration is NOT measured in the IT budget. The key benefit is competitiveness, simply being able to conduct business.  Here’s a case study from my “previous life” when I was implementing SAP systems in exactly these types of companies: The Client, a major test and measurement equipment manufacturer had no real-time visibility of their available-to-promise inventory throughout their own plants accross the US and several countries in Asia and Europe.  It typically took them 3 weeks to be able to promise a delivery date to customers. Needless to stay they started to lose business. After the SAP implementation customers could receive the promised delivery date in real-time. For this company the implementation of the standard system was not an option, or driven by IT savings, it was the only way to stay in business.

As a matter of fact, prior to standardizing on SAP the individual plants operated exactly according to Stowe’s ideal model: each doing whatever they wanted, picking their own systems that simply did not talk to each other.

Web 2.0, collaboration is great, it has it’s place in the Enterprise, but so do those “ugly complex” transactional systems.  Don’t try to run your supply chain on a wiki

Update , more than three years later: Would You Manage CRM with a Wiki?

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Filed Under: Business, Collaboration, Enterprise Software, ERP / CRM, Software · Tagged: , , , , , , , , , , , ,
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JotSpot Marries Salesforce

Posted on May 24, 2006 ·

In late 2004 I implemented JotSpot and NetSuite about the same time. The wiki project was a few weeks ahead, and within days of starting with NetSuite it became clear that there are potential areas of overlap between the two. For example we had already started to maintain competitor-, trade association info on the Jot wiki, also managed our marketing and sales collateral there (version control is a lifesaver), and all of a sudden we realized there is a more structured home for this information within NetSuite.

So early on we had to make decisions on what information should live in the wiki or the CRM system, and we took care of the “integration” by cross-linking such pages. As rudimentary this approach was, it worked well, and both being hosted applications we could surf back-and-forth seamlessly .

The experience was an eye-opener to me: all businesses have a need for both structured and unstructured (OK, semi-structured) data management, collaboration, and this means a potentially huge channel for the wiki guys: their product should be a natural extension of all Enterprise Applications (ERP, CRM, Accounting …etc).
These are seemingly two different worlds: traditional enterprise software is process-driven, while the wiki guys consider process dead, it’s all about freewheeling, creative collaboration of independent minds. Well, businesses need both.

Back then we were Jot’s first corporate customers, so I had direct channels to Joe, and recommended him to team up with the likes of NetSuite, Salesforce ..etc. The idea was not a winner, they were busy building their word-of-mouth, bottom-up, quick-signup pipeline, and Enterprise Software appeared to be a strangely different world.
I’m glad to see they have come around, as expressed in Joe’s excellent writeup, as well as their partnering with Salesforce.com. Congratulations!

And to the rest of the Enterprise Software world (my old world): you guys ALL need a wiki.

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Filed Under: Collaboration, ERP / CRM, SaaS ·
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How SAP Ended up Promoting NetSuite

Posted on May 22, 2006 ·

NetSuite, the provider of perhaps the best hosted integrated software solution for the SMB market tried to rain on SAP’s parade during SAPPHIRE 06 in Orlando. They planned to host a cocktail party in a hotel suite right across the Convention Center. The party’s theme was “SAP for the rest of us” and the email invitation posed a question/answer: “Who will become the SAP for the midmarket? (It Ain’t SAP),” Cute.

Of course SAP got p***ed and enforced it’s contractual right to cancel competitive events in any of the SAPPHIRE venues. SAP’s Spokesman Bill Wohl called NetSuite’s move “guerilla marketing“.

Now, what’s wrong with Guerilla Marketing? It’s fun … if you have humor to appreciate it. Last week SAP didn’t. The result? NetSuite CEO Zach Nelson laughed off the “loss” and will hold a web-conference instead. This being a juicy story of course it got picked up in the media and quite a few blogs – the media blitz lasted a few days, then will start again around the web-conference … so basically SAP’s decision to kill the party provided NetSuite with a fair amount of publicity – exactly what it needs as it ramps up for its IPO planned later this year. Zach should send a thank-you note to SAP.

Here’s what I think SAP should have done: let it happen, and set up their own counter-party. Had it been allowed to proceed it would have been a noon-event. Not that NetSuite is a negligible company, in fact they have an excellent product. Some say Salesforce.com is just a glorified contact manager relative to NetSuite, and I tend to agree. (I put my money where my mouth is: in my last corporate job I became a NetSuite customer, after careful comparison to Salesforce). That said, NetSuite is targeting strictly the SMB market, in fact more the “S” than the “M”, while SAP despite all their SMB initiatives is still largely the Enterprise Company – SMB is just not their sweet spot. SAP had their own SMB people in Orlando (I interviewed Gadi Shamia, SVP for SMB Solutions, and intend to write about it soon) – they should have set up their own party right next to NetSuite, and present SAP’s vision for that market segment. In fact they could have embraced the NetSuite event (steal their show) and make up SAP logo’d signs pointing to both events.

The impact of the NetSuite party, especially in an environment where most participants are already biased towards SAP would have been minimal. In fact NetSuite had more to gain from the cancellation and the resulting media blitz then actually proceeding with the party … so much so, that I wonder if NetSuite intentionally leaked the news to SAP – a brilliant PR coup, if you ask me.

Related Posts:

Filed Under: Business, Enterprise Software, ERP / CRM, Marketing / PR, SaaS, SMB / SME · Tagged: , , , , , , , , , , , , , , ,
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SAP Without SAP – Duet

Posted on May 21, 2006 ·

(Updated)
More than a decade ago as Project Manager implementing SAP solutions I could not understand why the Client’s PM showed absolutely no interest in getting SAP-trained, or even attempting to log on to the SAP system. The only software product he ever touched was email. Years passed, and as I climbed the ladder, I found myself in a similar situation: locked in to Office products most of the time – just like millions of corporate employees whose daily life does not involve actively conducting transactions in their Enterprise system (SAP). They need to occasionally review/approve an item or react to an exception alert though. They are the (often management-level) employees who will not directly use SAP, even though timely access to SAP data is critical to their decision-making process – or to somebody else’s daily job.

Thanks to Duet they can now have the SAP data at their fingerprints without touching SAP itself. The long-awaited (and often promised ) SAP-Microsoft Office integration has finally arrived.

What was announced at last years’s SAPPHIRE in Europe as the Mendocino Project became a product, the second preview of which was released a week before SAPPHIRE 06 under the name Duet. Considering Microsoft’s role, just having a friendly name is a major achievement itself – it could have been something as friendly as Microsoft Office Extension to mySAP ERP 2004, Enterprise Version, Release 1.0. (read Microsoft Uber-Blogger Robert Scoble on product naming…)

I’ve seen a presentation of some of the current features as well as the roadmap for the next year, and also had a chance to sit down with Dennis Moore, GM of Emerging Solutions, who provided the blogger group with additonal insight.

Currently Duet (which is a boxed product) supports MS Office 2003 and mySAP ERP 2004, and there are 4 business scenarios available:

  • Leave Management
  • Time Management
  • Organization Management
  • Budget Monitoring

The final release is due in June 06 and will soon be followed by two value packs.

Value Pack 1 is due in Q3 06, new scenarios will include recruitment and travel management, enhanced analytics and support for mySAP ERP 2005, the current platform which, per Shai Aggassi will stay for years to come.

Value Pack 2 is expected in Q4 06 with some line of business functionality becoming available, e.g. Sales contacts, activity, Purchasing. MS Office 2007 will be supported.

It’s important to clarify that Office will not become the primary user interface of the “transactional worker”, i.e. you will not be creating product masters, running a shop-floor, etc. What Duet is, is a natural fit for a workflow (think of roles, limits ..etc) -based processing of messages and underlying data triggered by events, rules and exceptions.

Duet’s importance by far exceeds what the limited number of currently available scenarios might imply: for SAP it means potentially tripling / quadrapling their user base, even if indirectly, and for Microsoft it’s another way to lock users into their Office suite.
Duet is a step in SAP’s declared strategy of opening up access to their data and processes via a number of user interfaces, including Office, Portal, Mobile devices ..etc. It also fits in the “Sap Simplified” philosophy of owning the Business Processes and letting go of the user experience.

I tend to disagree with AMR’s concern on the large number of prerequisites: mySAP ERP 2004 or 2005, MS Office, Exchange server, and specific applications for some scenarios, e.g. E-Recruiting 6.0 for Recruitment Management, mySAP SRM 5.0 for purchasing management and CRM 4.0 for sales activity management. Yes, these are prerequisites, but the point is that even though Duet is a boxed shrink-wrapped (thanks for the comment!) product (I’ve seen a white box at SAPPHIRE, whether real or mock-up), it is not expected to sell as a standalone product on it’s own merits. It will expand access to additional users within corporate customers already using both SAP and Microsoft products, i.e. likely to already have the prerequisites.

Talk about prerequisites, pricing for Duet, and specifically the underlying SAP access will be an interesting challenge, since SAP’s model is typically charging $$$$ a smaller user base, while MS relies on $ from a large number of users – there has to be a model in between.

Not everyone in Microsoft welcomes Duet: the folks at MS Dynamics are clearly unhappy. They even produced a so-called White Paper comparing Duet to their own solution, Snap. “So-called”, because it does not even attempt to be unbiased. It praises Dynamics and Snap, while listing the dry facts about Duet, completely forgetting the fact that as Enterprise systems Dynamics and SAP are really apples and oranges… or I should say Ford vs. Rolls Royce.

IBM isn’t sleeping either: IBM to sing in Harmony with SAP to match Duet. IBM’s Harmony, which I haven’t had a chance to see, claims to play a similar role with Lotus Notes. It clearly is a competitive product, as far as Duet (which is jointly owned by MS and SAP) is concerned – but from SAP’s point of view, it’s just one more user interface, exposing more knowledge workers to SAP. The more the merrier.

Related blog posts:

Update (5/23) : Fellow SAPPHIRE blogger and SAP/MSFT investor Jason Wood posted a very detailed, thorough analysis on his blog – with screen prints and all the bells and whistles. Oh, and Jason – here’s my pick for a famous duo whose duet (pun intended) had an impact on the world. Update (5/30): Here’s an entire new blog dedicated to Duet (well, actually discussing Duet while promoting a 3rd-party solution). Thanks, Vinnie for pointing it out.

Filed Under: Enterprise Software, ERP / CRM, Personal Productivity, Software · Tagged: , , , , , , , , , , , , ,
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SAP’s Vision on the Changing Role of CIO’s

Posted on May 21, 2006 ·

(Updated)
SAP is not a technology company, it’s the world’s leading business process company – says Shai Agassi, President of SAP’s Product and Technology Group.

Niel Robertson, one of the SAPPHIRE bloggers (or the Brotherhood as we’re often referred to) thinks through the consequences in an excellent article, The New Corporate World Order. It’s a very deep, thoughtful post, simply too good to summarize, please just read it. I was trying to find where I heard Shai express similar thoughts, and I realized it wasn’t at SAPPHIRE 2006, but at Software 2006, just a few weeks earlier. Here’s the relevant slide:

The entire presentation, titled Business Process Co-Innovation; “Enterprise 3.0” is available in PDF format here.

Update (5/23): Niel’s original posts created quite a debate, so he reposted the comments here. Wow, comments take over.. this is the real conversation!

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S-type at SAPPHIRE 2006

Posted on May 17, 2006 ·

No, this is not my car…but there is a reason why it’s here .. hold on tight … for the news ..


Update:  Since the news is out, the Jaguar S-type was obviously a reference to SAP’s announcement of CRM 2006s-release – of which I’ll write more soon.

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Filed Under: Enterprise Software, ERP / CRM ·
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SAP’s New On-Demand SRM Offering through Acquisition of Frictionless Commerce

Posted on May 17, 2006 ·

Quick news from the press conference at SAPPHIRE 2006: Shai Agassi has just announced the all-cash acquistion of Frictionless Commerce, a leading Supplier Relationship Management (SRM) software provider. As a result of the acquistion, On-Demand SRM will be the second SaaS offering by SAP, following the recent introduction of On-Demand CRM. Second, but certainly not last, as Leo Apotheker clarified during the Press Conference, over time all SAP’s offering will be made available in the “hybrid” model.

Update: See initial analysis by AMR Research.

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TiEcon 2006: Software Luminaries Panel : The Software Richter Scale: 1, 3 or 7?

Posted on May 16, 2006 ·

Liveblogging the Software Luminaries Panel at TiEcon 2006.  (Note: I am obviously publishing this, as well as other TiEcon posts after the Conference, but will only do very basic editing, and some linking, essentially posting my original notes.   I’ve also deviated from the role of passive note-taker here, as this is a subject where I am somewhat competent, and can’t help but insert my own comments here and there – you will see those in italics.  I invite Panelist, participants to feel free and correct / add to my notes in the form of blog comments. Thanks).

There were parallel sessions run with industry luminaries in ballrooms next to each other. Moderator  M.R. Rangaswami opened on the humorous side: the audience picked the right session, as he peeked into the next room where the Semiconductor luminaries session would take place, and saw a sign there saying “semi-luminaries” 🙂   M.R. is Co-Founder of the Sand Hill Group and host of the recent Software 2006 conference (an annual event).  .

As introduction he uses his Software 2006 slides about  Software’s quiet revolution. Three major realities:

  1. Changes represented by SaaS , Open Source, while CIO’s indicate increased spending on software.
  2. Real business is in the Enterprise (but consumer technologies find their way into the Enterprise)
  3. Thriving ecosystem critical

Panelist(s)

  • Larry Augustin , Angel Investor, Founder VA Linux, SourceForge …etc.
  • Amit Chatterjee , VP Strategy SAP
  • Mark Gorenberg , Partner Hummer Winblad Venture Partners
  • Jason Maynard , Research Analyst Credit Suisse
  • Zach Nelson , President and CEO Netsuite
  • Sanjay Parthasarathy , Corporate Vice President Microsoft Corp. (Chief Evangelist of Microsoft Church)

Starting with a few canned questions for warmup, then taking audience questions.

Question:  Will there be a billion-dollar software company in SaaS? 

Jason:  Yes, Salesforce, NetSuite to begin with.. Client-server, on-premise screwed customers, overpromised, underdelivered. SaaS will be huge, it has barely  scratched the surface so far. 

Mark: Agrees.  Hummer Winblad did 12 pure-play SaaS investments. SaaS is most disruptive.  Siebel was the uncontested market leader and the appearence of Salersforce.com killed it. (I can’t help but insert my own opinion here: Sure, Salesforce squeezed Siebel from the bottom up, but two other factor were just as significant in their demise: the “overpromise, underdeliver” syndrome, i.e. customer dissatisfaction after expensive and lengthy projects; and the fact that SAP that already owns the Enterprise market significantly improved their own CRM  offering, and the integrated approach offers a better value proposition to their customers then the standalone Siebel CRM-only solution).  

Sanjay: We’ve already seen billion-dollar  SaaS companies:  eBay and  Google, just not in Enterprise.

Amit:  SaaS by itself is not a business model… for larger organizations hybrid models work better …with increasing process complexity and integration requirements there is a need for a mix of  on-demand and on-premise solutions.

Question specifically to Zach: Larry Ellison (Oracle CEO, owns over 50% of NetSuite, which is expected to pull off a billion-dollar IPO this year) stated that SaaS is only for SMB’s not for large corporations. Is that so?

 Zach: He is generally trying to avoid speaking for Larry. (They clearly have an interesting relationship, Larry has to be somewhat anti-SaaS, and Zach can’t really get into a public debate with his absolute majority owner. It seems to me that Larry is betting on two horses at the same time)  Nobody will switch software because they want to, or because SaaS ismore fashionable. First and foremost customers have a functionality challenge, which the software company has to meet.. Functionality is the primary consideration, and the delivery model supports it.

Sanjay:  We shouldn’t be talking about software as a service, it’s actually software + service.

Mark: A number of companies are selling to both small and large organizations. What’s exciting is that this is the very first time when medium sized companies can get the same functionality as the large guys! ( I tend to think the same is true for small businesses, in fact that may be an even more radical change, and it’s a mistake that analysts often only think of the midsize market when they speak SMB )

Jason: Disagrees with SAP’s Amit on the notion of need for hybrid.  Software needs to become a utility.  There is no room for innovation in most corporate  IT budgets, 80% of which is spent on running the infrastructure.  Let go of thee server!  I know it’s hard …it’s your baby … you may get visitation rights at your SaaS provider:-) (huge laughter at audience)

MR  makes a comment/question on recent high-profile outages in the industry, largely at salesforce.com but elsewhere, too.

Zach: Not all delivery models are created equal.  Sforce runs on “big iron”, (find article here) while Netsuite opted for a grid-like system based on cheap boxes. When a salesforce.com server goes down, it effects the majority of customers,  when NetSuite loses a box, a maximum of 50 customers are effected. This setup  also helps rolling out new versions smoothly, in a phased fashion,  while  Salesforce.com has to do it in “big bang” style.   Zach predicts Salesforce moving to a grid-like environment soon.

Larry: It’s about ease of adoption.  Software has become a lot easier to create, it’s acquisition is a painful process, and that’s the part that SaaS improves.

Sanjay: Service orientation helps picking best-of-breed solutions, mix and mach. The current trend of consolidation in the industry is actually contrary to it.

Amit: SOA is critical, some services in the cloud, others in the enterprise. 

Zach: Picking composite applications to mix and match is difficult, especially as business processes get more complex.. Composite transactional  applications are a fantasy –  far to difficult to synchronize.  Example: Microsoft CRM and Great Plains are hard to synchronize, even though MS owns the code for both.  Integrated transactional systems are unbeatable – that’s why SAP owns the Enterprise.

Question:  Consolidation, Oracle acquisitions .. getting bigger and bigger – is there room left for innovation?

Larry: Oracle is buying since it’s not doing a great job of innovation itself.  Startups have the benefit of new distribution mechanisms, SaaS, Open Source, user base helps them.

Amit: Lot of room for innovation by partners id they participate in verticals.  He “only” has 6000 developers, cant cover the whole world.(audience laughter)  Larry interrupts: I’d like that problem, I have 12. With 6000 how can you NOT cover the world? (even bigger laughter). Amit: Citibank has more developers then SAP.

Question about data privacy, Security. 

Zach: Especially for small, midsized businesses NetSuite’s security is better than running on local server next to coffee machine. 

Larry: Security is still a huge  unsolved issue.

Sanjay: The real data challenge is mashing structured and unstructured data. 80% of corprate data is unstructured  without business processes: xml is the glue. 

Larry: Html amplified the problem of huge amount of unstructured data, the future will be to move to have data in xml and html is just the presentation.

Question: Are there profitable SaaS companies?.  Sforce is barely profitable.

Mark: Salesforce.com is barely profitable, .Rigthnow is making decent profit,  employees (?_) is largely profitable.

Jason: Many are profitable,  SaaS lowers the cost of distribution – there is price elasticity in the market.  SaaS also helps reducing R&D, support costs – salesforce only needs to support one version, SAP, Oracle multiple ones.

Zach: When he joined NetSuite their sales model was direct. Now with success ecosystem develops.  Typically start with direct, build customer base, then ecosystem develops.

MR‘s comment/question: Software 2006 had a panel: Open Source: money machine or money pit? 

Larry: Open Source is a young model, there can not be a lot of profitable companies yet,  Red Hat beng an outstanding example.  On $10M in R&D Salesforce.com spends 100M in Sales & Marketing..  It’s cheaper to create software then sell it > Open Source helps eliminating the huge sales costs.

Jason concurs,  sales is 80% of cost.  Enterprise Software companies don’t make a lot of profit on software sales, their profit comes from maintenance.  Smart Open Source companies jump out of this expensive sales cycle and focus on support only.  They will increase botttom line while reducing top line.

Larry:  There is also a culture change: people did not understand software, they had to be educated and had to pay for that education.  Now everyone is computerized, carries a PDA, cellphone ..etc.  This means the  education need is reduced, good opportunity for Open Source’s pull model.

Question: SAP , MSFT will you be giving away your products free? 

Sanjay: Fuzzy answer on giving away software and promoting distribution. 

Amit: Support, explore Open Source, but not fully embrace.  SAP does not have the distribution channel that MS has. SAP needs to build ecosystem.

Question:  Will MS look into buying SAP?  Tried. Jason: pragmatic approach: it won’t happen, if for no other reason, the fight with the  EU..

Question: What Open Source opp’s exist? 

Mark: Recently made two investments into companies that develop applications for the lamp stack.  Issue: IP ownership, integration.  Sales issue: agree with the Open Source effect on lead generation, but how to close sales?  What happens when you move to markets that people don’t understand?

Question: any Open Source  companies to go public?  

Jason:  Potentially MySQL.  Markets pay 10-times sales, 30-times cashflow. Fewer, but better , more sustainable companies.

Question (more a remark) on SAP’s new compensation plan. Hasso Plattner recently  announced he is aiming at doubling the market, if they achieve that, the top 100 execs will make 100’s of millions.  Is that a realistic objective? 

Amit: The announcement certainly helps: -) but the true driver for growth  is product innovation.  

MR askes the panelists for their final remark

Mark: We’re in the greatest disruptive times. Hummer Winblad invested more in the past few years than in the previous 17..

Sanjay: Software industry does not spend enough time with users. 

Larry: Fantastic time to be a software entrepreneur.  Small team , little $, reach to market – not possible 10 years ago

Zach: It’s a great time to start a software company, when you do it, remember  you need a great application to run the business. (audience laughter; good plug for NetSuite …possibly the last one before going into pre-IPO silent period?)

Amit: Customers matter. SAP needs to focus more on the ecosystem.

Jason: MS announced spending additional $2B on emerging areas. Look at areas they are spending… go in those “white spaces”, since  they are good in seeing the  opportunities, but can’t exploit them properly.

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Filed Under: Bay Area, Business, Enterprise Software, ERP / CRM, Open Source, SaaS, SMB / SME, Software, Startups, Technology ·
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SVASE VC Breakfast with Will Price, Blogger, Hummer Winblad Principal

Posted on May 15, 2006 ·

The SVASE  VC Breakfast Club session I’ll be moderating on Thursday, May 25th in San Francisco will be somewhat exceptional: this will be the first time pitching entrepreneurs get to know the VC closely prior to the event.  That’s because Will Price, Principal at Hummer Winblad Venture Partners is an active blogger himself.  His recent post Questions to Ask is a must-read – but I really don’t want  to pick one post only: if you plan to attend the session, do yourself a favor and check out his blog (and if you don’t come to our breakfast, it’s still worth reading)

That said, my standard pitch:  The VC Breakfast is an informal round-table where up to 10 Entrepreneurs get to deliver a pitch, then answer questions and get critiqued by a VC Partner. We’ve had VC’s from Draper Fisher, Hummer Winblad, Kleiner Perkins, Mayfield, Norwest,  Trinity, Mohr Davidow, Emergence Capital …etc.

These sessions are an incredible opportunity for Entrepreneurs, most of whom would probably have a hard time getting through the door to a VC Partners.   Since I’ve been through quite a few of these sessions, both as Entrepreneur and Moderator, let me share a few thoughts:

       

  • It’s a pressure-free environment, with no Powerpoint presentations, Business Plans…etc,  just casual conversation – but it does not mean you should come unprepared!   
  • Bring an Executive Summary –  some VC’s like it, others don’t.   
  • Follow a structure, don’t just talk freely about what you would like to do, or even worse, spend all your time describing the problem, without addressing what your solution is.   
  • Don’t forget “small things” like the Team, Product, Market..etc.   
  • It would not hurt to mention how much you are looking for, and how you would use the funds…   
  • Write down and practice your pitch, be ready to deliver a compelling story in 5 minutes.  You may have more time, but believe me, whatever your practice time was, when you are on the spot, you will likely take twice as long to deliver your story.   
  • Last, but not least, please be on time!  I am not kidding… some of you know why I have to even bring this up. As a matter of fact, our host, Deloitte & Touche specifically asked participants to allocate an extra 5 minutes to get through building security.

For event details check the  Zvents post  and remember to click through to register – there are only 10 slots and this one will sell out early!

See you there! Zbutton

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Filed Under: Bay Area, Blogging, Business, Enterprise Software, SaaS, Social Networking, Software, Startups ·
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